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Chapter 1


Background of the Study

Financial sector is in no doubt a very essential part of the economy of a nation and any development experienced in the financial sector extends to other part of the economy. One of the most important tasks before developing countries is to achieve higher rate of economic growth. Due to the influence of the activities in the financial sector on the economy at large, every nation strives to have a proper and up to date financial sector.

For clarity, the financial sector does not only mean the banking sector, but also the capital market, institutions, laws, regulations and techniques through which bond, stocks and other securities are traded, interest rates are determined and financial services are produced and delivered around the world. The money and capital markets, along with the financial system that support them, are an exciting area for study. What goes on daily in these markets and within the financial system as a whole has a powerful impact on the economy. Broad changes are forever remaking the financial market as new institutions, new methods, new problems and new services continually appear.

Financial problems seem to be the same everywhere in the world and though the ways to solve those problems differ from one country to another, they tend to set to achieve the same goal. One of the factors identified by development economist in their search for the explanation of Africa’s poor macroeconomic performance (though there is no consensus on s single cause) is lack of financial depth. This simply means that financial problem somewhere is financial problem elsewhere. This explains the reason the importance of financial development cannot be over emphasized.

Nigeria, which is our main concern in this study, has recorded a number of challenges in her financial sector and this has in all ways affected the economy as a whole. Though there have been a number of programmes and policies put in place to achieve a well-developed financial sector, it cannot really be said that this has been achieved and the consequence of this is being seen in the economy of the nation.

Statement of Problem

Generally, the reasons for financial sector challenges differ from one country to another

And these range from inadequate policy framework for financial development to incompetent management, while others are misuse of tools to achieve the desired outcome pertaining financial development.

Nigeria’s financial sector challenges can be said to be as old as the financial system itself. The money market (banks) had some of its challenges dating back to the era of the foreign banks in Nigeria and the challenges in other institutions of this sector can also be traced back to origin. The sector’s inability to overcome its challenges constitutes one of the serious obstacles to the growth of the sector and that of the economy at large. As earlier mentioned that financial problems seem to be the same around the world, this means the aforementioned reasons can also be ascribed to the Nigeria economy.

Scope of the Study

This study covers the historical background of the Nigeria’s financial sector developments including its origin, causes and relation to the economy as a whole. The period to be considered in this study is a range from 1970 to 2004. This time frame was chosen as it covers the period of pre-SAP (Structural Adjustment Programme) and post-SAP in Nigeria.

Objective of Study

The broad objective of this study is for us to evaluate the financial sector developments in the Nigerian economy.

The specific objectives however are:

  1. To analyze the various developments in the financial sector;
  2. To examine the trend of the financial development; and
  3. To determine the financial sector development in relation to the Nigerian economy.

Significance of Study

Necessity for a better economy and the undeniable link between the economy of a nation and its financial sector motivates the steps taken for the development of the financial sector.  In developing countries like Nigeria, different steps have been towards the achievement of its financial sector though it the desired destination has not been achieved.

This Study focus mainly on the financial sector development in the Nigeria economy, and how it has affected the economy both positively and negatively. This study will be useful to policy makers, economists and to several individuals, who are stakeholder, when it comes to the financial sector. The study will also serve as an introductory phase to others who want to do a further research work in this area.

Research Questions

In light of the objectives listed above, the basic questions to be answered include the following:

  • What is the nature of the various developments in the financial sector?
  • What is the current situation of these developments?
  • How has the financial sector affected the Nigeria economy?

Research Methodology

The research methodology of this study entails an explanatory form. This is done through the comparism of the seasons stipulated in the study. These seasons are those that revolve around the introduction of the Structural Adjustment Programme (SAP)

Sources of Data

The data to be used for this study will be mainly secondary data and we shall limit our data to domestic ones. This data will be restricted to the figures in the pages of Central Bank of Nigeria Statistical Bulletin.

 Outline of Proposed Chapters

The main thrust of this study is to evaluate the financial sector of the Nigeria economy, and its effect on the Nigeria economy. The study is divided into five chapters. After the introduction of chapter 1, we look at the review of several literatures in chapter 2. This is followed in the chapter 3, by a look at the theoretical framework of the study. In chapter 4, we discuss the estimations and results obtained from the data used. We round off the study with the summary of the study and some concluding remarks in chapter 5.

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