SS1 Third Term Economics Lesson Note – Instruments of Business Finance II

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WEEK 9

INSTRUMENTS OF BUSINESS FINANCE

Content

1. Problems of business finance in Nigeria
2. Suggested solutions to problems of business finance in Nigeria

Sub-Topic 2:  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 another 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.

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