LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA
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LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA
IN NIGERIA, A PROPOSAL FOR LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY
IN NIGERIA, LOAN SYNDICATION IS USED AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY.
One of the greatest impediments to the expansion and growth of our business organisation has been a lack of funds. This is due to a variety of issues, including poor savings (the vicious circle of poverty), public apathy towards investing, mismanagement, and so on.
There are various approaches to solve financial problems and provide appropriate money to our company organisations, such as equity stock, savings, and ploughing back earnings, but for the sake of this study, we must focus on loan syndication.
This study will evaluate the methods and methods by which Union Bank of Nigeria Plc obtains funds in the form of loans from a variety of financial institutions, including commercial banks, merchant banks, insurance companies, development banks, and financial institutions such as governments thrift societies friends.
It will also cover the various loan types, including long-term loans, medium-term loans, and short-term loans. Union Bank of Nigeria would analyse the loan classes given by the various types of financial institutions listed above before choosing loan as a source of finance instead of other sources.
Similarly, it is important to discuss the considerations that a consortium of financial institutions considers before making loans to businesses. The consortium’s preferred securities and interest rate treatment will also be considered. The reasons why some financial institutions do not participate in loan syndication will also be investigated.
Before concluding this investigation, it is necessary to investigate how the interests of the constitution are safeguarded in the Union Bank of Nigeria, as well as how the interests of each consortium member are protected inside the group.
When these considerations are considered, Union Bank of Nigeria decides to fund their projects, particularly loan syndication, and we believe everyone who enjoys it.
In summary, the research will be divided into five chapters. The first chapter will include an introduction, sub-topics such as the background of the study, the statement of the problem, the aims of the investigation, the significance of the study, and so on.
The second chapter offers a review of the literature. This chapter will provide a thorough examination of the subject. It is in this section that we define the research issue, different sorts of syndicated credit finance, loan syndicating procedures, and so on.
The third chapter will go through research methods and techniques. The data sources, the data collection instrument, and the location of the data.
The fourth chapter, data presentation and analysis, will show the display of the data collected in tables and charts, with a pie chart as an option.
Finally, chapter five summarises the previous chapters. This chapter will provide the findings, recommendations, and conclusion.
Having said that, this research will be limited to Union Bank of Nigeria Plc Onitsha, Anambra State.
LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA,
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The velalive inadequacy of funds for capital investment is a prevalent factor in all economies, particularly in emerging countries around the world. In developing countries such as Nigeria, inadequate capital investment manifests itself in high unemployment rates, low productivity, and a correspondingly low standard of living for the vast majority of the population.
Finding a solution to the challenge of supplying funds for capital investment has been a major concern of Nigerian financial institutions. Beyond the usual term loan, share offers, bonds, and so on,
business organisations and financial institutions have looked for other ways to address the issue of insufficient funds for capital expenditure. One of the solutions they have devised is syndicated load or numerous credit facilities, which attempt to disperse risks and reduce the impact of restrictive laws and regulations on lending by financial institutions.
A syndicate is defined as a group of industrialists or a financial or banking consortium required to carry out certain industrial initiatives.
As a result, loan syndication is essentially described as an agreement between two or more borrowers with credit facilities that use common loan paperwork.
As a result of many economic reasons in Nigeria, loan syndication has grown dramatically as an alternative financing instrument for business organisation. Among the most notable were:
– The National Industrial Policy of 1989, which aims to enhance the pace of industrial growth in the Nigerian economy.
– In 1986, structural adjustment was implemented, culminating in the introduction of a foreign exchange market (F E M) and the depreciation of the aria. As a result, imported machinery and equipment became prohibitively expensive, necessitating large capital outlays that most businesses and financial institutions could not comfortably afford.
– Government and monetary authorities restrict credit expansion in order to reduce inflation. Because the Central Bank of Nigeria does not include syndicated loan money in credit checks, banks can syndicate loans without interfering with the credit ceiling.
– The elimination of the import licence regime, allowing more users of imported equipment and machinery to source and bring into the country.
– Interest rate deregulation made loan syndication appealing to both commercial organisations and financial institutions. The aforementioned considerations concerning prolonged domestic inflation and rising domestic production costs have raised the amount of loan demand for vanoys fund users, notably industrial companies.
Furthermore, there are various legal and regulatory constraints on commercial and merchant banks’ lending activities, such as the statutory lending limit imposed in the Banking Act of 1969s. 13 (1), the liquidity requirement, and so on.
Loan syndication has become an appealing credit delivery approach aimed at distributing risks and decreasing the impact of constraining laws and regulations in order to overcome these legal and regulatory limits on commercial bank (union bank) and merchant bank lending activities.
There is currently no comprehensive loan syndication law in the country to control the actions of the financial institutions that lead and participate in the syndication. What is perhaps important about loan syndication in the country is not the rapid expansion of the financial institutions involved in loan syndication, but their operations over the years.
This study also investigated the extent to which Union Bank of Nigeria plc. employs syndicated loan as an alternative financing means, with special reference to Anambra and Enugu states’ respective financing ways utilising loan as an alternative. From the borrower’s perspective, the researcher carefully evaluated all aspects of loan syndication as a financing opportunity in the country.
This work also emphasises the importance of weighing the multiple benefits of syndicated loan financing against its drawbacks. It should not be used as a last resort, but should be explored with comparable alternatives.
Regardless, the most essential aspect of this study (its empirical investigation) is to determine the popularity of syndicated loan financing among business organisations in the country and the extent to which they use it as a financing alternative; no similar study has been conducted in Nigeria.
Anambra and Enugu States were chosen for the empirical study due to cost and time constraints put on the researcher; otherwise, the researcher might have done the survey throughout the country.
1.2 STATEMENT OF THE PROBLEM
There are differing opinions on whether or not corporate organisations should be financed by syndicated loans. Opponents of using this alternative, particularly in Nigeria, contend that syndicated loans are expensive and require a lot of administrative effort.
Furthermore, the advantages inherent in syndicated loans as a medium and long term financing choice must be clearly stated. Furthermore, a study of the role of financial institutions in financing Nigerian business organisations through syndicate loans is critical.
In addition to the foregoing, Union Bank of Nigeria Plc’s acceptance of syndicated loan financing. In the country, research are needed to determine whether the much-touted syndicated loan financing is being used as a funding alternative in Nigeria.
1.3 OBJECTIVES OF THE STUDY
This study’s goal includes inter-allies.
– A general review of the many challenges involved in loan syndication.
– Determine whether loan syndication is a novel way to or a different type of borrowing.
– To synthesise the benefits and drawbacks of syndicated loan financing in comparison to other types of medium and long-term funding, both in terms of cost and codeless.
– Survey the scope and potential of the loan syndication market in Nigeria, critically examining the roles of corporate organisations and financial institutions.
– Determine if loan syndication can aid in the country’s industrial development, particularly in light of the current economic circumstances.
– To investigate the extent to which syndicated loan funding is used by business organisations in the country.
1.4 SIGNIFICANCE OF THE STUDY
This research will be extremely beneficial to the borrowers. The researcher’s attention was brought to the necessity for loan syndication in Nigeria, particularly in the area of providing credit facilities to borrowers. It is clear that a grant study will be required to investigate loan syndication and how it affects investment and capital project outlays.
As a result, the significance of this study is to look into ways to make it easier to finance capital project outlays that require a syndicated loan, as well as to encourage financial firms to jointly finance projects that one financial institution cannot finance alone.
It is hoped that following this study. It will be beneficial to all banks, particularly those involved in merchant banking and development banking. It will also inform the general public on how to use loan syndication as an alternate company financing method.
This study is expected to be extremely valuable to students in financial studies and other related disciplines, namely accountancy, banking, and finance, and so on, because it will be part of what they will practise in their various places of employment.
Finally, it will work with the government and other institutions to develop appropriate policies that will guide them in funding large projects in collaboration with other finance firms.
1.5 SCOPE OF THE STUDY
This study focuses solely on loan syndication as an alternative company financing technique in Nigeria. I examined the requirements, functions, and numerous benefits linked with Nigeria loan syndication.
1.6 LIMITATIONS OF THE STUDY
The first obvious constraint is the scarcity of statistical data. Lack of statistical data from our financial institutions such as the Central Bank of Nigeria (CBN), the Ministry of Finance, and commercial and merchant banks where the researcher visited in Enugu, Onitsha, and Lagos to collect a list of corporations financed through syndicated loans adhered strictly to the rule of confidentiality in banking and thus refused to release such information.
Another issue is the lack of time. A research of this sort requires a relatively long amount of time during which information for accurate infirmity might be gathered; nevertheless, the term for the study is limited, therefore time is a limitation to the researcher.
Finally, if not for the cost of travelling and lodging in the various states of the federation, the researcher would have extended the survey to additional states at the empirical level, producing more accurate and thorough work. It is simply not conceivable.
1.6 HYPOTHESIS STATEMENT:
As a medium-long-term financing strategy, the Ho syndicated loan was used in place of other options.
As a medium-long-term financing strategy, the syndicate loan has not been used in comparison to other options.
What effect does a syndicate loan have on our national economy?
The syndicated loan has a significant impact on our national economy.
The syndicated loan has a significant impact on our national economy.
1.7 DEFINITION OF TERM :
The research topic has several crucial terms that demand treatment before anything else.
SYNDICATE: It has been defined as a group of industrialists, financiers, or banking consortiums compelled to carry out industrial initiatives.
LOAN SYNDICATION: A loan syndication agreement is an arrangement between two or more lending financial institutions to supply a borrower with credit using similar loan documents.
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