THE ROLE OF FINANCIAL INSTITUTION IN THE DEVELOPMENT OF NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.0    BACKGROUND OF THE STUDY

A financial institution can be defined as any institution which portfolios of assets consist largely of claims rather than inventory, plant and equipment. Financial institution serves as intermediaries in the financial markets.

However, since emphasis will be placed in banking sector as a financial institution. It will be proper at this point to make known what the banking sector entails and its role in the development of Nigerian economy.

The banking industry is of tremendous relevance to the economic development of any nation in the sense that it is responsible for the allocation of funds to different sectors and sub-sectors of the entire economy. These sectors include agriculture, manufacturing, mining, construction, transportation, tourism, to mention but a few. The economic situation of Nigeria today is of great concern to all and this led to the introduction of different measures by the Federal Government to bail the economy out of total collapse.

The introduction of economic measure such as privatization of government parastatals, the Foreign Exchange Market, and then the fate of Naira is being determined by the forces of supply and demand. And the structural adjustment programmed. All these activities are being involved by the banking industry for adequate implementation in order for the government to achieve its aims on restricting the country's economy.

The recent increase witnessed in the number of commercial and merchant banks in the .country to satisfy the demand of the increasing population on business financing and other financial related areas has necessitated a careful look at the activities of this industry, its relevance, with a view to explain its vital role to the economic development of Nigeria.

Primarily, a bank is a financial institution where money and other valuables such as gold, certification, wills share certificates, to mention but a few, are kept for custody. In modern day banking however, this function has been enlarged and obviously modified. Hence, present day banking would be modified as the art of safekeeping, exchanging, lending and borrowing as well as an advisory services for all which combine to make money available or funds and immediately put to effective utilization.

Banks in this regard constitution most important points upon which the wheel of the economy in general rotates. In the economically development countries such as the United States, United Kingdom,

Canada, Banks perform such additional functions as setting and clearance of daily credit purchase cards and night saving facilities which are services not available in developing countries of Africa.

In Nigeria, there is a remarkable increase in the function performed by our banks. This include acceptance of deposits account holders, granting of loans and advances, foreign exchange, discounting bills of exchanges loan syndication, equipment leasing, effecting merging and acquisition of companies. Also banks offer financial advice to numerous customers.

Financing developmental projects, issuance of letter of credit to their customer, acting as Trustees and Executors and Agents in the buying and selling of Stock Exchange Securities on behalf of customers.

1.2 PURPOSE OF STUDY

These have been rumored that financial institutions are not helping the revamping of the economy but are more interested in making profits, not only profits but large profits that are supposed to be plunged back in the economy but are not.

The purpose of this study with special reference to the banking industry is therefore to find out the roles actually played by the banks on the present state of economy i.e. to come to a conclusion as to whether these roles are effectively developing the economy.

1.3 SCOPE OF STUDY

In view of the greater role played by the financial institutions in executing government policies aims at developing the Nigerian economy and in view of the fact that the banking sector touches every sector of the Nigerian economy, it is important to limit the study of the role played by the banking industry with a brief mention of the insurance industry, the Nigerian Stock Exchange and a few other financial institutions.

1.4 LIMITATION OF STUDY

In actual, no one can boldly state or give the time picture of what future have for him but one can still do this to some extent based on one's experiences of the past, and the present condition. In the light of the above, the researcher can state as follows the limitation likely to be encountered in carrying out this research:

TIME CONSTRAINTS

To be specific, time can never be enough since any research work is based on finding out facts in which all now changes are known. And most importantly, changes occur almost every day.

FINANCIAL CONSTRAINTS

This is yet another constraint in that to carry out any research, a lot of money is usually being spent - transportation, typing, binding.