Financial Instruments Used in the Financing Construction Project in Nigeria

Abstract

Financial instruments are one of the tools for increasing financing to fund construction projects. Stakeholders in the Nigerian construction industry face challenges such as profitability, delays, funding problems and contractor’s insolvency. A thorough knowledge of the financial instruments is required while framing the project cash flows, and access to finance from any financial institutions requires the terms and conditions of a particular financial instrument. This study seeks to identify the financial instruments used in financing construction project in Nigeria with the view to creating awareness and as well provide in-depth understanding of the financial instruments that will aid ease the funding problem of construction projects. A qualitative research approach was adopted. A purposive sampling method was used to identify 10 commercial banks in Nigeria. Ten interviews were conducted to identify and gain understanding of the current financial instruments used in financing construction project in Nigeria. The content analysis of the interview transcripts revealed that “advance payment guarantee”, “bid bond”, “performance bond”, “retention bond”, “bank guarantee” and “syndication loan” were the current financial instruments used in financing construction project in Nigeria. The findings provide in-depth understanding of the identified financial instruments for financing construction project through a literature review. These financial instruments are essential for fund security in the construction industry.