LOAN SYNDICATION AS AN ALTERNATIVE TO BUSINESS FINANCE IN NIGERIA.
ABSTRACT
Lack of fund has been one of the major problems militating against the progress and growth of our business organizations. This is caused by a lot of factors such as low savings (Vicacious Circle of Poverty), Ignorance of the Public to invest, mismanagement etc. There are many ways of solving the problems of Finance and Providing adequate finance to our business organizatios such as equity stock, savings, ploughing back profits, but for the purpose of this research, we have to pay attention to loan and loan syndication.
TABLE OF CONTENTS
CHAPTER ONE:
1.0 Introduction
1.1 The Purpose of the study
1.2 Significant of the study
1.3 Scope of the study
1.4 Limitations of the study
References
CHAPTER TWO:
2.1 Definition of Syndicated Loan
2.2 Forms of Syndicated credit finance
2.3 Procedures for Syndicating a loan
2.4 Methods of Syndicating loan
2.5 Advantages of Syndicated loan as financing alternative
References
CHAPTER THREE:
3.1 Sample Size
3.2 Sources of Data
3.2.1 Secondary Sources
3.3 Location of Data
3.4 Method of analysis
References
CHAPTER FOUR:
4.1 Summary of Findings
References
CHAPTER FIVE:
5.1 Recommendation
5.2 Conclusion
CHAPTER ONE
1.0 INTRODUCTION:
The relative insufficiency of funds for capital investment is a common factor in every economy especially in developing countries like Nigeria. In every developing country, the low level of capital investment manifest in high unemployment rates, low productivity and corresponding low standard of living for greater majority of the population.
Finding a solution to this problem of providing fund for capital investment has been a major Pre-occupation of financial institutions in Nigeria. Beyond the traditional term loan, share offers, bonds and so on, business organizations and financial institutions alike have sought out avenue to tackle the problem of insufficient fund for capital investment. One of the solutions they have come out with is syndicated fund or multiple credit facilities, which is aimed at spreading risks and weakening the impact of respecting laws and regulations on lending by financial institutions.
Syndicate has been defined as an association of industrialists, or financials or banking consortium forced to carry out some industrial projects.
Accordingly, loan syndication is basically defined as an agreement between two or more leading financial institutions to provide a borrower with credit facility utilizing common loan documentation.
The spectacular growth of loan syndication as an alternative financial instrument for business organization occurred as a response to several economic factors in Nigeria.
Notable among these are:
- The National Industrial Policy of 1989 which is aimed at:-
* achieving accelerated pale of industrial growth in Nigerian economy.
* The introduction of structural adjustment programme in 1986, culminating in the establishment of Naira, this made imported machinery and equipment very expensive and requiring huge capital outlays which most companies or financial institutions cannot comfortably afford.
Also, the study of the extent to which business organizations in the country employ syndicated loan as an alternative financing means with particular reference to Anambra, Rivers and Enugu States respectively, has been carried out in this study.
1.1 THE PURPOSE OF THE STUDY:
The purpose of this study includes inter – alis;
* An examination in general terms of the various issues involved in loan syndication.
* To find out whether loan syndication is really a new approach to or another form of borrowing.
* To synthesize the merits and demerits of syndicated loan financing vis – a – vis other sources of medium and long term financing both by cost and condencenless.
* To survey the extent and prospects of loan syndication business in Nigeria, analyzing critically the role of business organizations and financial institutions.
* To find out whether or not loan syndication can help in industrial development of the country, especially under the current economic situation.
* To examine the extent of penetration of syndicated loan financing among business organizations in the country.
1.2 SIGNIFICANT OF THE STUDY:
The attention of the researcher was drawn by the need for loan syndication in Nigeria especially in the area of providing the borrower with credit facilities. This becomes obvious that will be a need to grant study that could examine loan syndication as it affects the investment and capital project outlays.
Therefore, the significance of this study is to look into ways of making it easy for financing a capital project, which requires a syndicated loan, and also to encourage financial firms to jointly finance project, which one financial firm cannot single – handedly finance. It is hoped that after this study.
It will be useful for every bank especially those in merchant banking and development banking. It will also provide information to general public on how to employ loan syndication as an alternative business financing.
This work is expected to be of immense values to the students in financial studies and other related courses mostly Accountancy, Banking and Finance and so on, since this is part of what they are going to practice in their various place of work.
Lastly, it will help the public and government and other institutions to formulate suitable policy that will guide them in financing a big projects jointing with other financing firm.
1.3 SCOPE OF THE STUDY:
The areas these research covered include practically the method through, which business organizations source for their fund especially in terms of loan from a group of financial institutions such as Commercial Bank, Merchant Bank, Insurance Companies, Development Banks and Non-Financial Institutions like the government thrift societies friends and relatives.
The study will also focus on the different classes of loan that exist in the financial institutions notably long term loan, medium term loan and short term loan.
1.4 LIMITATIONS OF THE STUDY:
The first limitation which was obvious is the death of statistical data. Lack of statistical data from our financial institutions like Central Bank of Nigeria (CBN) Ministry of Finance including Commercial and Merchant Banks where the researcher visited to collect list of corporations they have financed through syndicated loan adhered strictly to the rule of secretly in banking, thus they refused to release such information.
Another problem is the time constraint. A research of this nature need relatively long time during which information for accurate or at least near accurate inferences could be drawn constraint to the researcher.
Lastly as the cost, the researcher would have extended the survey to other states at other empirical level and this would have produced accurate and more comprehensive work but for other huge cost of transportation and accommodation in other various states of the federation. It is not possible.
REFERENCES
The National Industrial Policy of 1989.
The Introduction of Structural Adjustment Programme 1986.
Orjih John (1996) Elements of Banking, Enugu Rock Communications page 66.
Orjih John and P. Okafor (2005) Financial Institutions page 116.
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