CHAPTER ONE
THE ROLE OF FINANCIAL INSTITUTIONS IN EXPORT FINANCING IN NIGERIA
INTRODUCTION:
Financial institutions are organizations which deal basically in money.
`They constitute the financial framework of an economy. Financial institutions help to pool savings and excess liquidity from millions of individuals and firms within the country and make them available to those who need them for various purposes.
Financial institutions include commercial bank (Joint stock banks) discount houses, the central bank, saving banks, development bank (BOI), insurance companies, hire purchase companies, the national providence fund, the stock exchange building etc.
Before the introduction Nigeria export- import bank (NEXIM) in Nigeria as at 1999 the commercial banks were generally referred to retail bankers, while merchant banks were known as wholesale bankers.
However the two operate and offer almost the same services that any line of demarcation is now rather fussy- one can only say that the distinguishing factor between the two sectors of the banking industry is that the commercial banks are members of the central bank of Nigeria (CBN) clearing house, While the merchant bank are not members of the Central Bank clearing house.
Another contentious factor is the licence granted merchant banks to take companies to capital market which the Nigeria stock exchange denied the commercial licensed them to do so, the introduction of the universal banking system of divide effect. A trader could approach either commercial or merchant bank for financing facility for his transactions. They can provide both short and long term facilities and can design any product which meets any requirements of customers.
The Nigeria export-import bank (NEXIM) was established in 1988 but commenced operations in January 1991. The bank was established to provide mainly short term financing for exporters who need working capital to buy hair activities. Among the function of the banks is the maintenance of a foreign exchange revolution fund which is to be made available as loans to exporters who need to export machineries, raw materials and spare parts to satisfy export orders. It can also consider loans involving domestic trade which are likely to assist exports.
1.1. BACKGROUND OF THE STUDY
The banking system has been integral part of the structural reforms and it has a leading role in management of policy change. The role of financial institutions in export financing is that of a cartelist and a committed broker. It ranges from assisting company and individual on how to enter export market through financing and handing shipping document and collect export proceedings.
Generally an export can meet his financing needs in the following number of ways.
1. advance payment from overseas buyers
2. internal general funds
3. Credit from bank and other financing institution.
4. Credit provided by the government in the buyer country.
1.2 STATEMENTS OF PROBLEMS
It is regrettable that despite their various funding mechanism and incentives put by financial institution s to stimulate the growth of export in relative contribution to the economy is still very low because of this low rectum, financial institution face the risk of non-payment of loan and advance given to export.
Firstly, the problems of policy stability it is needless to formulate a beautiful policy on export only to be discontinued, shortly, example the re-introduction of regulatory guideline in domilarily account was discentives to the exporter. This was reverse later by central bank of Nigeria (CBN) circulated in September. After much pressure recently Nigeria export and import only provide fund and transfer the risk to other banks. Another problem is that Nigeria exporters who ventures into foreign market do not avail themselves with the information relating to import countries such as culture, regulation and wealth this result in low returns those by increase the risk being faced by the financial institution that finances them. The Nigeria through the activities of some of its citizen has activities of some of its citizen has developed a negative business image both at home and abroad the poor included.