Title page

Approval page




Table of contents



Background of the study

Statement of the problem

Purpose of the study

Research Questions

Research Hypotheses

Significant of the study



Conceptual Framework

Overview of the Nigerian Financial System

Performance of the Financial Sector

The concept of Informal Financial Institutions

The Effect of Informal Financial Institutions on Socio-Economic


Capital Market and Nigeria’s Economic Growth (1980-2015)

Impact of Capital Market on Economic Growth of Nigeria

Capital Market and Economic Growth

Conceptual classification

Theoretical Literature

Empirical Literature

Summary of Literature Review


Model specification

Hypothesis 1

Hypothesis 2

Identification of Choice of Variable

A Priori Expectation

Estimation Technique

Sources of Data


Result and Discussion








This work examines the relationship between financial development and economic growth in Nigeria. The study made use of annual time series data spanning from the period of 1980 to 2014 and the Ordinary Least Squares (OLS) regression technique was used to estimate the data in line with the objectives of the study. Real Gross Domestic Product, proxy for economic growth was adopted as the dependent variable while the independent variables included total bank deposit and total bank credit. The empirical result of this study shows that both total bank deposit and total bank credit exert a positive and significant impact on the economic growth of Nigeria for the period 1980 – 2014. This study therefore recommends amongst others that banks should increase the interest paid to customers on the different bank accounts they operate to encourage more patronage from them and as well ensure that a major part of their credit is channelled to the productive sectors of the economy such as agriculture, industry and power



Background of the Study.

The term “economic development” is a sine qua non for modern civilization. In a crusade and struggle to carryout development at all nooks and economic of a society, the local government as the third tier of government that is nearest to the people is saddled with responsibility of direct development of the people to certain level .The financial sector of any economy in the world plays a vital role in the development and growth of the economy, (Ariyo & Adelegan, 2005).

The development of this sector determines how it will be able to effectively and efficiently discharge its major role of mobilizing fund from the surplus sector to the deficit sector of the economy. This sector has helped in facilitating the business transactions and economic development (Aderibigbe 2004). A well developed financial system performs several critical functions to enhance the efficiency of intermediation by reducing information, transaction and monitoring costs. If a financial system is well developed, it will enhance investment by identifying and funding good business opportunities, mobilize savings, enable the trading, hedging and diversification of risk and facilitates the exchange of goods and services. All these result in a more efficient allocation of resources, rapid accumulation of physical and human capital, and faster technological progress, which in turn results in economic growth. Development in the real sector, as noted by Ajayi (1995), influences the speed of growth of the financial sector directly, while the growth of the finance, money and financial institutions influence the real economy. The economic growth is a gradual and steady change in the long-run which comes about by a general increase in the rate of savings and population (Jhingan 2005).

It has also been described as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is measured by the increase in the amount of goods and services produced in a country. An economy is said to be growing when it increases its productive capacity which later yield more in production of more goods and services (Jhingan 2003). Economic growth is usually brought about by technological innovation and positive external forces. It is the yardstick for raising the standard of living of the people. It also implies reduction of inequalities of income distribution. Oluyemi (1995) regards the financial sector of any economy as an engine of growth that could greatly assist in the promotion of rapid economic transformation. It can be concluded that no economy can ever develop without an appreciable growth in the financial sector. An efficient financial system is essential for building a sustained economic growth and an open vibrant economic system. Countries with well developed financial institutions tend to grow faster; especially the size of the banking system and the liquidity of the stock markets tend to have strong positive impact on economic growth (Beck and Levine, 2002 in Nnanna, 2004).

One of the activities of financial institutions (banks) involves intermediating between the surplus and deficit sectors of the economy. According to Bencivenga and Smith (1991), the basic activities of banks are acceptance of deposits and lend to a large number of agents, holding of liquid reserves against predicated withdrawal demand, issuing of liabilities that are more liquid than their primary assets and eliminating or reducing the need for self financing of investments. In particular, by providing liquidity, banks permit risk averse savers to hold bank deposits rather than liquid (but unproductive) assets. The funds obtained are then made available for investment in productive capital.

Moreover, by exploiting the fact that banks have large number of depositors and hence predictable withdrawal demand, they can economize on liquid reserves holdings that do not contribute to capital accumulation. Again, Bencivenga and Smith (1991) further argued that by eliminating self-financed capital investment, banks also prevent the unnecessary liquidation of such investment by entrepreneurs who find that they need liquidity. In short, an intermediation industry permits an economy to reduce the fraction of savings held in the form of unproductive liquid assets, and to prevent misallocation of invested capital due to liquidity needs (Bencivenga and Smith, 1991). Schumpeter in Kings and Levine (1991), argued that the services provided by financial intermediaries–mobilizing savings, evaluating projects, managing risks, monitoring managers and facilitating transactions, are essential for technological innovation and economic growth and development.

Afolabi (1998) states that with financial intermediation, the transfer of funds from the surplus sector to the deficit sector becomes very simple. The intermediary will act as a pool, collecting deposits of millions of savers and can create forums, e.g. interest-yielding accounts. The intermediary matches the deposit requirements of the saver with the investment requirements of the borrower. He acts as a pool, collecting savings of different sizes from different categories of savers and meeting the investment needs of the various types of investors. The surplus sector therefore gains by placing his money with the intermediary since the income to be earned does not depend on whether or not the intermediary has in fact lent the money out or whether or not the money was profitably lent. The overall economic effect according to Afolabi (1988) is that financial intermediation leads to a better aggregation of savings and therefore helps in capital formation and investment in the economy.

The economies of third world countries such as Nigeria operate with dual financial institutions. On one hand are group which function through direct governmental control known as Formal Financial Institutions such as Commercial Banks, Insurance Companies and Mortgage Banks. And on the other hand are those financial institutions which are not directly controlled by government, called Informal Financial Institutions such as: money lenders, cooperative societies, thrift and loan societies, local bankers, cooperatives etc. It should however be noted that statutory dominance of formal financial sector since independence is hinged on the thinking that the sector would stimulate  the growth of the economy and ensure the upliftment of the socio-economic lives of the people, Abu, (2009).  .

It has been contended that the Formal financial sector will promote savings and investment, improve opportunities for credit, and engender reduce poverty. But it has been observed that Formal financial institutions have seriously come short of the expectations as they have made things harder for Nigerians through stringent conditionalities for credit, poor customer services and high interest rates.  The introduction of the informal financial institutions by individuals and groups is to cushion the effects of the Formal financial institutions on the socio-economic wellbeing of the people, Nwankwo,(2001).  .

The financial institutions are creation of the indigenous people with aim of making credit/loan facilities more accessible to the people so as help solve their socio-economic problems (Gulong, 2012).


Statement of Problem 

The Nigerian financial sector, like those of many other less developed countries, was highly regulated leading to financial disintermediation which retarded the growth of the economy. The link between the financial sector and the growth of the economy has been weak. The real sector of the economy, most especially the high priority sectors which are also said to be economic growth drivers are not effectively and efficiently serviced by the financial sector. The banks are declaring billions of profit but yet the real sector continues to be weak thereby reducing the productivity level of the economy.

Most of the operators in the productive sector are folding up due to the inability to get loan from the financial institutions or the cost of borrowing was too outrageous. The Nigerian banks have concentrated on short term lending as against the long term investment which should have formed the bedrock of a virile economic transformation. Since the adoption of the Structural Adjustment Programme (SAP) in 1986, in an attempt to quicken the recovery of the economy from its deteriorating conditions, a great deal of interest has been shown in the activities and development in the financial sector. This is so because the restructuring of this sector was a central component of the SAP reform.

The role of banks in financial intermediation cannot be over-emphasized as they help in mobilizing the idle – savings of the Surplus Units (SUS) for onward lending to the Deficit Units (DUS), thus solving most of the problems standing between the lender and the borrower. However, certain issues or factors have continued to pose problems to the success of financial intermediation on the economic growth of the Nigerian economy. Hence this study intends to answer these questions :

Do loans and advances of financial institutions have impact on economic growth of Nigeria?

Does deposit mobilization of financial institution have any significant effect on economic growth in Nigeria?

Purpose of the Study

The general objective of the study is to determine the impact of financial institutions on economic growth of Nigeria, Specific objectives are to:

(i)  Determine the impact of loans and advances of financial institutions on economic growth in Nigeria.

(ii)  Examine the effect of deposit mobilization on economic growth in Nigeria.

Research Questions

The following questions were formulated to guide the study:

  1. What is the impact of loans and advances of financial institution on economic growth in Nigeria?
  2. What is the effect of deposit mobilization of financial institutions on economic growth in Nigeria?

Research Hypotheses   

The following hypotheses have been formulated for the study;

  1. There is no significant relationship between loans and advances of financial institutions and economic growth in Nigeria.
  2. There is no significant relationship between deposit mobilization of financial institutions and economic growth in Nigeria.

Significance of the Study

The result of this study would help the Nigerian government to understand fully the impact of financial institutions on her economy growth. Apart from this, the result of this study would help those that are living in this country to know the contribution or otherwise of various financial institutions to the growth and development of their financial status. It will help the concerned authorities and sectors in government to drastic step against financial institutions that are like clog in the wheel of economic progress and growth of the country.   Finally, the outcome of this study, would also help the stakeholders in financial institutions to checkmate their institutions for the betterment of Nigeria economy.



Complete Project Price: ₦3,000 (We accept mobile tranfer)

» Bank Branch Deposits, ATM/online transfers (Amount: ₦3,000 NGN)

Bank: FIRST BANK Account Name: OMOOGUN TAIYE Account Number: 3116913871 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 OR Click Here

Bank: ACCESS BANK Account Name: OMOOGUN TAIYE Account Number: 0766765735 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 Click Here

Bank: HERITAGE BANK Account Name: OMOOGUN TAIYE Account Number: 1909068248 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 Click Here


Send Your Details and Project topic To us by filling this form.

Be the first to comment

Leave a Reply

Your email address will not be published.