NON-BANK FINANCIAL INSTITUTIONS AND ECONOMIC DEVELOPMENT IN NIGERIA
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NON-BANK FINANCIAL INSTITUTIONS AND ECONOMIC DEVELOPMENT IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Non-bank financial institutions are businesses that lack a full banking licence and are therefore unable to accept deposits. However, by offering alternative financial services like contractual savings (pension funds and insurance companies), investment intermediaries (finance companies, mutual funds, and money market funds),
microloan organisations, and venture capitalists, they both compete with and supplement traditional banking institutions (Mishkin 2007; World Bank 2015c).
Insurance firms, pension funds, and investment institutions are the three main types of NBFIs in Egypt (Egyptian Financial Supervisory Authority 2017), Nigeria (Ndugbu et al. 2015), and South Africa (Faure et al. 2006).
The disproportionate focus on banks that is shown by a detailed review of financial literature. There is a wealth of information on the size and significance of banks’ economic contributions, but less is known about the role non-bank financial institutions (NBFIs) play in development.
It is true that banks in developing countries perform better than NBFIs in terms of transaction volume, operational flexibility, product variety, and market penetration (Acha, 2005:1). This in no way lessens the contributions made by NBFIs, as they carry out similar tasks to those of banks and support those institutions’ efforts in the financial intermediation process.
NBFIs are known to have potential advantages in the performance of economic development functions, despite playing a complementary role to banks in the aforementioned areas. For instance, certain NBFIs, like community banks (now microfinance banks),
are rural in nature and may thus reach a larger population of Nigerians and tap into their untapped savings potential. Nigeria, a nation in desperate need of development, cannot ignore the development opportunities presented by NBFIs.
The recent global financial crisis amply indicates how conditions could be set up for a financial crisis if NBFI development is too rapid and is not properly controlled and supervised. Liang and Reichert (2012) specifically cautioned that NBFIs may allow excessive risk appetite if they are not effectively regulated,
which might have severe effects on the financial industry and the actual economy. The monitoring report on shadow banking released at the end of 2015 (Financial Stability Board 2015) served to underline this even more.
The research made the case that although NBFIs help finance the real economy, they can also pose a systemic danger if they carry out “bank-like” tasks and have a close relationship with banks.
The dispute over finance and growth is also being complicated by recent studies, notably in Africa where both financial development (FD) and economic growth have lagged and the issue remains unsolved.
In particular, recent studies indicated that “financial depth is no longer a significant determinant of long-run economic growth” (Demetriades & Rousseau 2015; Rousseau & Wachtel 2011)
and that the relationship between FD and economic growth is deteriorating in both rich and developing countries. According to Demetriades and James (2011:1), the association between foreign direct investment (FDI) and long-term economic growth is ‘at worst’ nonexistent in Africa.
The researcher wishes to look into Nigeria’s non-bank financial institutions and economic development in light of this background.
STATEMENT OF THE PROBLEM
However, given the capacity of NBFIs to support long-term growth and the dangers associated with their connections to other financial institutions.
This study has the authority to evaluate this contribution with the goal of formulating suggestions that would allow the NBFIs to participate more actively in our development initiatives. The study will evaluate the challenges NBFIs have in carrying out their developmental tasks in the nation’s economy.
OBJECTIVES OF THE STUDY
The study’s aims are;
to determine the impact of NBFIs on Nigeria’s economic growth
To identify and emphasise the challenges NBFIs have in carrying out their developmental roles
NBFIs’ economic contribution should be quantified.
To determine how Nigeria’s economic development is related to non-bank financial institutions
RESEARCH HYPOTHESES
The researcher developed the following research hypotheses in order to successfully complete the study:
H0: NBFIs have no issues carrying out their developmental responsibilities.
H1: NBFIs have difficulties carrying out their developmental responsibilities.
H02: NBFIs do not contribute to the economy in any way.
H2: NBFIs contribute to the economy in a positive way.
SIGNIFICANCE OF THE STUDY
The study will have a big impact on students, decision-makers, and the Nigerian government. The study will provide a detailed understanding of Nigeria’s non-bank financial institutions and economic growth. The investigation will also be used as a resource by other scholars who pursue relevant topics.
SCOPE AND LIMITATIONS
The focus of the study is on Nigeria’s economic development and non-bank financial entities. The study’s scope was constrained due to a constraint the researcher encountered;
a) AVAILABILITY OF RESEARCH MATERIAL: The researcher’s access to suitable research material limits the investigation.
b) TIME: Because the researcher must juggle the study with other academic obligations and exams, the time allotted for the investigation does not improve wider coverage.
1.7 DEFINITION OF TERMS
Non-bank financial institution: Organisations that provide financial services but lack banking licences and are unable to accept deposits are referred to as non-bank financial institutions.
Several examples of non-bank financial organisations include insurance companies, brokerage houses, and businesses that provide microloans.
Federal, state, and local governments typically place a strong priority on economic development in order to raise living standards through the creation of jobs, encouragement of new ideas and innovation, generation of greater wealth, and improvement of general quality of life.
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