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PROJECT TOPIC- SPECIALISED FINANCING SCHEMES WITH A FOCUS ON NATIONAL ECONOMIC RECONSTRUCTION FUND (NERFUND) (1989 – 7998)

PROJECT TOPIC- SPECIALISED FINANCING SCHEMES WITH A FOCUS ON NATIONAL ECONOMIC RECONSTRUCTION FUND (NERFUND) (1989 – 7998)

 

ABSTRACT

The commercial and merchant banks 3:;: origrnally meant to provide business financing in any economy. The~er fforts wei e to be complimented by Development banks. However, in developmg ec~nomieslr ke Nigerian economy and even in-some so called developed economies there may be some companies that find it difficult to source their finances from the organised ‘inancial markets -the banks. This could * be due to some operational disabilities ctn their part which could be size, age especially untested companies and -those associated with high risk nature of business.
Government the world over feel that to address their peculiar needs of financing they should establish specialised financing schemes for the purpose of facilitating access to funds for such types of companies. The Nigerian government has over the past years introduced a nutnber of specialised financing programmes. The primary objective 1s to help the vcdnerable g oup of industrialists (small and medium scale enterprises) which experiences cliffic ulty in attracting long term funds from trdditional sources, and to facilitate the flo v of credit to the priority sectors of the economy.
In recognition of the SME’s potential benefls as well as problems encountered, the government has played a lead role in encouraging their proliferation. Facilities or schemes set up by the government to promote SME’s include the World Bank Assisted small and medium scale Enterprises, the export stimulation loan, the Family Economic Advancement programme and National Economic Reconstruction Fund.
Based on the above mentioned line of thought, this research work was focused on operations, achievements and constraints, prospects of NERFUND since its inception in 1989.
The main objective of this research wwk is to ascertain the level to which NERFUND as a specialised finai-1c;irig sch..?me has made funds accessible to the SME promoters. Also to be determined is the extent in which NERFUND enhanced industrialisation and development of indiger ous technology. It will also evaluate the extent the scheme has contributed in solvir\g the problem of unemployment in the Nigerian economy. The area of coverage i~cludeth e activities of the scheme since 1.989 to 1998 and its impact across the country. The significance of  this study is that it will form a basis for further research on this line of study. To ensure the reliability and validity of this study result, a convenient sample of 270 questionnaires made in two sets – (200 to the SME promoters and 70 to the financial institutions involved in the NERFUND programme) were distributed. 195 or 72.2% success of the respondents was recorded. The study revealed that over 20,229 jobs are created directly while 80,500 other persons are indirectly employed through institutions, firms that have one relationship or the other ~ i t h!!E WLfiiZ ilnanced projects, and commitments made to 535 approved projectslindustries across the ccmtry so far. . The author employed empirical research riethod and used tables, pie charts and diagrams in data presentation and analyiis. Also adopted in the analysis and hypothesis testing was percentage rate of Fuccess on the respondents response to hypothesis questions in the questionnaires. The author recommended that the ~ederal should make it mandatory for all small and med~um scale enterprises seeking loans from NERFUND to be quoted on the Nigerian Stock Exchange (NSE) through the Second tier Securities Market (SSM) to ensure transparency and accountability. The SME’s should also be allowed to enjoy tax rebate for employDnent generation and tax holiday. The Federal governnient should rest the prot~lerno f SME promoters loan repayment exchange rate by treating all NERFUND lozn approvals as non-commercial, that is, government transactions whlch enjoy the cc ncesslonary 22 to US$? exchange rate rather be treated at autonomous foreign e, change market (AFEM) rate.
Given the focus of the NERFUND, the lexibility in the implementation of the scheme and the support of International fin; ncial institutions, NERFUND constitutes a critical channel in the promotion of SME’s and consequently in the industrialisation of the country.

CHAPTER ONE
1.0 lMTRODUCTlON

 

I.1 BACHKGROUND OF THE STUDY

Under normal situation, business financing should come from the original financial market, that is, the commercial and mercl- ant banks, coupled with the services of Development banks operating in any co mtry’s’ financial market. Howev.e r, in developing economies and even in some sc called develope~economiesth ere may be some companies that find it difficult to s.)urce their finances from the organised financial markets. This may be due to soml2 operational deficiencies or fisabilities on their part arising from the following combination of factors:- -Age especially untested companies
-The nature of their operation -high risk and slow growth companies.

Such companies naturally have and so are handicapped for funds. Government the world over feel that to address their peculiar needs of financing they should establish specialised financing schemes f t~trh e purpose of facilitating access to funds for such type of companies The federal Government of Mgerla has ove .the past years introduced a number of specialised financing programmes. The programmes constitute an integral part of the national economic recovery programme . The primary objective is to help the vulnerable group of industrialists (small i ~ n dm tedium scale) which experiences difficulty in attracting long term funds from traditional sources.

Another general objective of the programrnls is to facilitate the flow of credit to such priority sectors of economy, like the export sector, which are under-funded by banks because of their specialised and risky r~ati.ire The focus on small and medium scale enterprises (SME’s) is predicted ori their impact and contribution to a diversified productive base as,well as their catalytic effect in achieving macro object~vess uch as employment generation, diffusion of 4 economic power and promotion of indigenous technology.

PROJECT TOPIC- SPECIALISED FINANCING SCHEMES WITH A FOCUS ON NATIONAL ECONOMIC RECONSTRUCTION FUND (NERFUND) (1989 – 7998)

 

An SME has been defined by CBN in its 1388 monetary policy Guidelines No. 22 for the purpose of loans as one not exce3ding 2,000,000, in capital investment (exceeding the cost of land) or as one witt- maximum turnover of 4,000,000. Small and medium scale enterpr~sesa re pa titularly more conducive to the creation of more jobs per unit of Na~ra~ investment,l Ian large enterprises. It is a nursery of entrepreneurial and managerial talent. Through a network of intricate linkages with large scale enterprises, they are capable of enhancing a broad production base.

As important as they are in the development process, their actual contribution has been less than adequatb, owhg to vr?lricus institutional constraints as well as problems inherent in them. In particular, SME’s are characterised by problems of under capitalisation, high rate of business failure, shortage of skill, poor accounting standards and restricted access to big markets. The se proMems restrict their access to institutionalised credit. To alleviate the problems on SME’s the Federal government, since the early 1960’s has introduced various measures to encourage their proliferation. Measures to boost SME’s have been stepped up o\’er the years, with increased emphasis placed on them by the present and past Administration.

The president, in his 1988 budget address stated that not only art1 SME’s “capable of generating more employment per unit of capital input, they p-ovide the best chance of industrialising our rural areas. “Also General Abacha in his 1997 budget to the nation stated that his government will institute a scheme- Fan lily Economic Advancement programme (FEAP) “through which the government will exploit the potential of the rural communities so as to improve their economic life through productive activities.”.

In recognition of their (SME’s) potential benefits as well as problems encountered by them, the government gas played a leading role in encouraging their proliferation. Facilities schemes set up by the government to promote SME’s include the world Bank Assisted small an’l medium scale Enterprises, Apex unit loan scheme, the Export stimulation loan (ESL)scheme and the Family Economic ~advancement programme (FEAP) Each of these facilities or. schemes has a great potential for promoting SME’s and indeed many SME’s have been able tc utilise them. Based on the aforementiohed line of thoughts, the focus of his project shall be on the NERFUND (National Economic Reconstruction Fur d), one of the specialised financing schemes introduced by the government thrx~ghth e NERFUND Decree No 2. o f 9th

PROJECT TOPIC- SPECIALISED FINANCING SCHEMES WITH A FOCUS ON NATIONAL ECONOMIC RECONSTRUCTION FUND (NERFUND) (1989 – 7998)

 

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