CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Every developing nation’s development depends on the private sector of the country. The small and medium scale enterprises contributes immensely to the development of the nation in terms of taxes to the state, provision of quality goods and services to the larger public at a comparatively reduced prices as well as its contributions to poverty alleviation. Many of the small and medium enterprises in Nigeria face many challenges, but the most significant among them is that of financing decision of their operations. Different governments in Nigeria have tried at different times to assist these enterprises in addition to assistance given by other development partners and foreign donors yet the challenges have remained unresolved. This therefore, renders these upcoming organisations with no option than to run to financial institutions for assistance. Going to those financial institutions also brings new phenomena for these SMEs. Pandey (2010) in his study on financial management in India opined that MFIs and other financial institutions are required to develop a credit policy to govern their operations. In the same light, the author noted that, given that MFIs obtain their revenue from interest accruing from advancing credit facilities to low income persons, the loan repayment may be uncertain. Also, Ditcher (2003) in his study advised that the success of lending out finances is based on an extensive appraisal of the risk of extending such facilities and also the characteristics of the borrower. It is lamented that lending decisions by all these financial institutions are more often than not based on the subjective feelings regarding risk in relation to repayment by the borrower. The MFIs in its justification of employing this appraisal is that it is both simple and inexpensive (Horne, 2007). In China, banks look to put emphasis on deposits than the borrower’s capability to settle up the loans in terms of interest rates. In 2006, the Indian governments splintered down on two large micro financial institutions subsequently to suicide of slightest sixty of their consumers who were in stress to repay loans on high interest rates. This rise in deceptive movement, ensuing in some cases to company failure with disastrous effects for shareholders, employees and other stakeholders has brought into sharp focus on the importance of interest rates. Such interest rate will not only reduce the frequency of loans borrowed within companies, but also facilitate bank management to deal with quickly changing economic investment, shifting customer demands and priorities, and restructuring for future growth. In effect, interest rates are utilized to maintain the company on the course of profitability goals, achievement of its surprises along the way. In Africa, most small businesses fail to pay the credit they borrow from banks in the first year, this due to high interest rate from bank regulatory authorities. It has been the main objective of Nigerian government to achieve high rate of economic growth that would lead to high economic growth and reduce poverty level. This could be achieved through improvement of micro, small and medium enterprises (MSMES) output indicates the ability of an economy to increase and diversify the production of goods and series with stock of capital and (equity/debt) and other factors of production within the economy (Idowu, 2010; Akingunola, 2011).
1.2 Statement of the Problem
The effects of Bank of Industry lending on Micro Small and medium enterprises output do not present a bright future. Upon government policies on the stability of Nigerian economy through, micro, small and medium enterprises (MSMES) output despite the establishment of Bank of Industry (BOI) as one of the government policies to stabilize micro, small and medium enterprises (MSMES) by increasing the size of long term loans to (MSMES) and reduce rate of interest, a lot of problems seem to have persisted. Some of the problems are the inability to get loan (Gloria & Cosol, 2011) high interest rate charges by financial institutions (Adnan, 2010) corruption and ineffective economic policies, Gbosi (2007) Mismanagement of fund which reduce rural-urban development (Odebiyi and Olaoye, 2012) and insufficient infrastructural facilities such as electricity, good road, network and good pipe borne water in Nigeria (Idowu, 2010). Bank of Industry’s inability to impact positively on the micro, small and medium Enterprises output in Nigeria no therefore calls for investigation.