THE ROLE OF FINANCIAL INSTITUTIONS IN THE DEVELOPMENT OF THE NIGERIAN ECONOMY

1.0     INTRODUCTION

The link between financial institutions and economic growth has been debated in financial and economic literatures. Many researchers are of the views that there still exists great dichotomy regarding the role of financial intermediaries in facilitating sustainable economic growth in the long term. Earlier studies by Schumpeter (1911), Gurley and Shaw (1955), attest to this claim. Later studies like Levine and Zervos (1996) argue that financial system do not promote economic growth rather respond to real institutions developed financial institutions facilitates high and sustainable economic growth (Hicks, 1969). The Nigerian financial system comprises the money market, the capital market, and the institutions and channels that facilitates the smooth intermediation of financial transactions in the economy. The role of the financial institutions in any economy is that of intermediation by mobilizing savings from the areas of surpluses to those of deficits. Most affected economies had a fall in stocks and commodities prices with consequent decline in the total market capitalization. For example, according to CBN (2008) the Nigerian capital market index which grew from a value of 12.137 in 2002 to 57, 990 in 2007 fell to 20, 827 in 2009.

1.1     BACKGROUND OF THE STUDY

Financial institutions are financial intermediaries that engage in the intermediation of fund from the surplus unit of the economy to deficit unit of the economy. These financial institutions acquire these funds from the owners of these funds and demand. The users if these funds in most cases are referred to as the deficit units, while the owners of these are referred to as the surplus unit of the economy. when users of funds discovered that they are in short of funds required for immediate investment motive, then they now resort to financial institutions  for financial assistance. This financial assistance can only come in bulk from financial intermediaries.  

The role played by this financial institutions cannot be over emphasized. No economy can function very well without the financial institutions playing major role in the intermediation  and role makes funds available to those who are in need of funds for investment in the development of our economy. Playing a major role in the development of our economy from the study of finance, no person or organization can engaged in investment without acquiring enough capital that is needed for such set up. This financial institution will grant such an individual or organization its request if the conditions are meet for such loan.

       Financial institutions are made of bank financial institution and the non bank financial institutions. The bank financial institutions are financial institutions that accept fixed deposits by opening account for people eg saving account, current account fixed deposit account etc. The make use of money of these accound on demand. These bank financial institutions because the accept deposit unit through loans and purchases of securities, the non-bank financial institutions that are not really bank in bank in the sense of the word. They are rather to bank financial institutions that provide complementary services to the bank financial institutions. The non-bank financial institutions generate funds from sources other than deposits but also play a major role in financial intermediation. This financial institutions include:

1.  Finance companies

2.  Insurance companies

3.  Bureau de change

4.  Primary mortage institutions

5.  Pension and provident funds

6.  Unit trust

7.  Cooperate societies etc

1.2 statement of the problem

       The economy is still underdeveloped and addresed as developing despite the role and activities of financial institutions in resource mobilization.

2. The investment rate is considered low despite the fund mobilization from the surplus unit to the deficit unit.

3. The financial institutions, especially the non bank institutions are not contributing much to the economy to public perception of them.

4. The people in the rural area have very low banking habit and this has a negative effect in the development of our economy.

1.3 OBJECTIVE OF THE STUDY

The objectives of this research work is to:

1.  Discover the relevance of the financial institutions in the development of economy

2.  To look at the various avenues surplus funds are mobilized and channeled to the dificit units

3.  Investigate what contributions the financial institutions have made to the economic development of the nation ever since their forms inception

4.  Compare and evaluate the traditional and developmental functions of the commercial banks and others with respect to the economic growth and development.

1.4 research questions

1. What role do the financial institutions play in the development of the Nigeria economy?

2. What contributions have the financial institutions made on the economic growth and development since their respective official opening?

3. How do the financial institutions mobilize funds from the surplus sector?

4. What is the growth on investment since the consideration of the banking industry capital base of #25 billion?

5. What role does the central bank of Nigeria play in promoting a sound financial system?