Problems Of Project Financing And Implementation In Nigerian Bank For Commerce And Industry


Problems Of Project Financing And Implementation In Nigerian Bank For Commerce And Industry

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Specialized financial institutions in Nigeria otherwise referred to as development banks are to a large extent a financial innovation of the post independence era.  In Nigeria, development banking came to be conducted soon after the attainment of political independence in 1960.

The establishment of the Federal Government of a special financial institutions such as the Nigeria Industrial Development Bank (NIDB) in 1964, the Nigerian Agricultural and Co-Operative Bank (NACB) in 1973 and Nigerian Bank for Commerce and Industry (NBCI) in 1973 came as a result of the increasing demand for medium to long term loan capital for industrial development.

Traditionally, commercial banks concentrate on short-term finance for commerce and industry by granting self-liquidating loans strictly on a short-term basis.  Since commercial banks were of little assistance, the Nigerian enterpreneurs had to look forward to these development finance institutions for long-term financial assistance.  A number of state owned development finance institutions have also been established throughout the federation.

These special financial institutions were established for the following functions:

·        Provision of medium to long-term finance for industry, mines, commerce and agriculture.

·        To render assistance in the acquisition of local finance and initiative and carrying these with foreign technical and managerial expertise.

·        To render corporate advice to investors on the most appropriate capital gearing in order to enable them involve high prudent investment profit.

·        To render corporate advice to investors on the most appropriate capital gearing in order to enable them involve high prudent investment profit.

·        To participate actively on the growth of the Nigerian currency and capital market.

The Nigerian Bank for Commerce and Industry (NBCI) is by legal status a statutory corporation of the Federal Government of Nigeria an not a limited liability company and was established by the NBCI Act, formerly NBCI Decree No. 22 of 1973.  The NBCI engaged in all aspects of commercial and merchant banking activity based on financial services such as identification of viable projects, project appraisal and financing, portfolio management on behalf of corporate customers and wealthy individual foreign exchange operations and stock market operation comprising of share issue, underwriting and contingency, warehousing of shares floated on the Nigerian currency and capital market.

The NBCI is faced with a myriad of complex problems in an attempt to fulfill its normal role expectations.  The problems that militate against its project development effort, both at the pre-disbursement and implementation stage of project financing and evolution by NBCI and its customers.  There are three categories of problems that have been identified by way of casualty.

(i)                Problems attributed to NBCI Authorities.

(ii)             Problems caused by potential borrowers and investors.

(iii)           Constraints attributable and uncontrollable political and macro-economic factors.


Like any other development finance institution in the country, the NBCI has been graphing with a series of difficulties and recurrent problems that emerge both at the financing and implementation stage of project development in Nigeria.

A flurry of complaints and counter accusations have also been levied against NBCI by its customer.  While some of them apply fabrication, blackmail and intimidation tactics.  Others employ the use of graft against certain bank officials to force their way through the needle’s eye.

The provisions of long-term loan agreements are hardly honoured after the initial loan agreements, both implementation, project supervision efforts by bank officials are often frustrated by the client companies unco-operative attitude.  Furthermore, excessive borrowing by investors from other financial institutions without consultations with the development bank that provided the initial assistance thereby defying the relevant term loan agreement is yet another widespread malpractice.  Also a significant proportion of potential investors and loan beneficiaries to divert funds into non-business or private activities and to enter into clandestine agreements with suppliers of raw materials, machinery and equipment quite irresistible.  All these malpractices constitute formidable problems to the development banker, particularly (      NBCI).

There are a number of uncontrollable factors that militate against their progress such as the effects of instability in government policy, rules and regulations, the difficulty of obtaining official permits and licenses, problems of the expatriate quote and lack of technical knowledge, laziness and insufficient interest and concern on the part of certain officials of the development bank.  The terms of financial assistance which are often complained about are those pertaining to security, interest rate, equity, contributions and finance or lost over run as well as restrictions placed on fundamental operational procedures.  Except for cases whereby the borrower offer as collateral, assets and which he has a defective title, otherwise given satisfactory technical and managerial arrangements, a development bank would normally be satisfied with placing a fixed legal charge on a company’s forced assets acquired purely for business making when the development bank would require a filed asset coverage of 1.7.3 or any other official approved ratio, otherwise collaterals would be demanded by the bank.  The realization of these fixed assets are the only hope the bank has for recovering its investment in case of business failure.

Other problems are continually being encountered during the financing and implementation stages of most projects in the country by the (NBCI).  These problems are classified into three different categories, viz;

(i)                Problems attributable to the borrowers of term loan.

(ii)             Problems caused to NBCI authorities

(iii)           Problems attributable to non-controllable factors such as the structural adjustment programme (SAP) and the introduction of the foreign exchange market (FEM) etc.

It is now thirty-one years since the NBCI was established; yet the bank has not much to show in terms of dynamism, efficiency and contributions to the aggregate levels of capital formation in Nigeria, in spite of the increasing levels of demand for long term finance from the nations agro-allied and industrial sector.

The aim of this work is therefore to examine theses problems critically and thereafter suggest lasting solutions for the minimization of some of the problems.


The broad objectives of this research work is to identify the various constraints to project financing and implementation in Nigerian Bank for Commerce and Industry (NBCI) with a view to finding lasting solution to these problems.

Specific objectives of study are listed below as follows:

(i)                To examine in detail, the various step involved in borrowing from NBCI and to appraise the investment modalities and viability requirements of project financing in Nigerian Bank for Commerce and Industry (NBCI).

(ii)             To examine the role expectations and performance of NBCI  in industrial project financing.

(iii)           To find out the banks investment priorities and the conditions under which the loans are disbursed.

(iv)           To assess the average waiting time per prospective borrower before they can obtain NBCI’S letter of intent.

(v)             To assess the total number of loan applications received to date as well as total number of sanctions and loan disbursements made by the bank between 1988 and 2003.

(vi)           To identify the factors inhibiting the financing of industrial projects in Nigeria as distinct from the constraints of project implementation in Nigeria.

(vii)        To examine the degree of relationship association and/or dependence of the above problems classifications in greater detail and thereafter formulate and test a suitable hypothesis.

(viii)      To make policy recommendations on the research findings with a view to finding lasting solutions to some of these problems.


The significance and purpose of this study is to restore academic dimension to the problems and prospects of development banking in Nigeria.  The study also aimed as giving a direct frontal attack to the major problems encountered by the NBCI and prospective investors during the pre-disbursement implementation stage of project financing in Nigeria.  It is of immense benefit to NBCI policy and investment appraisal staff who should therefore seek to minimize the magnitude of complaints and accusations levied against them.

Similarly, prospective investors would also learn to appreciate the constraints inhibiting NBCI authorities as well as being able to identify the problems specifically, attributable to borrowers to which they can hold no-one responsible except they themselves.  It will also be of immense economic benefit to other development finance institutions in the country such as Nigerian Industrial Development Bank (NIDB), Nigerian Agricultural and Co-operative Bank (NACB) and as well as over twenty-eight owned development finance companies all over the country.

Therefore, the research findings may be accepted where applicable to improve upon the quality of their investment service and modification of their excessively terms of investment.



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