ANALYSIS OF THE IMPACT OF FISCAL FEDERALISM AND REVENUE ALLOCATION FORMULA ON ECONOMIC DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

Entrepreneurship, as associate degree rising field of study and as a district of human endeavour, has received increasing interest of researchers, academicians and policy manufacturers in the entire globe. It’s equally angry controversies over its thought and definition. Entrepreneurship is seen as a good means that not solely of combating state, financial condition and under-development within the developing nations, however conjointly as a technique for speedy economic development in each developed and developing nations (Schumpeter, 2011; Musician, 2011; Morris & Lewis, 2011; Hamilton, 2012; Clausen, 2008; Praag & Versloot, 2007). Naude (2011) contends that world development is getting into a part; wherever entrepreneurship can additional play a more vital role. He adduces three reasons for this development. the primary is that the non-market economy of the Seventies – 2012 within the West, characterized by reliance on business and production, and has given thanks to a supposed entrepreneurial economy, wherever knowledge-driven merchandise and services and additional flexible provided by smaller incentive category. Secondly, spectacular growth within the rising economies, notably Brazil, Russia, India and China, has been driven by innovative entrepreneurial revolution. Thirdly, within the least developed countries, wherever dependency is high, donor agencies are shifting stress in development cooperation towards personal sector development. Naude (2011) attracts the conclusion that entrepreneurship can contribute to growth and employment creation in advanced, rising and least developed economies alike. The role of commercial banks in the development of entrepreneurship is vital to economic developments. It is acknowledged that the availability of financial capital is a pre-requisite for rapid development. Since efficient management of scarce resources are best facilitated by financial institutions. It therefore follows that banks have vital role. Things they do to small and medium scale enterprises among others by making their vast financial resources available for financial and promotes developments. The peculiar circumstance which characterized the situation of under-development which make this role more pertinent. Nigeria is characterized with low level per capital income.

There are also disparities in the distribution of income as well as variations in savings propensities at different level of income. Quite often the relief from the handicaps is the best provided by banks. The quest for economic development to ensure overall improvement in individual well-being of citizens has been the preoccupation of every nation. The process involves a number of approaches. One of these is the adoption of an industrialization strategy at a point in time relevant to the prevailing needs of development. Developing countries are under much pressure in this regard because of their general peculiar features. Among these features include; The concentration of high proportion of the population in agriculture, often ranging between 40 and 90 per cent in some countries; The prevalence of disguised unemployment in agriculture and high levels of unemployment outside agriculture; High population growth; Low level of savings and capital formulation; High level of technological dependence on the advanced countries; Evidence of ‘economic dualism’; Inadequate provision of such infrastructures as good roads, pipe-borne water, electricity and telecommunication; General poverty of various dimensions; Poor credit and marketing facilities; Generally low output per head; Low per capital incomes with an associated highly uneven distribution of incomes; Rural-urban migration; and Generally low standard of living. In fact, many developing countries have attached high priority to the industrial sector in their developments plans possibly as a result of their attraction to many development theories that have cared-for see industrialisation because the entree to modernization. Nigeria, like several of them, had on gaining political independence, adopted import substitution as her industrialisation strategy. This could not be stunning, as a result of when of nowadays, most of the advanced countries area unit wealthy as a result of industrialisation.  Industrialisation portends tons of disadvantages in fashionable economies. Incidentally the past polices and techniques didn’t generate independent growth mostly due to their preference for the institution of enormous scale corporations to the harm of little and medium scale enterprises resources (human and material), song mostly idle within the face of mounting issues. Since the Seventies, therefore, developing countries are compelled, within the face of those issues, to appear for different approaches to development. One among these approaches has been redirection of efforts and encouragement of little and medium scale enterprises (SMEs). Entrepreneurship is acknowledged to have huge potential for employment generation and wealth creation in any economy. Yet in Nigeria, the sector has stagnated and remains relatively small in terms of its contribution to GDP or to gainful employment. Activity mix in the sectors is also quite limited dominated by import dependent processes and factors. Although there is no reliable data, imprecise indicators shows that capacity utilization in the sector (SMEs) has improved perceptibly in the period since 2014, but the sector is still faced with variety of constraints with lack of credit convenience because the principal constraint. Credit is that the largest part of risk within the books of most banks and failure within the management of credit risk, by weakening individual banks and in some cases the banking industry as a full, have contributed to several episodes of economic instability. A larger understanding of the character of credit risk, resulting in improved measure and management, would facilitate to strengthen the international financial set-up moreover because the entrepreneurship within the long. Associate increasing quantity of analysis on credit risk is being disbursed inside monetary corporations, central banks, regulators and universities.

1.2 STATEMENT OF PROBLEM

In spite of continuous policy strategies to attract credits to the entrepreneurs, most Nigerian entrepreneurs have remained unattractive for bank credits supply. For instance, as indicated in central Bank of Nigeria (CBN) reports, almost throughout the regulatory era, commercial bank’s loans and advances to the SMEs sector deviated persistently from prescribed minimum. Furthermore, the enhanced financial intermediation in the economy following the financial reforms of the 1986, credits to SMEs as a proportion of total banking credits has not improved significantly. Afolabi (2013) asserted that one of the problems faced by SMEs operators in Nigeria is that government does not give chance or consider them when making policy in which priority is given to large organizations. This makes financing the main constraining factor to SMEs growth and hinders their potentials for enhancing economic growth in Nigeria.  Consequently, many SMEs in the country have continued to rely heavily on internally generated funds, which have tended to limit their scope of operation.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine an evaluation of bank contribution on entrepreneurship development in Nigeria. Other general objectives of the study are:

1. To examine how entrepreneurship can be developed through the intervention of the banking sector.

2. To examine the extent at which banking sector gives loans for the development of entrepreneurship.

3. To examine the impact of bank contribution on entrepreneurship development in Nigeria.

4. To examine whether the loan/credit facilities given to the entrepreneurship development are being used efficiently.

5. To examine the relationship between bank contribution and entrepreneurship development.

6. To examine if proper monitoring of loan facilities by bank management will effectively develop entrepreneurship.

1.4 RESEARCH QUESTIONS

1. How can entrepreneurship be developed through the intervention of the banking sector?

2. To what extent can banking sector gives loans for the development of entrepreneurship?

3. What are the impacts of bank contribution on entrepreneurship development in Nigeria?

4. Are the loan/credit facilities given to the entrepreneurship development being managed efficiently?

5. What is the relationship between bank contribution and entrepreneurship development?

6. Will proper monitoring of loan facilities by bank management effectively develop entrepreneurship?

1.5 RESEARCH HYPOTHESES

H₀₁: There is no impact of bank contribution on entrepreneurship development in Nigeria.

H₀₂: There is no significant relationship between bank contribution and entrepreneurship development.

1.6 SIGNIFICANCE OF THE STUDY

This study will highlight problems associated with the contributions of commercial banks in development of entrepreneurship in Nigeria. It will give information on the possible areas for improvement. Furthermore, the study will help commercial banks to assess their role in financing small scale industry in Nigeria. Moreover, suggestions and recommendations made in this paper will help policy makers formulate new economic policies to maintain or modify the existing one. It will equally serve as a guideline to researchers who may wish to research this study in the future. It will also help entrepreneurs to make sufficient preparation in their request for credit assistance. It will guide the entrepreneurs in making credits demands that are in compliance with government monetary policy. This study will be of significance to monetary authority, policy maker, government, academia and the general public. The findings of this study will help government and the monetary authorities to see the effectiveness of monetary policy in the management of the Nigerian economy interns of credit demand and supply to entrepreneur which have a spill over effect on Nigeria economic growth. This research work further serves as a guide and provides insight for future research on the topic and related field for academia’s and policy makers who are willing to improve on it. The study will also contribute to knowledge by appraising the impact of bank contribution on the growth of entrepreneurship in Nigeria.

1.7    SCOPE OF THE STUDY 

The study is based on an evaluation of bank contribution on entrepreneurship development in Nigeria: case study of GTB Nnewi, Anambra state.

1.8 LIMITATION OF STUDY

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Commercial Bank: A financial institution that acquires deposit from savings, surplus unit and give out loans to savings deficit units.

Entrepreneurship: entrepreneurship could be described as an act of how, by whom and with what effect opportunities to create future goods and services are discovered, evaluated and exploited (Scott and Venkataraman, 2012).

Entrepreneurial Development: This refers to every activities channelled towards creating and advancing the practice of entrepreneurship (Osemeke, 2012).