EFFECTIVENESS OF CREDIT GUIDELINES AS AN INSTRUMENT OF MONETARY POLICY IN NIGERIA
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EFFECTIVENESS OF CREDIT GUIDELINES AS AN INSTRUMENT OF MONETARY POLICY IN NIGERIA
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Changes in supply are a significant factor influencing the degree of economic activity in every economy. These changes have a direct impact on the rate of spending by citizens of the country. Because of the economic importance of money, the monetary authorities have devoted time and resources to money management in order to gain the benefits inherent therein.
The credit guideline, which is the focus of my research, has emerged as the primary tool utilised by Nigerian monetary authorities to impact economic activity. The recommendations are based on the Central Bank of Nigeria’s monetary policy circulars, which prescribe sectoral and aggregate increases and decreases in commercial and merchant bank lending.
Credit rules, according to Anyanwu J.A. (1998), can be used to govern the pace and content of economic activity in an economy. This entails the government interfering with the volume and direction of credit extended by commercial and merchant banks to those sectors of the economy.
As a result, the government separated the economy into three primary sectors: the preferred or high priority sector, the less preferred or high priority sector, and the less preferred or “others” sector.
Agriculture, industrial or manufacturing firms, residential building construction, exports, and critical services are the chosen sub-sectors.
Since the creation of lending rules in 1964, the government has been pressing banks to extend more credit to this sector in order to accelerate the country’s economic development. General trade, government, and “others” are also included in the economy’s less preferred sectors.
The government also asks banks to provide fewer funds or show restraint in granting loans and advances to this industry due to the effects it would have on the overall pricing level.
Credit guidelines could also be viewed as an anti-inflationary strategy, limiting funds from flowing to such areas. Those parts of the economy that are extremely vulnerable to inflationary pressures.
According to Orjih.J. (1996), credit Guidelines is the policy established by the Central Bank of Nigeria (CBN) to govern commercial banks’ loan production.
The CBN implemented this control measure to achieve the goals of general economic policy. It alters the amount, quantity, cost, and direction of money and credit in a given economy.
1.2 STATEMENT OF THE PROBLEM
i. Despite the efforts of the monetary authorities to meet the guidelines’ objectives, performance has fallen far short of the planned level. Several variables could be cited to explain the failure to meet these goals. These criteria form the basis of the study’s statement and include some of the credit standards policies that are ineffectual in addressing economic problems.
ii. The problem of fining and operational lags that exist between the identification of a problem, the creation of a credit policy, and its implementation.
iii. The CBN’s inability to fulfil its monetary role effectively due to a lack of comprehensive autonomy.
iv. Lack of cooperation in significant difficulties and unseemly government practises in generating inflationary pressures in the economy.
1.3 OBJECTIVES OF THE STUDY
With the aforementioned issues in mind, the following are the study’s objectives:
1. To emphasise the general implications of the specific effects of credit guidelines on the Nigerian economy in terms of capital availability.
2. To reveal how frequently and to what extent the guidelines, Nigeria’s most popular central bank weapon, have been utilised by the monetary authorities to alter the economy’s credit base.
3. To demonstrate the efficiency of the Central Bank of Nigeria (CBN) in pressuring banks to follow policy guidelines.
4. To demonstrate the success or ineffectiveness of credit guidelines in managing economic inflation. The economy will make this clear. The fluctuation of the price index will reveal this.
5. To expound on the greeting calling for the employment of credit guidelines as an alternative to general monetary weapons.
6. To demonstrate the influence of the credit guidelines on the country’s economic development. This will be revealed by the movement of the industrial index.
7. To propose recommendations for the effective development of credit criteria in Nigeria.
1.4 THE SIGNIFICANCE OF THE STUDY
This study, while not exhaustive, will serve as a model for those who wish to conduct research on this or other comparable themes.
This research will help students and individuals who do not understand the meaning and instruments of credit guidelines. A proper knowledge of the identified reasons impeding the implementation of lending rules will assist monetary authorities and citizens in general in gearing up the economy to achieve the optimum pace of growth.
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