Financial institutions in Nigeria has played a vital role in putting substantial measures in places particularly, through the process of allocation of funds to those areas they think would be more productive.
Where there is efficient financial markets, there is bound to be trade and investment and economic growth. Financial institutions do make provision for different kinds of products and several other services available in the banking industry to the members of the public, who would want to engage in trade, commerce and other socioeconomic activities.
The significance of the financial institutions to the economy can be evident when there is economic booms and/or, when there is economic recessions.
Quite interestingly, financial institutions would make enough funds available such that, it will help drive economic growth, in the event, where there is economic upturns.
On the contrary, once there is economic down turn, financial institutions will controlled the amount of monies they released to the public, in other words, they will curtail lending.
This however, can positively or negatively affect a nation’s economy pending which way the pendulum swing to, and this is a clear indication that, economy is directly proportional to the financial sector.
The role played by the financial institutions have made it possible for members of the public to access financial products and services from banking industry.
In a normal condition, banks are advised to lend money to members of the public particularly, those running small businesses.
When there are such soft loans, consumers would be encouraged spend, and once they spend, such spending would directly leads to economic growth.
Hence, it is impossible to believe that government alone can work to attain sustainable development. In other words, for sustainable development to be achieved, then private sector has a role to play.
This is where the role of the financial institutions can actually be appreciated.
Read Also: 10 Functions of Nigeria Bank of Industry
What Is Financial Institution?
A financial institution is an organization which is saddled with the responsibility of handling financial transactions, such financial transactions include, investments, and loans and deposits.
Virtually every individual in one way or the other do have dealings, such as depositing of monies, taking of loans, exchanging of currency, etc with financial institutions almost every day.
Functions Of Nigeria Financial Institutions
There are quite a number of functions of the Nigeria financial institutions, but in this article, I am going explain quite a few of them.
1. Funding Of Small Scale Businesses
In running small scale business successful, funds therefore, are necessary hence, collecting credit from financial institutions would be the best option, since such loan would served as an input for the sustenance of the growth of such small scale business thus, availability of funds would serves great deal of purpose.
Providing short term credit or what small scale businesses called ‘working capital’ will help small enterprises run their day to day business by securing facilities for the purpose of buying raw materials and paying of bills such as that of electricity, water and other over head expenditure, sometimes paying of wages to the employees who work in the enterprise is inclusive.
Sometimes too, such loan could be long term credit, and this is necessary to enable the businesses purchase fixed assets for their businesses, and these fixed assets could be land, it could be building, sometimes it could be plant, as well as, machinery that will help the small and medium scale businesses carry their day to day businesses smoothly. Financial institutions have helped in this direction.
2. Provision Of Financial Services To Individuals And/or Households
Apart from commercial impacts financial institutions have made on small and medium enterprises, financial institutions have also make some impacts on few households, as well as, some individuals.
Through these household’s activities in the area of consumption of goods and services, they have impacted on the environment.
Study has proved that, individuals’ and/or households activities or their impacts in the environment is much more than that of the commercial impacts, that is why, financial institutions believe that, to have impact on the activities of these households, there is need to provide them with a good financial program, such as provision for cheap and affordable mortgage finance plan.
This financial arrangements have brought about home ownership, this has also brought about car ownership as the case may be.
And this is done by way of providing these individuals with car loans and sometimes it is hire purchase. This has been achieved by most financial institutions though a well thought out financial arrangements otherwise, where there is no proper and suitable financing arrangements particularly, when products are of high capital costs, it may be difficult to make sales.
3. Support Services And Development
Financial institutions also embark on development and support services program. For instance, there are some agencies that work for some organizations, such as chambers, associations, etc.
These agencies do access grants or loans from the financial institutions, and these loans and grant come in form of support service to these agencies who work for the development and promotion these organizations.
Financial institutions’ support services could come in areas such as human capacity development, and up-gradation in technology.
4. Mopping Of Savings
Another function of the financial institutions is to address some crucial needs of the society in terms of financial education. But in this case, what the financial institutions do is to mop up savings that are small at some rates with various options.
A common man on the street may decide to gather his savings under a certain alternatives, sometimes with those little little savings schemes, which the government has introduced and then have them in bank deposits in the form of saving account.
Through such savings he may have another option of investing his savings in the mutual funds or stock.
There is a need for suitable framework such that will foster speed and the ability to act promptly, and more effectively so as to avoid any adverse condition that could have impacted negatively on the financial institutions. And I believe that, by the virtue of the role played by the financial institutions in growing the nation’s economy, it will contribute in its role with a view to ensuring ultimate improvement in stabilizing the financial institutions and the economy. If financial markets, like the bond market, and the stock market, and the foreign exchange market are well functioning, the likelihood is that, such arrangement will bring about high economic growth. In subsequent, when once there is expansion of the financial instruments, there is going to be reduction in transaction and information costs, and by so doing, economic growth and development would be achieved.
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