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Role of financial institution in the economy growth and development of nigeria

The efficient flow of capital in the financial sector serves as a stimulant for economic growth; this is because financial institutions which are the intermediaries in the financial sector serve the main purpose of mobilizing capital from the savings or surplus sector to the borrowing or deficit sector Solomon, 2010: This tends to moderate the volume of money in circulation or liquidity in the economy.

An efficient and robust financial system acts as a powerful engine of economic development by mobilising resources and allocating the same to their productive uses. It reduces the transaction cost of the economy through provision of an efficient payment mechanism, helps in pooling of risks and making available long-term capital through maturity transformation.

By making funds available for entrepreneurial activity and through its impact on economic efficiency and growth, a well-functioning financial sector also helps alleviate poverty both directly and indirectly.

12 Functions of the Nigeria Financial Institutions

In both developed and developing countries, the need for efficient financial institutions in facilitating financial intermediation as a growth channel in the economy has been recognized in literature in recent years.

Although, the lack of efficient financial intermediation in developing countries like Nigeria is widely evidenced by the mismatch between institutional savings, lending and investment. It is however clear that the need for investment in the real vibrant sectors of these countries resulted to the introduction of development finance institutions and other financial vehicles programmes to provide credit at below market rates for the purchase of capital Adesoye and Atanda, 2012.

According to Ikhide and Alawode 2001 for more than two decades after independence, the Nigerian financial system was repressed as evidence by ceilings on interest rates and credit expansion, selective credit policies, high reserve requirements and restriction on entry into the banking industry. This situation inhibited the function of the financial system and especially constrained its ability to mobilize savings and facilitate productive investment.

Adesoye and Atanda 2012 these institutions play a crucial role in providing credit in the form of higher risk loans, equity positions and risk guarantee instruments in support of private sector investments in developing countries for infrastructure and real sectors development. It is hoped that present and future reforms will continue to bring the much needed stability in the financial sector and enhance the growth of the economy of Nigeria.

The reform of the foreign exchange market started in 1986 with the dismantling of exchange controls an establishment of a market-based autonomous foreign exchange market. Bureau de change was allowed to operate from 1988.

Acta Universitatis Danubius. Œconomica, Vol 13, No 3 (2017)

However, a fixed official exchange rate has continued to exist alongside the autonomous market. In 1994, the gradual market- based depreciation in the official exchange rate was truncated by a sharp devaluation in a bid to close the widening gap between the official exchange rate and the autonomous exchange rate. The continued operation of the official exchange rate brings with it a great deal of distortions in the domestic allocation of resources within the public sector Emenuga, 1994.

Acta Universitatis Danubius. Œconomica, Vol 10, No 3 (2014)

Surprisingly, the competition for deposit which drove nominal interest rates up could not ensure a cheaper cost intermediation. The banking environment that emerged from the reform is a lot inefficient, undercapitalized, riskier, less liquid and generated lower return on assets relative to the pre-reform period Solodu and Akiode, 1994. Arguments have been that wrong sequencing of the deregulation and liberalization policy affected the much expected impact of the reform policy.

How true is this argument? Recent development in the banking industry caused by global crises and non-compliance of prudent policy by bank management has also questioned the relevance of reforms.

Development Finance Institutions in Nigeria: Structure, Roles and Assessment

The study will also assess the negative or positive effect of this crisis on the economy as well as the contribution of the banking industry which is the main player and most active sector in the financial system.

Have there been any major achievements in the financial sector following the numerous developmental measures taken by the Nigerian government? What are the challenges affecting the financial institutional development in Nigeria?

Determining how efficient financial institutions have mobilized savings for the growth of the Nigerian economy. Highlighting major achievements in the financial sector following the numerous developmental measures taken by the Nigerian government.

Assess the challenges affecting the financial sector developmental policies in Nigeria.

Acta Universitatis Danubius. Œconomica, Vol 13, No 3 (2017)

Credit delivery by financial institutions has no impact on the growth of the economy 2. Savings mobilized by financial institutions has no impact on the growth of the economy 1. Furthermore, findings from the study will enlighten the public on various development measures taken so far by the government to strengthen the financial sector. A successful completion of the study will add to existing body of knowledge and serve as a reference material to other researches.

Measures taken by the Nigerian government at developing the financial sector will also be examined with the aim of assessing past failure and successes. It will further take a look at the reform programme of the authorities while more emphasis will be based on the commercial banking industry which is the most active and dominant sector in Nigerian financials sector.

Chapter one introduces the study showing the background to the study, statement of the problem, research objectives, question, hypothesis, significance and scope. Chapter two take a look at the literature works of others on the subject matter of the study. Chapter three deals with the methodology used in carrying out the study.

Chapter four provides the presentation, analysis and interpretation of data. Chapter five concluded the study with summary of findings and recommendations.

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