THE ROLE OF FINANCIAL INSTITUTIONS IN THE DEVELOPMENT OF AN ECONOMY A CASE STUDY OF NIGERIAN AGRICULTURAL AND CO-OPERATIVE BANK, OGUI – ENUGU

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The idea of establishing financing institutions was mooted soon after the establishment of the central bank of Nigeria on first July, 1959 after the bank failures of the early 1950’s. At this stage, it became obvious that there was an urgent need to establish financial institutions capable of providing medium and long-term capital to full up the serious gaps in the financial system of the economy. In view of the dwindling position of the economy the government has at various times tried to correct through monetary and fiscal policies the downward movements of the economy as well as to place the economy on a path of meaningful development. Owing to the important roles agriculture and manufacturing sectors are expected to play in the economic development the government introduced a lot of policies to encourage production in these sector for example, the stipulated sectoral distribution of loans to agriculture and manufacturing sector (preferred sectors) has been increasing over the years.

The government executes the monetary policies through the banks of which commercial banks are the key players. Generally, we know that the financial system of any society (of which the banking system is undoubtedly the most dominate), is the frame work within which capital formation takes place through intermediation of the institution. The participants in the banking system mobilize resources from the surplus units and channel some to the deficit economic units of any country for industrialization. The banking and financial system is also required to stimulate investment, and channel such to the priority areas of the economy, thus, it acts as a transmitter of government economic policies for growth and development through its social responsibility. This industry is a force to reckon with in the area of employment. Banks set apart handsome portion of their annual profits to finance worthy ventures that have spill over effects on the development efforts of the government or their local communities. With the support and encouragement of the international bank for reconstruction and development (world bank) the first indigenous development financial institution was established in January, 1964 in the name of the Nigeria industrial development bank (NIDB). The establishment of this bank in January 1964 was foreshadowed by the incorporation in 1959 of a private investment company, the investment company of Nigeria (ICON) as an industrial financial company with the aim of providing long and medium term finance for industry.

1.2 STATEMENT OF THE STUDY

This research entitled “the role of financial institution in the development of an economy” attempted to determine the role of financial institutions in enhancing the economic development Nigeria, with particular reference to some premier financial institutions like the Nigerian Bank for Commerce and Industry (NBCI) and the Nigeria Agricultural and Co-operative Bank (NACB) and banks. These two financial institutions were chosen as representatives of the development in financial institutions because their role is envisage to be a representative of role played by other financial institutions in economic development for Nigeria.