FINANCIAL INTERMEDIARIES AND THE DEVELOPMENT OF NON FINANCIAL FIRMS IN NIGERIA

FINANCIAL INTERMEDIARIES AND THE DEVELOPMENT OF NON FINANCIAL FIRMS IN NIGERIA

​​​​​​​BACKGROUND OF THE STUDY

The availability of sufficient financing is one of the most important factors that determines economic growth. This financing is needed by a variety of organizations, people, and economic actors so that various goals may be fulfilled. The provision of financial services, on the other hand, is crucial to the encouragement of investment and the building of various types of infrastructure facilities. Therefore, it is imperative to develop financial intermediaries that are efficient and can function, examples of which include mortgage financial intermediaries, intermediaries of industry and industry, agricultural development financial intermediaries, deposit money financial intermediaries, investment banks, and occasionally the stock exchange. The function of these financial institutions as intermediaries, which increases the availability of cash from savers to borrowers, is beneficial to the economy. As a result, a method of direct or un-intermediated financing was a prevalent practice prior to the formation of the financial intermediation industry. During this time period, economic agents who want to invest more money than they had available searched for financial aid by borrowing money from affluent individuals in their financial environment with the intention of repaying the debt at a later time. According to Afolabi (1998), despite the fact that this system was extremely rudimentary, it most likely fulfilled the requirement at the time because the demands placed on the economy at the time were limited to such personal uses as marriages, burial ceremonies, and minor commercial activities such as farming. Because of this, throughout this time period, the act of intermediation was neither required nor sufficient for the process of capital creation to take place. Borrowers have such a high level of faith that the function of the intermediary will always promote the prospect of having adequate cash that can be handed on to them in a cordial manner and at terms that are generally favorable. But in the modern day, intermediaries do advertise for credit availability, and borrowers who are ready to access the credit may acquire it as long as they are credit-worthy and have a feasible investment that can be used to repay the loan at a future period. Therefore, through the intermediary role that financial institutions play, various collections of debt, equity, or hybrid stake holding structures are used as a means of redistributing idle capital to potential investors. These potential investors, in turn, invest the fund for the purpose of increasing the creation of jobs and promoting economic growth. According to Afolabi (1999), the importance for economic development is in the reduction of present consumption in favor of increased future consumption. He emphasized that earnings that are not spent on consumption are often saved for investment reasons; this is referred to as net savings. Companies borrow this money, which represents savings, in order to make investments in capital goods. These investments contribute to the expansion of the economy since they are included in the capital stock. Consequently, consumers invest in consumer products, while businesses put their money into capital goods to expand their operations. In a similar fashion, Dewett (2005) and Nwanyanwu (2010) suggested that a consistent rise in aggregate production leads to changes in macroeconomic indices such as employment, the ratio of capital to output, technical growth, and innovation, amongst other things.

The imbalanced attention that is provided to financial intermediaries is brought to light by a careful analysis of published financial research. While there is a wealth of information available on the scale and extent of the contribution that financial intermediaries provide to the economy, very less is known about the role that these corporations play in the development of non-financial businesses in Nigeria. It is a fact that financial intermediaries that contribute to the development of the economy outperform NBFIs in terms of the number of transactions, the adaptability of operations, the variety of products, and the degree to which they penetrate the market (Acha, 2005). The fact that NBFIs perform activities that are comparable to those of financial intermediaries and that their efforts complement the efforts of financial intermediaries in the process of financial intermediation does not in any way reduce the contributions that NBFIs make.

​​​​​​​STATEMENT OF THE PROBLEM

In spite of the fact that non-bank financial institutions play a role that is complementary to that of banks in the aforementioned areas, it is well recognized that NFIs have the potential to hold benefits in the execution of economic development tasks (Acha, 2005). For example, certain non-bank financial institutions (NFIs) have a rural focus, such the community banks (now known as microfinance banks), and as a result, they have access to a larger population of Nigerians and the savings potentials that they have (Acha, 2005). Because Nigeria is a nation that is in desperate need of development, it is impossible to ignore the development potentials of NFIs, which are the only entities that are able to operate at their highest level when working in conjunction with financial intermediaries.

​​​​​​​OBJECTIVES OF THE STUDY

The primary objective of this study is to examine financial intermediaries and the development of non financial firms in Nigeria. Specifically, other objectives of the study are:

1. To examine the extent financial intermediaries are used in non financial firms in Nigeria.
2. To examine the types of financial intermediaries used in non financial firms in Nigeria.
3. To determine whether financial intermediaries help create efficient markets and lower the cost of doing business of non financial firms in Nigeria.
4. To determine whether financial intermediaries can provide leasing or factoring services to non financial firms in Nigeria.
5. To determine whether financial intermediaries offers the benefits of pooling risk, reducing cost, and providing economies of scale to non financial firms in Nigeria.

RESEARCH QUESTIONS

The following research questions will be answered in this study:

1. To what extent are financial intermediaries used in non financial firms in Nigeria?
2. What are the types of financial intermediaries used in non financial firms in Nigeria?
3. Do financial intermediaries help create efficient markets and lower the cost of doing business of non financial firms in Nigeria?
4. Can financial intermediaries provide leasing or factoring services to non financial firms in Nigeria?
5. Does financial intermediaries offer the benefits of pooling risk, reducing cost, and providing economies of scale to non financial firms in Nigeria?

RESEARCH HYPOTHESES

H01: Financial intermediaries does not help create efficient markets and lower the cost of doing business of non financial firms in Nigeria

​​​​​​​SIGNIFICANCE OF THE STUDY

This study will be beneficial to the financial sector as the findings of this study will reveal the benefits of financial intermediaries to non financial firms.

This study will also be beneficial to scholars, researchers and students as this study will serve as a pilot material for further studies and future reference.

​​​​​​​SCOPE OF THE STUDY

This study focuses on examining the extent financial intermediaries are used in non financial firms in Nigeria, examining the types of financial intermediaries used in non financial firms in Nigeria, determining whether financial intermediaries help create efficient markets and lower the cost of doing business of non financial firms in Nigeria, determining whether financial intermediaries can provide leasing or factoring services to non financial firms in Nigeria and determining whether financial intermediaries offers the benefits of pooling risk, reducing cost, and providing economies of scale to non financial firms in Nigeria.

Selected staff of Diamond bank, Gwarimpa will serve as enrolled participants for the survey of this study.

1. 1. LIMITATIONS OF THE STUDY

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

​​​​​​​DEFINITION OF TERMS

Financial Intermediaries: A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, pooled investment funds, and stock exchanges.

Non financial firms: Firms whose principal activity is the production of market goods or non-financial services.

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