The Impact Of Financial Institution On The Economic Development
[A CASE STUDY OF ZENITH BANK ILE-IFE]

1.1 BACKGROUND OF THE STUDY

The financial institution of any economy in the world plays a vital role in the development and growth of the economy. The development of this institution determines how it will be able to effectively and efficiently discharge its major role of mobilizing fund from the surplus sector to the deficit sector of the economy. This financial institution has helped in facilitating the business transactions and economic development (Aderibigbe 2018). A well developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction and monitoring costs. If a financial system is well developed, it will enhance investment by identifying and funding good business opportunities, mobilizes savings, enables the trading, hedging and diversification of risk and facilitates the exchange of goods and services. All these result in a more efficient allocation of resources, rapid accumulation of physical and human capital, and faster technological progress, which in turn results in economic growth. 

Also, development in the real sector, as noted by Ajayi (2016), influences the speed of growth of the financial sector directly, while the growth of the finance, money and financial institutions influence the real economy. The economic growth is a gradual and steady change in the long-run which comes about by a general increase in the rate of savings and population (Jhingan 2015). It has also been described as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is measured by the increase in the amount of goods and services produced in a country. An economy is said to be growing when it increases its productive capacity which later yield more in production of more goods and services (Jhingan 2016). Economic growth is usually brought about by technological innovation and positive external forces. It is the yardstick for raising the standard of living of the people. It also implies reduction of inequalities of income distribution. Oluyemi (2017) regards the financial sector of any economy as an engine of growth that could greatly assist in the promotion of rapid economic transformation. It can be concluded that no economy can ever develop without an appreciable growth in the financial sector. An efficient financial system is essential for building a sustained economic growth and an open vibrant economic system. Countries with well developed financial institutions tend to grow faster; especially the size of the banking system and the liquidity of the stock markets tend to have strong positive impact on economic growth (Beck and Levine, (2020).

Also, the Nigeria economy revolves round the hub of an active financial system. This system consists of financial institutions, financial markets, financial instruments and improved rules and regulations that facilitate and regulate the flow of funds from surplus units to the deficit units. By surplus units we mean those economic units whose income exceeds their expenditures within a specified period of time; thus facilitating lending within this period. Deficit on the other hand refers to those economic units whose financial need or expenditure exceeds their income within any given period; hence they need loans from these surplus units. The financial institution as a corporate entity that deals in financial claims, is controlled by the government through various regulatory bodies such as the CBN, NDIC and the SEC who supervise their activities. 

In Nigeria, the financial institution engages in mobilizing funds from the surplus sector of the economy and lends such funds to the deficit sector. In this way, it intermediates between the people with surplus funds and those in deficit and because of this vital role, it is called a financial intermediary (OGBOGHRO, (2013). 

There are basically two groups of financial institutions in Nigeria namely, the banks and non-banks financial institutions. To enable a thorough examination of the problem under study a focus will be based on the banking institutions mostly and their roles in economic development. An analysis of the role of banks in the Nigeria economy by approaching the matter from the points of lending which combines both borrowers [deficit unit] and savers [surplus unit] will aid a better understanding of the problem. It is pertinent to note that financial institutions borrow from ultimate lenders as a separate transaction and lend to ultimate borrowers. Hence, they involve in a double exchange of securities, whereas one would have ordinarily been in the absence of any financial intermediary to facilitate direct finance which has a high risk. The financial intermediaries functions of these institutions offers a secondary security on itself to lenders in exchange for money and use the money for acquisition of primary securities and share liabilities and also lend as a way of advances. 

In discharging this function, banks are now reluctant and restrained due to their excessive exposure to intensified risk; this in turn is not healthy for the profitability of money deposit banks and their likes. Thereby this has discouraged many institutions from facilitating this loan granting function. Some scholars argued that banks should continue the financial intermediary service as this is important because these institution help to facilitate the channeling or transfer of funds [savings] from the surplus units to the deficit spending units through the administration of loans to different sectors of the economy which will further increase the productivity of the economy. For instance the personal savings of an individual lodged in the bank can be lent to another individual or a business firm for further money creation. 

More so, large scale production and high degree of specialization of labour can only be possible if there is an efficient recycling system of funds [funds flow].  Business firms can obtain the funds they need, to buy capital goods from the necessary institution: This is done through the use of marketable collaterals as a pledge to secure the loans. The federal government and governmental units e.g Money Banks (CBN) and Nigeria deposit insurance corporation [NDIC] are able to carry out a wide range of activities on the domestic and international scene only if an efficient means exist for raising funds for making payments and for borrowing. NJOKU P.O, (2015) 

The Nigeria financial institutions are integral part of the nation financial intermediation mechanism through which the saving of households firms, public corporations and even oversea resident are made available to borrows at home. Financial intermediation channels the fund from the potentials surplus units to potential deficit units quickly, cheaply, safely, and conveniently thereby influencing the overall economic development of the state. 

The principal financial institution in Enugu urban financial system may be classified into bank and non-bank financial institutions. The banking financial institutions include the Central Bank of Nigeria (CBN) Commercial Banks, Merchant Banks, Development Banks. The Non-Bank Financial Institution (NBFI) on the other hand, include insurance companies, permission funds, National provident fund. Credit and cooperative society, investment corporations, Discount House Finance Companies, Building societies and Hire purchase companies.

There is also the financial market comprising of money and capital markets, where most financial institution operate for the purpose of accelerating financial intermediation thereby improving the liquidity of the economy.

Also, Nigeria economic development depends solely on the activities of financial institution. This assertion is based on the contention that capital accumulation, which is basic pre-requisite for and development take-off, is being financed mainly by the activities and tools of financial institution and its intermediation mechanism.

In view of the above, government has been involved in developmental programmes with aim of increasing a lot of people through a steady increase in per capital income. Government in a bid to do this has involved itself in different programmes that could evolve a good investment culture in the nation such programmes might aim reducing the interest race so as to stimulate investment of a programme put in place to stimulate savings so that there could be enough advances to investors. This has been pursued with zeal over the years.

Besides, there have various grants and aids, subsides and the like to so many sectors of the economy to stimulate investment. They have also tried as much possible to attain stability in every sector of the economy. However, this has not been easy since the nation has been into a state of economic instability for the past ten years in their quest for the solution to his economic uncertainty, the federal government of Nigeria established various development bank to give long-term advance to investors as a way of encouraging investment and instilling an investment culture in Nigeria business climate. To appreciate the influence the financial institutions have on Nigeria economy, a Review of the native and function of bank and non-bank financial institution is necessary so that one can place the important aspect of this research work in right perspective. An efficient financial system is essential for building a sustained economic development and an open vibrant economic system. Countries with well-developed financial institutions tend to grow faster; especially the size of the banking system and the liquidity of the stock markets tend to have strong positive impact on economic growth. This study examines the impact of financial institution on the economic development in Nigeria. It seeks to know the impacts of the institution in the Nigerian economy and whether the institution has been able to achieve its main objective of intermediation as a result of the inability of the sector to assist the real sector despite the huge profits declared yearly & also the short term lending of the banks instead of long term investment that can boost the economy. Economic growth in a developing economy rest on an efficient financial sector that pools domestic saving and mobilizes foreign capital for productive investments. In the developing countries, industries need more funds to increase their investment so that they can meet globalization constraint.

1.2 STATEMENT OF THE PROBLEM

The impacts of financial institution exist all over the world like other private enterprise with their traditional role of issuing financial obligations such as demand deposit in order to acquire funds from the public. These corporate institutions pool these funds and provide them in larger amount to business unit’s government and individual’s ordinarily financial institutions make credit facilities available to potential investment in an economic unit. Besides, they see to it that credit to the investors in judiciously use by extending expend business advice to the investors. By so doing the financial institution in no hall measures contribute in speeding up the overall economic development of a state.

Financing of industrial production technology and other sectors development is within the completeness and responsibility of the financial system available information have shown that local industries depends on financial institution to the tune of about sixty percent hence one could imagine financial involvement in other field of endeavors that insures economic development of the state.

It is also important to reflect on the effect of the Central Banks use of monetary policy on development process of an economy. This control measure affect overall economic activities of the state such as money and credit creation, unemployment take in inflationary rule national growth and in fact the stabilization of the entire state of economy.

It has been stated above that the both banking and non-banking financial institution help in bringing both banking and non banking together. The effect their interaction, no doubt, will affect the economy positively. Despite and these contribution in view, the banking and non-banking financial institution, which abound in commercial banks, has not made any necessary impact on the economy. The per capital income is still very low, unemployment roaring very high. Inflationary roaring as defined all economic approach hence there is a general instability in the economical as people still living in object propriety and hopeless.

1.3  RESEARCH QUESTION

i. What is the impact of the financial institution on the economic development in Nigeria? 

ii. Evaluate the important of the financial institution on the economic development of Nigeria?

iii. What is the relationship that exists between economic development and the Nigerian financial institution in Nigeria?  

iv. What are the recommendations to enhance the performance of the financial institution on economic development in Nigeria?

1.4 RESEARCH OBJECTIVE 

The Specific objectives are to:

i. Examine the impact of the financial institution on the economic development in Nigeria 

ii. Evaluate the important of the financial institution on the economic development of Nigeria

iii. Determine the relationship that exists between economic development and the Nigerian financial institution in Nigeria.  

iv. Proffer recommendation to enhance the performance of the financial institution on economic development in Nigeria

1.5 RESEARCH HYPOTHESIS

The hypothesis of this study is;

H0: financial institutions development does not have any impact on Nigerian economic development

H1: financial institution has impact on the Nigeria’s economic developement

H02: financial institution development does not have any important role on Nigerian economic development

H2: Financial institution development has important role on the Nigeria’s economic development.

1.6 SCOPE OF THE STUDY

The Study is concerned with the impact of Financial Institution on the Economic Development (A Case Study of Zenith Bank Ile-Ife)

1.7 SIGNIFICANCE OF STUDY

Many reasons have been suggested for the negations disposition of a significant percentage of Nigeria’s toward saving their money with financial institution, which can channel these fund to where investment are most required. The most popular of this reason is that banking services are not easily available to all Nigerians because of the uneven geographical distribution of banks, i.e, while most urban centers are having branch offices of most the existing banks, there are little or no bank in the rural area within a radius of 70 kilometers even with the establishment of people and community banks, little or no impact has been felt as it concerns the above problem.

It has also been suggested that even where bank operate, most Nigerians particularly the less educated, may avoid using their service because of the apparently long time it take to consummate a simple transactions. This has necessitated the large transaction balance kept by individual in cash form. Wealthy and educated individuals also tend to keep large cash balance for reasons ranging from meeting social requirements and extended family commitments, whichever is the case, we can agree that all these have been responsible for the creation of the saving gap.

However, and effort at increasing the level of financial intermediaries must therefore examine the possibilities that exist for changing these attitudes and reducing the saving gap. Incidentally, this is exactly what this research work aims at achieving, especially as it is in line with the belief of keys “That saving in the corner-starts of and development ventures”.

It is therefore researchers candid opinion that this project on the financial institution and economic development in Nigeria will be a useful guide to the policy formular and implements in Nigeria generally students of social science, especially student economic, financial studies and other academics and citizens of mature experience who may have cause the seek for credit for investment purpose will benefit immensely form this work. This is because the major factors militating against financial institution playing their traditional role of being a catalyst of economic development and what individuals, private and public concern are expected of.

Finally, it is conceived that at the completion of the study its findings would be beneficial to the management of business entities who are contributors to the subject in consideration. The accounting profession and auditors in their different engagements and assist them to project a good image of accounting profession Research students who may want to use the study as a source of reference in their academic pursuit. The entire public (Investors and potential investors) who rely on the external auditor for economic decision making.