Mobilization And Utilization Of Funds In The Financial System

Project and Seminar Material for Accountancy / Accounting

Project and Seminar Material for Accountancy / Accounting


Chapter One


Introduction

It is generally accepted among the financial expert and economist that a necessary condition for rapid economic growth and the development is rested on adequate financial planning. However, the financial system of Nigeria is still underdeveloped. This fact can be educated by the pivoted role provided by the financial institution in the economy which is principally connecting the surplus and deficit sector in the economy.

Thus, banks, insurance companies providence funds and other financial houses mobilize funds, which are channeled to productive sector of the economy. In general, these mobilize funds can be transmitted to the deficit unit three principal ways these are

  1. Another is through private placement in which the firm more or less dispenses with the financial market.
  2. Through financial market, which are organised where the suppliers of funds or lenders and demanders of funds or lender and demanders of funds borrowers carryout their transactions.

However, this study is about the method by commercial banks and insurance companies to mobilize funds and how the funds mobilized are utilized for the development of the economy.

Moreso, the need also arises for commercial banks and insurance companies in Nigeria to know how they have both faired in their roles as financial intermediaries.


1.1 Purpose Of The Study

The licensing of any financial institution is to provide for the financial needs of the economy whether short, medium or long-term finances.

It is pertinent therefore that the role of financial intermediaries cannot be dispensed within the development of real sectors of most significantly a capitalist oriented economy. As an economy develops, there will also be growth in the financial assets to the growth in the income, structural changes occur in the financial system itself.

This positive relationship between the financial system and the real sector development is very true of a capitalist economy where the market forces of supply and demand operate freely to determine the allocation of the scarce resources in the economy. However, if the financial institution are repressed by direct control of both market force by the monetary authority. It may affect the effectiveness of their roles in the economy development of the country as argued by Cameron McKinnon and shawn in financial regression hypothesis or shallow finance.

It is shown from the available fact that in 1960 the number of insurance companies operator in Nigeria were twenty seven ( 27) this grew to seventy (70) in 1973 and seventy-nine ( 79) by 1980, eighty- three (83) in 1985, ninety (90) in 1977, ninety – four (94) in 2000, it grew to one hundred (100) in 2002 and 136 in the year 2004, whereas the numbers of commercial banks within the same period were thirty (30) in 1973, fifty-five (55) in 1985 which has increased to two hundred (200) till date.

However, this study is aimed at elaborating on how commercial banks and insurance companies have helped in the development of the economy via mobilization and the actual channeling of funds to the needy (deficit) sector(s) . A comparative analysis study of these two industries of Nigerian financial institution shows that they both grew in standard.

Therefore this study is aimed at establishing the following

  1. Analysis of the various source of fund (income) to commercial banks and insurance companies.
  2. Examination of the uses of the mobilized funds by aforementioned segments of the financial system.
  3. Comparative study of the performance of commercial banks and insurance companies as related to the selected companies.

1.2 Statement Of The Research Problem

The Pilot to economic development is the financial institution of most especially a capital economy. However, the underdeveloped nature of our financial system when compared with advanced countries of the world has agitated a lot to positive minds as to bringing remedies to conflicting factors hindering the economic development of this country. These problems ranges from the narrow nature of the financial system, paucity of tradable financial instrument and socio-cultural factors that has “human faces” however, it agitates in one’s mind as to relevant solutions to developing rapidly the financial system. To this end it is pertinent to evaluate the performance of financial institution to eradicating the aforesaid bottleneck in the Nigeria financial system


1.3 Relevance Of The Study

Judging by the development function of the financial institutions in the country, a vivid look into thee expected functions as related to the mobilization and utilization of funds from surplus to deficit sector (s) of the economy has shown a fall below expectations in terms of evaluating the performance of these institution overtime.

This study will contribute immensely to the existing knowledge about the roles operation and the positions of commercial banks and insurance companies in our prevailing financial and economic system. We shall also show through.

This study the extent to which commercial banks and insurance companies have been living to expectation in term their degree of authorities and CBN guideline thereby showing their contributions towards our economic growth and development.


1.4 Scope Of The Study

This study will be limited to a brief survey of the sources and uses of fund by commercial banks and insurance companies in Nigeria. However seven (7) licensed companies in all shall be used for the study. the analysis include three (3) commercially banks which are union bank of Nigeria (UBN) Wema Bank Plc and first Bank of Nigeria Plc and the four (4) insurance companies are national insurance corporation of Nigeria (NICON) Niger insurance, Plc, Crusader insurance company and UNIC Assurance Nigeria Ltd.


1.5 Definition Of Terms Used

1. Insurance:

This is a way of guiding against loss.

2. Bank:

This is a financial institution where money and other valuable thins are kept.

3. Savings:

To keep something for further use.

4. Deficit:

When expenses is greater than income.

5. Surplus:

When income is greater than expenses.

6. Asset:

Anything owns by a person or company that has value.

7. Liabilities:

This is the act of being liable to any occurrence.

8. Premium:

Amount or install mental paid for an insurance policy.

9. Capitalist:

This is a system whereby a country’s trade and industry are organised and control by the owner of capital.

10. Rate:

The estimate value or qualities of something.

11. Intermediaries:

This is when someone or group is acting as a link between person or group.


Mobilization And Utilization Of Funds In The Financial System


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