The Significance of Bank Credit to Nigeria Economic Development

I have always rued missing the opportunity of taking a bank credit facility when I had the opportunity, but I ignorantly declined. My retraction was due to my fears and complete naivety, owing to some of mother’s stories about the loss of a family building due to a failed bank loan.

Somehow, she had psychologically trained me to detest all forms of loans, making me always tell myself that the end of every loan is always tragic until i realised how much I’ve been deceiving myself.

I refused a bank credit facility which some of my peers took and are today several steps ahead of me. I had to ditch mama’s story, loaded my Dane gun, fixed my head lamp and went in search of the secret stash of treasure embedded in bank credit facilities and hey ! what I found will interest you.

The Significance of Bank Credit to Nigeria Economic Development

See: Top 20 Banks In Nigeria you Can Bank with Without Problems

Now, a bank credit is simply what we call bank loans in this part of the world. Bank credit is the total amount of money a bank is able to lend an individual customer or a business enterprise.

The refund or repayment of a bank credit is usually over a stipulated period of time which is most preferably monthly. The refunds are repaid alongside the mutually agreed interest rate.

The significance of bank credits clearly overshadows its disadvantages because Individuals and firms requires credits to meet up with certain expenses i.e small business firms and bigger companies do obtain loans to sometimes purchase machinery and equipment, farmers obtain loans to buy high-quality seeds, fertilizers and equipment.

The government sometimes needs credits to meet up with various capital and recurrent expenditures while individuals needs loans to buy and pay for goods and services.

Banks creates credits by releasing funds of savers who don’t desire an immediate use of their money to customers with brilliant ideas that can create additional wealth by putting the credits into productive use. Every licensed bank reserves the ability to create credits which are normally of two categories, the secured and unsecured credits.

The former involves larger amounts of funds. Banks normally requests a collateral before issuing out such loans while the later includes credit cards and other small and easily accessible loans. Banks do not usually demands a collateral before issuing out unsecured credits.

The issuing of bank credits usually depends on two factors; the customers ability to pay back both the principal and interest as at when due and lastly, the amount of funds available as bank credit at that particular period.

See Also: How to Get a Loan in Nigeria

However, Bank’s allows the borrowers to pay back borrowed funds over a clearly worked out period of time so as to allow the customer enjoy optimum utilization of the issued credits as well as providing the debtor with enough time to pay up.

Imagine a scenario where a man on a monthly salary of ₦150,000 benefits from a bank credit facility of ₦4,000000 which he is to pay back with a fixed 5% interest rate on a monthly installment plan spanning 10 years.

The same man decides to invest his funds on a business idea which will cost him ₦4,000000. From the loan terms, the same man will have a period of 120 months to complete his refund, a refund that is in addition of the interest accrued overtime, which is ₦200,000.

With that, we can say that the total amount of repayment expected of our man is ₦4,200000 which spans a total of 120 months. This means that for every single month, our man is expected to pay nothing less than ₦35,000 monthly.

This stretched out refund system will thus enable him conveniently carry out other necessary financial obligations as he only has to part with a meagre percentage of his monthly income.

From the analogy, as well as the few advantages of bank credits discussed, you can’t help but completely agree with me that a successful, profitable  utilization of a bank credit facility can immensely improve your financial capacity with an extraordinary velocity.

Banks offers various types of credits to aid customers in need. Some of the most popular types of credits issued by Nigerian banks are:

Credit cards: Credit cards are normally issued by banks to enable customers purchase items on on credit. There are normally no interest charged if the fund is paid within the stipulated time, but failure to complete the payment on time would require the borrower to payback what was borrowed plus interest.

Credit cards are usually offered by banks, departmental stores, retail stores, and some commercial institutions. Most new generation banks in Nigeria offers credit cards to worthy customers strictly on request.

Read Also: Mortgage Loans in Nigeria; Requirements and How to Get Home Finance

Installment credit: As the name implies, this type of bank credit is usually repaid through a fixed monthly installment plan. This type of bank credits are required when there is a need to acquire properties like automobiles, mortgage loans, home renovation loans as well as students and personal loans. Another feature of installment credit is that it requires an initial down payment from the beneficiary before the balance is paid in instalments.

Loan: The most common type of bank credit facility in Nigeria is the bank loans. Bank loans are available in various forms and features in all commercial banks scattered across the country.

The eligibility for loans in Nigerian banks involves factors like, the availability of the amount to be borrowed, ability of the borrower to repay the principal and the interest as at when due, the repayment plans and finally the terms and conditions. In as much as banks allows repayment of loans in instalments, loans can also be repaid in full.

Hitherto, we can say that the release of credits by commercial banks is directly proportional to economic growth which is when there is an increase in the actual output of goods and services per head.

Since bank credits can conveniently increase the output of goods and services through the provision of capital to productive individuals and firms, it is safe to say that the banking system is a key and central figure in every economy.

It is the engine room of every economy and most importantly the most effective medium through which funds are circulated.

In Nigeria, there have been notable cases where the government has partnered with some commercial banks to aid and promote small and medium enterprises (SME’s) through the provision of soft and low interest loans.

The SME’s has often times served as a means of livelihood for the poor and low income earners who constitute about 70% of Nigeria’s population. The government has recognised that the empowerment of the economically disadvantaged is key to economic growth, So therefore, the government partners with commercial banks to enable accessibility to bank credit facilities for people with delightful business ideas, but lack the funds.

Read Also: 10 Sources of Capital and Funds for your Business in Nigeria

Funding of SME’s has led to a significant rise on the GDP and export capacity of the country.
According to the CBN annual report of 2016, sectors that greatly benefited from bank credits are agriculture, forestry, fishery, manufacturing, mining, quarrying, real estate, construction, export and import, public utilities, transport and communication.

The availability of bank credits for entrepreneurs has left a positive mark on the economic development of the country. It has improved self reliance among citizens, boosted job creation, reduced the rate of unemployment, led to the production of inexpensive consumer goods, reduction in the over reliance on importation, increased industrialization and most importantly orchestrated the growth in the economy.

Bank credit facilities can be used to salvage an ailing enterprise from total collapse especially in cases of flood, drought, natural disasters, burglary e.t.c.

Read Also: Mortgage Loans in Nigeria; Requirements and How to Get Home Finance

Finally, by making credits available to interested individuals, banks have directly boosted the county’s production capacity, this in turn, has had a direct impact on the economy which has no doubt witnessed significant economic growth through bank credit facilities.

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