Project Materials

IMPACT OF FINANCIAL INTER-MEDIATION BY DEPOSIT MONEY BANKS ON THE REAL SECTOR OF THE NIGERIAN ECONOMY (1980 – 2010)

Chapter one

INTRODUCTION

1.1 Background of the Study

Financial intermediation is the process of transferring money from economic actors with surplus funds to economic agents that want to use those funds. The key to understanding the process and the breadth of financial instruments accessible is to recognise that economic agents are a diverse group with varying financial positions, investment, company, and financial needs.

As a result, there are several financial intermediaries and tools available to meet these needs. Financial intermediation is the act of collecting cash from depositors and lending them to borrowers.

That is, it is a process in which people with excess funds pay to banks or other financial institutions, and the banks extend credit to those who need the funds for personal or business purposes. It frequently includes mobilising financial savings and channelling them to borrowers via specialised entities known as banks.

These specialised organisations, sometimes known as financial markets, are regulated to accept deposits and lend them to businesses and people at predetermined interest rates over a set period of time.

Financial intermediation also includes banks processing payments, receivables, transfers, and guarantees on behalf of their customers.

Banks, insurance companies, leasing businesses, microcredit, private equity, venture capital, and pension funds are some of the organisations that provide financial intermediation services.

Some of these organisations benefit from a cost advantage in providing these intermediation services in such a way that they can not only pay their bills but also make a profit, resulting in overall economic efficiency.

The function of deposit money institutions is to mobilise savings for investment. The role of banks in promoting economic growth within an economy is widely recognised.

1.2 Statement of the Problem

“The Nigerian economy’s financial sector underwent major changes between 1980 and 2010, particularly in the activity of deposit money institutions. However, it is unclear how these changes in financial intermediation have affected the performance and development of the real sector.

As a result, the fundamental problem addressed by this study is to examine the impact of financial intermediation by deposit money banks on the real sector of the Nigerian economy over the chosen time period.

The study’s specific goal is to look into the relationship between deposit money bank activities, such as credit allocation and lending practices, and important indicators of real sector performance, such as output, employment, investment levels, and overall economic productivity.”

1.3 GOALS OF THE STUDY

The primary goal of this research is to estimate the influence of financial intermediation by deposit money banks on the real sector of the Nigerian economy (1980–2010). Specific aims include:

1. To assess the scope of financial intermediation operations conducted by deposit money banks in Nigeria between 1980 and 2010.

2. To examine trends and patterns in the real sector performance of the Nigerian economy during the selected time period.

3. To evaluate the relationship between deposit money banks’ financial intermediation and key real sector indicators such as production output, employment levels, and investment activities.

1.4 RESEARCH QUESTIONS

1. What were the main financial intermediation activities carried out by deposit money banks in Nigeria between 1980 and 2010?

2. How did the real sector of the Nigerian economy perform in terms of production output, employment generation, and investment trends throughout the indicated time period?

3. What is the type and strength of the relationship between financial intermediation operations carried out by deposit money banks and the performance of the real sector in Nigeria?

1.5 Research Hypothesis

1. H0: There is no substantial association between financial intermediation by deposit money banks and real-sector performance in the Nigerian economy from 1980 to 2010.

H1: There is a considerable association between financial intermediation by deposit money banks and the performance of the real sector in the Nigerian economy from 1980-2010.

2. H0: Deposit money banks’ actions had little effect on production output, employment levels, or investment trends in Nigeria’s real sector between 1980 and 2010.

H1: Deposit money banks’ actions influenced production output, employment levels, and investment trends in Nigeria’s real sector from 1980 to 2010.

3. H0: Financial intermediation by deposit money banks has a consistent impact on the Nigerian economy’s real sector throughout several sub-periods from 1980 to 2010.

H1: The impact of financial intermediation by deposit money banks on the real sector of the Nigerian economy changes between sub-periods from 1980 to 2010.

1.6 Significance of the Study

The study “Impact of Financial Intermediation by Deposit Money Banks on the Real Sector of the Nigerian Economy (1980-2010)” is significant because it has the potential to contribute to both academic understanding and practical policymaking in Nigeria. Some of the important significant points are:

1. Contribution to Academic Knowledge: The study will add to the body of knowledge on the relationship between financial intermediation and the real economy in emerging economies such as Nigeria. It can provide useful information about how deposit money banks affect real sector performance over time.

2. Policy Implications: The study’s findings can help policymakers, regulators, and stakeholders in the financial and economic sectors assess the efficacy of financial intermediation regulations and practices. This can lead to more targeted measures that promote real-sector growth and development.

3. Economic Development: Understanding the dynamics of financial intermediation and their impact on the real sector is critical for promoting long-term economic development. The study’s identification of the elements that determine actual sector performance should help lead efforts to improve Nigeria’s productivity, employment, and investment.

4. Investment Decisions: The study’s findings can help domestic and global investors make informed investment decisions in Nigeria. Understanding how deposit money banks influence the real sector can assist investors in assessing potential dangers and opportunities across the economy.

5. Empirical Validation: The study will give empirical data on the relationship between financial intermediation and Nigeria’s real sector, either validating or questioning existing theories and hypotheses. This empirical confirmation is critical for developing a strong grasp of economic phenomena.

6. Capacity Building: The study’s data gathering, analysis, and interpretation can help to improve capacity among Nigerian academics, scholars, and practitioners in the financial and economic sectors. This may result in the development of local expertise and resources for future studies.

Overall, the study’s value stems from its ability to inform governmental decisions, increase academic understanding, and contribute to Nigeria’s long-term economic progress.

1.7 SCOPE OF THE STUDY

This study looks at the impact of financial intermediation by deposit money banks on the Nigerian economy’s real sector between 1980 and 2010.

It examines major financial intermediation operations carried out by deposit money banks, developments in real sector performance metrics such as output and employment levels, and the link between financial intermediation and real sector development.

The scope includes quantitative analysis of historical data as well as qualitative insights from relevant literature in order to provide a full grasp of the issue within the designated timeframe.

1.8 Limitations of the Study

The study’s breadth is constrained by a number of criteria, including data availability, dependability, and accessibility in Nigeria over the given time period.

Furthermore, the study may have limitations about the completeness and quality of historical records, inherent biases in data collection methods, and the generalisability of findings outside the study period and geographic setting.

Furthermore, the study may be hampered by the complexity of the interaction between financial intermediation and real sector dynamics, necessitating a more in-depth investigation and consideration of external factors influencing Nigerian economic developments.

1.9 Definition of Terms

1. Financial Intermediation: The process by which financial institutions, such as deposit money banks, facilitate the transfer of funds from savers to borrowers in the economy.

2. Deposit Money Banks: Financial institutions authorised to accept deposits from individuals and entities and offer a variety of banking services such as loans, mortgages, and investment opportunities.

3. Real Sector: The economic sector that produces goods and services, including manufacturing, agriculture, mining, and construction.

4. Nigerian Economy: The sum of all economic activity in Nigeria, including production, consumption, investment, and trade.

5. Financial Depth: The size and scope of an economy’s financial markets and institutions, as measured by financial intermediation and development.

6. Economic Impact: The effect or influence of deposit money banks’ financial intermediation on the real sector of the Nigerian economy, including output, employment, investment, and productivity.