FACTORS
THAT REDUCE SAVINGS IN NIGERIA (1980-2010)
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Financial institution,
market, regulator and instrument all comprises a set of complex and closely
interconnected financial system, proving financial services in an economy, such
services includes mobilization and allocation of resources, distribution of
investment funds among firms, financial intermediation and foreign exchange
transactions.
The Nigeria financial
system can be categorized into two via: the formal or organized and informal or
unorganized financial system, the banks and non banks financial institutions
make up the organized financial system while the unorganized sector comprises
of indigenous bankers local money lenders‟(ISUSU),
shop-keepers or traders, merchants, landlords, saving associations, friends and
relatives etc. the system is poorly developed, limited economics information,
defective system of according are not integrated into the formal financial
system, but very important to the Nigerian financial system. Capital
formations, buying and selling of bonds and securities, creation of new assets
and liabilities, executing monetary and credit policies of the central bank
etc.
Are
the roles and functions of financial system geared towards economic development
of an economy? Patriotic researchers and policy makers have observed a
declining savings rate in Nigeria over the past decades; this is due to the
critical importance of saving for the maintenance of strong and sustainable
growth in the world economy particularly in Nigeria.
A sound, healthy and
reliable financial system relates to savings mobilization and efficient
financial intermediation roles:
First, reduces hoarding
and help spread the risk between household and firms.
Second, lowers interest
rates thereby bringing about stability in capital market.
Third, they create
liquidity in the economy by borrowing short-term and lending long-term.
Fourth, disseminate
information between ultimate lenders and ultimate borrowers thereby mobilizing
savings from surplus units and channeling them to deficit units through the
help of financial techniques, instruments and institutions. Fifth the
intermediaries promote development investment.
The
Nigerian financial system comprise the regulatory /supervisory authorities,
bank and non- bank financial institutions. As at the end of 2007, the system
comprised of the Regulatory/ Supervisory authority, the Central Bank of Nigeria
(CBN), the Nigerian Deposit Insurance Corporation (NDIC), the Securities and
Exchange Commission (ESC), the national Insurance Comedienne (NAICOM), the
National Pension Commission (NPC), and the Federal Mortgage Bank of Nigeria
(FMBN).the CBN is the principal regulate and supervisor in the money market,
consisting of a Deposit Money Banks (DMBs), Discount Houses, the Peoples Bank
of Nigeria and Community Banks.
The CBN exclusively
regulates the activities of finance Companies and promotes the establishment of
specialized or development financial institutions. The SEC is the apex
regulatory/ supervisory authority in the capital market. The Nigerian Stock
Exchange (NSE) is a self-regulatory or user-regulatory institution. The issuing
Houses, Registrar and stock brokers, who also interact with the money market,
complex the chain in the capital. The Federal Ministry of Finance, together
with the CBN constitutes the monetary authorities and share control over Bureau
de change. The NAICOM is the regulatory authority in the insurance industry,
while the FMBN regulates mortgage finance activities in
Nigeria. Saving is a sacrifice of current consumption that provides for the
accumulations of capital, which in term provides additional output that can
potential be used for consumption in the future (Gersovitz1988). In other
words, savings is the difference between current earnings and consumption. It
has also been defined as “deferred consumption” or , part which is not of spent income.
Savings is described as
a financial assets accumulated by the public- both government and private
agents in the organized financial system. To expand financial savings involves
shifting of funds from the personal and household sector to the business or corporate
sector which in turn, leads to greater investment, income growth, employment
and capital formation: which cannot be achieved without increasing the rate of
savings, Nigeria’s saving
still falls below the requirements of its financial system due to low per
capital income, under- investment in productive instruments, and investment in
unproductive channels, e.g. gold, jewelry, income inequalities and
demonstration effect Etc. to remedy this problems depend on the level of
development of the financial sector mentioned above as well as the savings
habit of the citizenry. The availability of investible funds can be a starting
point for all investments in the economy, which will
eventually translate to economic growth and development (Uremadu, 2006). The
relationship among saving, investment and growth has historically been very
close; hence, the unsatisfactory growth performance of several developing
countries. Example: Nigeria has been attributed to poor saving and investment.
This poor growth performance has generally led to a dramatic decline in
investment. Domestic saving rates have not fared better, thus worsening the
already uncertain balance of payments position (Chete, 1999). The role of
savings in the economic growth of any country cannot be overemphasized.
Conceptually, savings represents that part of income not spent on current
consumption. Instructions in financial sector like deposit money banks
(DMBs)/commercial banks mobilize savings in a economy, the deposit rate must be
relatively high and inflation rate stabilized to ensured a high positive real
interest rate, which motivates investors to save from their disposable income.
In Nigeria Nnann, Odoko and Englama (2004) are of the view that the level of
funds mobilization by financial institutions are quite low due to a number of
reasons, ranging from low savings deposits rates of the poor banking habit or
culture of the people.
According
to them, another impediment to funds mobilization is the attitudes of banks to
small savers. Another Limitation to savings mobilization is the fact that the
concentration of banks and their offices are biased in favor of urban areas.
Among the reasons for this, is the fact that the established banks under- rate
the volume of saving to be mobilized and channeled into productive investment
in the rural areas. It is often argued that since the rural economy operates at
a near subsistence level, there is very little that can be squeezed out of
income and consumption. Because of this, it has not been realized that large
volume of idle funds, though in small units per individual exist in the rural
areas. In Nigeria, there is basically lack of incentives to savings which had
adversely affects savings. Some of these factors include; poor banking habits,
attitudes of banks to small savers, poor orientation, unemployment, instability
in the political system, corrupt taxation system, instability in the banking
system, etc. one of the economic growth and development in Nigeria.
1.2
STATEMENT OF THE PROBLEM
In Nigeria, there is
lasting need of further efforts especially in mobilizing small savings in both
urban and rural areas, and the process of financial intermediation itself, knowing
fully well the saving culture in Nigeria is very poor
relative to other developing economics (Uremadu, 2006). In this respect,
Commercial banks in performing their roles, was found to have potential scope
and prospects for mobilizing financial resource and allocating them to
investment. But given the problems inherent in the formal sector, the informal
savings associations, if properly developed would not only facilitate the
financing of economics development but would also contribute to the development
of incomes, and that necessitates the need to put in place a coherent economics
policy that will be capable of providing the much needed enabling environment
and also there is an urgent need to encourage Nigerians to change their current
attitude towards savings, thereby placing the right saving culture by
institutions and regulatory agents who influence the decisions of households,
firms and government.
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