Problems of Business Finance In Nigeria

Problems of Business Finance In Nigeria

Most of the problems encountered by average business in Nigeria are finance centered and this has nosedived or spiraled into other problems as highlighted below:

1. Inadequate Funding and Financial Service: Paucity of fund and lack of concerted effort on the part of government to take decisive action to move businesses forward has been one of the militating problems confronting business in Nigeria. Financial institutions that are supposed to support businesses are not forth coming; they prefer to invest in businesses that are very short-termed. The result is that these businesses are limited in capacity-building; while most of them lay their staff off and relocate to other better business-friendly environment.
2. Inadequate access to medium and long term credit facilities, poor financial intermediation and lack of venture capital.
3. Poor market information and lack of market access.
4. Inadequate demand reduces the level of profit which could have been ploughed back.
5. High cost of loans i.e. high interest rate charged by the financial institutions discourages investors from borrowing from banks.
6. Inability of firms to provide the required collateral securities to obtain loans from financial institutions limits their abilities to raise capital.
7. Inadequate government support.
8. The risk involved and the fluctuation of share prices discourage some people from subscribing to the shares to companies. This reduces the ability of firms to raise capital.
9. Underdeveloped money and capital market also reduce the ability of firms to raise capital.
10. High cost of production reduces the level of profit which could have been ploughed back.
11. High rate of default in repayment makes lender reluctant in giving out loans to a good number of indigenous businessmen.
12. Government financial regulations are sometimes very stringent making it quite impossible for businessmen to obtain necessary funds and approval required to start their business.
13. Lack of trust, poor business experience and practices make it extremely difficult for indigenous businessmen to obtain bank loans.
14. Cut-throat interest rate being charged by the financial institutions is suicidal in the harsh economic environment like Nigeria. The interest rate is as high as 20-24%, besides the administrative charges. This has led to the death of so many businesses.

Suggested Solutions to Problems of Business Finance In Nigeria

1. The creation of a conducive policy regulatory environment.
2. Access to formal credit and complementary financial services on a sustainable basis.
3. Promoting access to requisite information and business development services to enhance the capacity of the sector.
4. Advertising, infrastructural bottlenecks (workspace, roads, sanitation, utilities etc.)
5. Promotions of effective research development systems for the growth and competitiveness of small and medium scale Enterprises (SMEs).
6. Improving Small and medium scale enterprise’s share of local/export markets.
7. Promoting the transportation of informed SMES to formal sector through sensitization/simplification of registration of registration procedures, to ensure full integration into the economy.

Business finance is core to the effective mobilization and harnessing of financial resources in any economy that is desirous to grow. We have learnt in this topic the importance of different instruments for business financing. We have also x-rayed the common problem of business finance in Nigeria culminating in the high mortality rate of these businesses.

In conclusion, we suggest ways out of these problems and the need for government to address the issue squarely if the vision 2020 is to be realized.

SUMMARY

1. Shares are the interest an investor has in a business; shares are divided into

• Ordinary shares
• Preferred ordinary shares
• Deferred ordinary shares
• Non-voting shares

1. Finance is a very important ingredient in a business; there is the need to know how funds are made available for business purposes.
2. Sources of fund are classified into three:

• Short term
• Medium term source
• Long term source.

EVALUATION (POST YOUR ANSWER IN THE COMMENT BOX BELOW FOR EVALUATION AND DISCUSSION)

1. State five (5) problems of business finance in Nigeria.
2. Suggest five (5) solutions to the problems of business finance in Nigeria.