Determinants of financial sector development in Nigeria
Date
2019
Journal Title
Journal ISSN
Volume Title
Publisher
Nigeria Deposit Insurance Corporation
Abstract
Objective of the study; Research hypotheses; Scope and plan of the study; Financial sector developments: Some stylized facts; Review of related literature; Theoretical framework, Methodology and model Specification; model specification and methodology.
Description
The benefits of a sound and virile financial system to attain broad-based inclusive growth have been extensively discussed by policy makers, development-oriented agencies, and researchers alike. Numerous studies abound justifying the need for developing the financial sector of the economy. A well-developed financial system is crucial for attaining sustainable and balanced growth (Rioja and Valev, 2004; Roubini and Sala-i-Martin, 1992; Oyaromade, 2005; Akinlo and Egbetunde, 2010). This is based on the theoretical premise that financial system increases the availability of funds by mobilising idle savings, facilitating transactions and attracting foreign investments. A developed financial system can help achieve improved allocation of financial resources and enhanced risk management, transparency and corporate governance practices. Thus, financial development does not only improve growth prospects, it also enhances better distribution of economic opportunities amongst economic agents. This affords new businesses, such as first-time or low-income (with potentially low collateral) borrowers or small- and medium-sized enterprises (SMEs) easy access to financing through the process of financial intermediation. One of the prominent features of Nigeria’s economic growth initiatives is the conscious strategy to develop the financial sector. For instance, in the early 1970s, as a result of the prevailing economic arrangement at that time, the financial sector was highly regulated. The government held controlling shares in most of the financial institutions, especially banking sub-sector. In 1986, the Structural Adjustment Programme (SAP) which was put in place to drive the economy from austerity to prosperity brought about the liberalization of the banking industry. The 2004 banking industry consolidation exercise was a major component of the National Economic Empowerment and Development Strategy (NEEDS) embarked on to drive the economic agenda of the government. In 2009, the global financial and economic crisis affected the Nigerian economy adversely, and part of the broad economic measures to respond to the adverse effects prompted the apex bank, the Central Bank of Nigeria, in collaboration with fiscal authorities, to adopt measures to avert a collapse of the financial system with a view to maintaining a relatively robust economic growth. The momentum to build an efficient financial system was given a major boost between 1929 -1951, and that period is often seen as the first attempt at financial reform in pre-colonial Nigeria. However, the severe banking crisis that occurred between 1940 and 1960 left the nascent financial system prostrate with the closure of several banking institutions (Moh and Eboreime 2010). The post-independence experience with financial sector development in Nigeria was characterized by weak institutions that operated under the ambit of direct control policies which negatively affected financial intermediation.