Role Of Banking And Finance In The Development Of Nigeria Economy
CHAPTER
ONE
1.0
INTRODUCTION
The
history of Banking in Nigeria started back in 1892 with Eider Dempster company
which engage itself in the business of moving coins around the country, later
that year African banking cooperation was found which provide services to elder
Dempster company failure of the bank led to the formation of bank of British
West African, but between 1929 – 1951 lead the establishment of indigenous bank
and even more today where a lot of them have collapsed as result of
mis-management, under capitalization among the factors.
Bank
have crucial role to play in a nation’s quest economic development. They serve
as major institutional mechanism for mobilizing resources from surplus unit of
the economy and channeling these to deficit unit through credit expansion.
According to Usman (1997) Bank occupy
center stage in the effect of accelerating of both local and foreign resources
for investment purpose”. In any economy, the financial system is the hub of productive
activity, as it perform the vital of financial intermediation. It is the
primary provider of payment services and fulcrum of monetary policy
implementation.
As
cited by Dicko (2005) the neo-classical production theory identified capital
and labour among others as critical factor determining growth in output. But in
developing countries with abundance of cheap labour, capital is very scare and
expensive. The financial institution by providing the much need capital for
output the growth fill an important gap in the development process”.
It
could also be emphasized that there have been significant contribution by post Kenyesians
economist such as Devidson (1994) and Mishy (1975), following the seminal work
of Melemon (1973) and Shaw (1973). They emphasis that financial system does
matter in facilitating economic development under a liberalized and reformed
environment. Dikleo (2005) is of the opinion that the concept of development
and growth has universally transformed to a wider phenomenon. Some 50 years ago
it focused on economic variable only.
Today it
encompasses indicator (HDI) have replaced the tradition per capital income’ as
indicators of development”. The main thrust of his project is to identify
whether the financial system and the banking system in particular has been able
to social economic roles of equitable wealth creation.
1.1 BACKGROUND OF THE STUDY
This
project centers on the role of Banking and Finance in the development of Nigeria economy
with particular reference to united bank of African (UBA) Nasarawa Branch.
The
project will give a highlight on the development of banking in Nigeria and
laid down emphasis on the different kinds of Banking and their various function
of the effect the economy.
Nigeria
has a vital growing market in African and has a recent years acquire important
role in the world economy with a population of 120 billion (appropriately)
people which endorsed with the fast and largely untapped natural resource with
petroleum being the major foreign exchange earner. Nigeria banking system
evolved it increasing assisted in resources mobilization for economic
development prior to the establishment of the central bank of Nigeria in march
1958 operate as rudimentary banking system tailored to need of British
government, had been as existence in the Nigeria.
Banking
has contributed immensely to the Nigeria economy, it has provided
services of employment opportunities and services to the masses on the businessman,
client and the government from to time. There are various bank that can be
classified or mention e.g. Central Bank, Universal Bank Merchant bank and
Mortgage bank etc. the universal bank can be identified by the services they
render such as saving bill of document and act as an agent to the customer,
granting of loans, import and export financing. The universal bank institution
in Nigeria
can be classified into two major groups. These are purely indigenous bank owned
100% and minority foreign interest.
However,
prospect is therefore aimed at high the impact of the universal bank in the
economic development of our great nation (Nigeria) by appraising their
performance.
The
introduction will not be complete without recognizing the apex of the banking
industry that is the central bank of Nigeria (CBN) which is charged the
responsibility of maintaining the monetary standard and sound financial
structure with objective of creating approximately environment for economic
growth and development.
1.2 STATEMENT OF RESEARCH PROBLEMS
The
impact of bank services especially universal bank cannot be over emphasize. The
main reason for this research work is to discover the problem militating
against their operation, these problem have to be consider with the aim of
giving relevant suggestion for improvement, the problem there among other
things included.
Bank
include those of poor record keeping, poor account system, embezzlement,
fraudulent practice, poor organization planning control and loan portfolio
management, problem of competition, the market for banking service is not
homogenous its differentiation by preferential to the characterized of client
or customer and by the traditional to which banking houses are accustomed.
1.3 OBJECTIVE OF THE STUDY
The objective of
this study are:
i.
To investigate the manner through which
united bank for Africa plc, Nasarawa branch make credit facilities available to
their customers.
ii.
To find out the response of customer to
various credit facilities and their disposal.
iii.
To explore other means of financial
assistance available to industries if any. It seek to discuss the role impact
and implication of the policies and strategies of the government and stages of
government and the Central Bank of Nigeria (CBN).
1.4 RESEARCH QUESTION
This
is done to enable the researcher to gather information about his finding and to
enable him solve the problems which his is faced with and this will be done
through:
i.
Conduction of interview with the
management
ii.
Questionnaire
iii.
Personal experience for example what are
usually the reaction of the share holders?
1.5 RESEARCH HYPOTHESIS
The following
hypothesis is becomes relevant in this study.
1. H0:
does the nature of Universal Banking in Nigeria affect
the economy development
H1: The nature of the universal
Banking in Nigeria
does not affect the economy development.
2. H0:
The banking service does not have a role to play in the economy development
H1: The banking service have a role
to play in the economy development
3. H0:
Does banking sector been able to develop the economy in Nasarawa state.
H1: Banking sector has been able to
develop the economy in Nasarawa state play in the economic development?
1.6 SIGNIFICANCE OF THE STUDY
The
research is significant to business and to Universal bank, the government and
any person intending to invest in Universal bank to also help investor both in
public and private sector of the economy. To specific roles played by Universal
bank in the development of economic which may include bank facilities and
consultancy among others. It may enable the general public to realize the role
and importance of universal bank toward economic development. The study will
also enable utilize polytechnic who may want to know the role of banks.
1.7 SCOPE OF THE STUDY
The
scope of the study is to look into impact of the universal bank in an economy
as well as the way universal bank in Nigeria carry on their business in
respect of development. It will however look at their agricultural financial
scheme. This project goes further to look into problem facing universal bank
and suggestion ways of improvement, the history of universal bank from
18-92-2000 will be looked into.
1.8 DEFINITION OF TERMS
Bank: A
bank is a financial institution owned by the shareholder, the public or the
government. These money and other valuable thing are kept. They give loans and
overdraft to their client and perform other related universal activities to
them.
Banking Services:
The banking act of 1969 define banking or banking business as “The business of
receiving monies from outside source as deposit irrespective of the payment of
interest and granting a money loan and acceptance of credit or the purchase or
bill and cheque. The purchase and sale of securities for account or other
measuring of the obligation to require claims in respect of loan prior to their
maturity or the assumption of guaranties and other warrantee for others.
Ceiling of Credit: This
is the limit beyond which bank are not allowed to exceed in their lending
policy usually given by central bank of Nigeria.
Customer:
Account to legal decision by Lord Daley on great western Railway versus London and countey Bank
in (1901) defined a customer as any person who as some sort of any account
either deposit or current account or some relation with a banker”. Some of the
required to be customer must be a major (not an intact or minor) not an insane
person and he or she must have been bared by any court of law.
Overdraft:
These are usually terms facilities design to improve export working capital as
well as reduced problem.
Capital:
Refers to money raised to start business or money invested in business.
Saving:
Refers to money ledged or kept within a bank for safety purpose and interest is
calculated and payable to the customers.
Bank Note: Refers
to a price of paper money with value printed on it.
Negotiable of Bill:
This is meant that bank purchase an outward bill for collection drawn by export
or importer abroad such purchase would be made before the bill or remitted.
Abroad for collection. A regular export can arrange a negotiation line up to an
agreed limited with bank.
Letter of Credit: A
bank at the instance of foreign buyer can authorized a Nigeria bank through an
oversea bank to the importer have complaint of inadequate fund to finance the
export to the oversea budget.
Loan syndication:
It is a system whereby some one or more banking (financial institution) jointly
arranged a loan for a client for a specific project.
Export In Financing:
Can be defined as the activities of government of a country it is agent to
promote an increase the financial aspect of an exported from the country to
another country.
Bank Distress:
This occurs when a bank is unable to meet up with or honour its current
maturity financial obligation as they fall due for payment. This is also called
technological insolvency and it donate only lack of liquidity.
Debt Factoring:
This involves turning over the responsibilities for collecting a for debt to a
specialized institution. It is an outright sole of debt to a financial company
from cash to be realized for any immediate use if could be with or without
resources.
Collateral Security: These
are pledge or guarantee made or shown to the banks to secure a loan from the
bank as supplement to some more marketable asset which include building, plant
machinery, motor vehicle, when customer failed to redeem this pledge i.e.
refuse to repay the given loan at the stipulated time, the bank will exercise
its right at lien and auction those to
recover their money plus the actual interest.
CHAPTER
TWO
2.0 LITERATURE REVIEW
2.1 MEANING AND BACKGROUND OF BANKING IN NIGERIA
According
to agricultural credit act 1928 of Great British a bank is defined as any firm
incorporation, company or society carrying on banking business.
Also
Dr. H.L Hart on eminent banking authority an England in his book law of banking
defines a “bank as a company carrying on business of receiving money and draft
upon them from time to time by a customer to the extend of the amount available
on their current account.
According
to Dr. Wale Adewunmi in his book banking and finance in Nigeria Graham Born
London (1989) agreed that the quality and usefulness to an extend by the manner
of efficient staff by his action and without saying one word to that effect
invited you to come back next time and even to encourage good image of bank.
According to Dr. Wale is build through advertisement, publicity a contract with
a nudle is efficient staff of bank remove and best badly client that images
According
to Sayer’s (1961) in his book modern banking gave detail definition of bank
thus: ordinary banking business consist of changing cash from bank deposit from
person or incorporation come (one deposit) to another, give bank deposit in
exchange for bill of exchange government bond, the secured or insecured promise
to business to repay etc. from the legal view point section 41 of banking act
196 (formally, banking decree 1969) defined a bank as any person carrying on
banking business and this include universal bank, and acceptance house,
discount house and financial institution, and in his definition banking
business means the business of receiving money from outside sources as deposit
in respective of payment and granting of money loan and acceptance of credit or
the purchase bill and cheque or the purchase of security for account of other
or the incurring of the obligation of the acquire claims in respect of loan
prior to their maturity or clearing and such other transaction. Oleshore O. in
his paper presented in banking management in Nigeria
at the banking and financial lecturer of department economy university of Ibadan
(1984) in a matter in one his speech is of the view that customer must not been
made that the bank is doing him a favour. That no amount of service, Bally –
Goo advertisement or glumick can substitute for good performance and service, which phase the customer,
employees should be fully inform about subject important the bank such as
policy, operations, services and objections.
However,
it is a historical fact that deposit of establishment of indigenous bank
universal in Nigeria
is never the less dominated by the expatriated led to indigenizing the whole
system.
G.O
Nwanko on his book Nigeria Financial System Macmillan banking facilities in Nigeria are
provided by expatriate bank led to the establishment of indigenous bank. On the
other the satisfaction facility provided by the entire banking system as led to
attempt to indigenalize the whole system.
According
to Mr. Paul A. Ogwuna then the governor of the Central Bank of Nigeria in a
lecture delivered at the National Institute of Banker (NIB) annual seminar said
that in other to facilitate the growth the authorities need to stimulate the
money market by introduction of routine rediscount facilities without to
support medium and long term lending.
According
to Dr. Orji H.O managing Director and chief executive progress bank in an
article he feature in the Central Bank of Nigeria Bullion Vol. 13 April / June
(1991) an appraisal of the Nigeria financial system said that the process of
economic expansion might occur due to improvement in the financial system as
potential in adequacy linked with the potential real investment and that as the
financial constrain to development become acute in the 1980’s the banking
sector traced up challenges by harnessing the available capital and saving in
the system for potential investors.
The
Nigeria banks lies their counterpart in Japan, Germany and India said by chief
E.S.O Olisabu in a lecture delivered on 9th February (1993).
Organized lecture, can now play a major role in financial industry directly,
not just saving it as in the past. This has implication for growth and
development.
2.2 TYPES OF BANK
Basically
there many types of Bank such as Central Bank, universal bank, mortgage bank,
cooperative bank and merchant bank.
1) Central
Bank: It can be define as the only financial institution established and charge
with the day to day management and control of nation monetary affairs,
supervising and co-ordinating the banking and financial activities of the
country.
According to Satera, the central
bank “is the organs of government that undertake the major financial operation
of the government and by its conduct of his operation by other means.
De lecole, in his word, a central
bank is a bank which constitute the apex of the monetary and maving instructure
of it country and should perform as best it can in the national economic
interest following are function; central banks according to the De lecole
accepted by the majority of economist.
i.
Regulator
of currency: The central bank is the bank issue. It
has the monopoly of note render money. It has it issue department which note
and coin to universal bank.
ii.
Banker:
Fiscal agent and adviser to the government. Central Bank every where act as
banker, fiscal to the government, the central bank keep the deposit of the
central and state government and make payment on behalf of government.
iii.
Custody
and Management of foreign reserves: Central bank keeps and
manages foreign exchange of country. It is an official reservoir of gold
currencies.
(2)
Universal Bank: It may be defined as an institution set
up purposely to safe keeping of money, valuable good and document. It is also
refer to retailer bank. Section 61 of decree no 25 of 1991 defined “banking
business to mean the business of receiving deposit on current account, saving
account or other similar account, paying or collecting cheques, drawn by or
paid by customer; provision of financial or such other business as the
government by other published in Gazette, designate as banking business.
The importance of universal bank
can be best illustrated by a brief explanation of their major function.
a.
Pooling
saving: Universal bank perform this very important function
of all sector of the economy by making available the facilities for pooling
saving through the acceptance of deposit from the public and then making these
funds available for economically and socially desirable purpose.
b.
Payment
Mechanism: One other important role performed by universal
bank is the provision of payment mechanism or transfer of funds.
c.
Extension
of credit: one of the primary function of universal
bank is the extension of credit worily customers or borrower. A universal bank
lend a certain percentage of cash lying in deposit on the higher interest rate
than it pays on such deposit.
d.
Safe
Keeping of Valuables: This function evaluate during the
gold-smith-banker era when gold smith had the strong safe vault that were
difficult to enter even by the best of burglars. This is one of the oldest functions
of universal bank.
3.
Merchant
Banks: “The concept merchant banking” has it origin in the
pioneering activities of British merchant who later become acceptance houses.
Merchant banking was pioneered in Nigeria
by Philip Hill (Nigeria)
Limited which universal operation in the country in 1960. It merged with Nigeria
acceptance limited which later change it name to Nal Merchant bank.
Merchant bank can be defined as a
financial institution that provide medium and long term loans, accept large
deposit, bill and deal in stocks.
In Nigeria, section 61 decree no 25
of 1991 legally defines a merchant bank as “A bank whose business include
receiving deposit on account, provision of finance, consulting and advisory
service relating to corporate and investment matter, making to or managing
investment on behalf of any person. The major function of merchant bank
include:
i.
CORPORATE
FINANCE: Corporate finance was often been as the glamorous
side of merchant banking. It corporate finance department job is to advice to
the expert on the rules and commercial law, accounting practice at home and
abroad.
ii.
BANKING
FUNCTION: The banking function of merchant bank is the most
understandable function. This involve lending the bank’s money, issuing
guarantee, arranging import and export credit needing temporary finance
pending. The conclusion of finding arrangement.
iii. Issuing house: Merchant
bank act as houses at the Nigeria
stock exchange.
4.
Mortgage
Bank: It may be defined as a financial institution
established for acceptance of fixed disposal member of the public with the aim
of encouraging them to build their own houses by offering them longer time
loan. According to decree No 9, (1997) the federal mortgage bank of Nigeria (FMBN)
took over the asset and liability of Nigeria since inception in 1956.
The bank is charge with the
responsibilities of supervising and controlling the mortgage institution in Nigeria
providing guarantee for loan from private investment sources for building
purpose and carrying our research activities and housing in rural and urban
area. It is the apex financial institution for mortgage industries with asset
and liabilities of the federal mortgage industries with asset and liabilities
of the federal mortgage bank in Nigeria.
The function of mortgage bank in Nigeria include:
i. Provision
of long-term credit facilities to other mortgage institution in the country at
a rate and on term as may be determined by the board in accordance with
government policy.
ii. Encourage
and promote the development of mortgage institution at state and national level.
5.
COOPERATIVE
SOCIETY: Cooperative society is a firm of proprietors,
traders or producer unite to foster their groups and individual business
interests. Cooperative societies are business organization undertaken by people
who are similar interest in West Africa. There
are three main types of cooperative societies are found namely:
i.
Producer co-operative society
ii.
Consumer co-operative society
iii.
Credit and theft co-operative
society
Management / control General
characteristic of co-operative societies
i.
Ownership:
Any member or person with concern interest collectively own and bear risk.
ii.
Capital:
Members is entitled to one share only. Any extra capital is raised from members
through loans, only a small rate interest is on such loans.
iii.
Members have equal opportunities in the
management, profit are share among member according to the society since this
have equal visiting however usually some members are expected to see day to day
running of the society.
iv.
Profit: Profit are share among member
according to their purchasing power.
v.
They give loan the rural investor to
facilitate rural development in the country
6.
Rural
Banking: Federal environment as part of it effort in implementing
its third national development plan introduced the rural banking scheme. The
central bank of Nigeria due
to the reluctant of some banks especially foreign bank in Nigeria to
operate in rural area. The major objective of rural banking includes:
i.
Development of agricultural and
agro-allied industry in the rural area with a view of achieving the nation
objective a self sufficiency in food production.
ii.
Creating of credit through equity and
loan for the uplifting of small scale industries.
iii.
Mobilization saving from the rural
sector for the purpose of channeling them to profitable venture.
2.3 BANK SOURCES AND EMPLOYMENT FUNDS
1. Central Bank
in Nigeria
source of food
a.
Capital subscribed and paid up (wholly held by the federal government)
b.
General reserve
c.
Currencies in circulation
d.
Deposit federal and state government, banking institution parastatals
2.
Employment of Central banks in Nigeria:
The central bank employed its state resources in
a.
Good bullion (value of a country currency)
b.
Convertible currency, foreign bank securities.
c.
Federal government securities for example Nigeria treasury bill, certificate
fund stock
d.
Advance granted by the federal government.
Universal bank sources of funds
Universal
bank sources of funds offer their government owned bank
a. The
equity share capital subscribed by share holders
b. Loan
and short term advance from the government employment of universal bank
resources.
The bank employee and various
resources of funds machinery and equipment.
c. Invest
in subsidiary companies
d. Maintenance
work capital
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