CHAPTER ONE
INTRODUCTION
The role of credit facilities in any modern economy can not be over emphasized. This could be best appreciated when it is realized that the rate of development of the economy would be showed down without credit, lack of credit is often the greatest single impediment to the growth and diversification of most industries (bolt small and large) in Nigeria first bank 1997. Further more, the availability of credit facilities influence what is produced and how much of each product is produced Bank-lending serves as a major avenue for resources allocation. This is by mobilizing credit from surplus economic unit (Orji, 1997) it allows for the survival of the debtor of maintaining resources. This helps the two parties to optimize their position, because creditor obtains returns for parting with their resources, while debtor makes profit on the resources borrowed. The function of credit derived from the fact that individual and firm on their own have very limited resources to carry on the activities of production, commerce and development of nation economy lending discourages accumulation of sterile money as available capital is full utilized (Nwanchukwu, 2008). This is especially important in a developing economy like Nigeria and particularly in this period of economic recession and political long Jam where foreign investors are scared to invest in crises prove environment.
The increase in the involvement of banks in the domestic economy as a result of the Nigeria enterprise promotion degree of 1973 (popularly known as the indigenization degree) and the amendment made in 1975 have result in the emergence of various sector looking into the commercial bank and other financial intermediaries as the sources of find to finance their project (Owosho, 2002). A total of N4268.1million credit was granted by commercial bank at the end of June 1977 as compares to the N242.7million granted in December 1968 more importantly increasing shares of these loans and advances have been persistently channel away from less preferred factor (General commercial and consumption loans) to the preferred sector of the economy manufacturing, mining, construction and agriculture (CBN Bullion, 2003). According to credit guidelines a minimum of 50% of loans and advances of commercial banks should be made available to the preferred sector (Business time 1988). Lending aids the credit of money that is in the process of lending commercial banks credit money; they create a liability in form of demand deposit against themselves in favour of the debtors (first bank 1997). This money created by commercial bank to the money supply which help in stimulating the level of economic activities in various sector of the economy lending bellows flexibility on payment structure and consequently on the economy.
The lending through bank and other financial institution involves the collection of liquid funds not currently in use and placing them through its ending activities at the disposal of persons, institutions and government in need of liquid funds to elect payment of different kind (Drucker, 1964). This way, those with enterprise kill and know-how without personal wealth who find it extremely difficult to acquire control of production assets will find a saving grace in the use of credit facilities or lending, therefore, their rave and invaluable human ability will not waste (Funess, 2005). Agene (2004) notes that lending can be used as a powerful instrument by monetary authorities to turn the economy abound depending on what they want or intend to achieve most fluctuation in the flow of credit can have large consequences on the price level employment and the rate of economic growth for instance. In order to reduce the rate at which commercial bank grant loans and advances to their respective customer, Agene (2004) says that the central bank have a crucial role to play in achieving macro-economic objective of full employment potential growth and output and price stability. On the other hand, this can also be raised to curb excessive borrowing and hence reduced inflation. From this fore-going, it is obvious that layman’s view of bank lending is only in term of cash loans and overdraft granted to a customer is too narrow in view of the phenomenal develop0ments which as been taken place in the field of finance, banking, commerce, industry and general economic activities of modern society.