The Role Of Nigeria Money Market In Savings Mobilization

Project and Seminar Material for Accountancy / Accounting

The Role Of Nigeria Money Market In Savings Mobilization


This research is on an issue which is of great importance to the Nigerian economy. It is on the Nigeria money market and its role in savings mobilization.

The seminar report comprises of three chapters;

  • Chapter one is an introduction of the existing literature relating to the subject matter.
  • Chapter two dealt with literature review, evolution and development objective for establishment, instrument used and importance of the market.
  • Chapter three dealt on summary of finding, recommendations and conclusions.

Also, touched were the efficiency of the Nigeria money market in saving mobilization and lastly. The problem and prospect of the market and the importance of the money market in saving mobilization

Chapter One


1.1 Background of Study


A money market is a market fro short term securities, it provides service that are essential to modern economy. According to professor G.O. Nwankwo “it offers access to variety of financial instruments that enables economic agent to pool price and exchange risk, through assets with attractive yields liquidity and risk characteristic, it encourage saving in financial firm”.

This is very important for government and other institutions in need of short-term funds and to supplies of short-term funds who, because of their assets in liquid form.

Late professor W.O. Uzoga, observed that the primary objective of developing a local money market was to stern the representation of short-term fund into the London money market by creating domestic outlets for investments in short-term funds in Nigeria.

A colliery to this was the used to lay it sound foundation for efficient regulation for the monetary and banking system and to provide for the banks the basis financial instrument for effective management of their resources.
We should all be aware that the banking sector is quite distinct from other sectors of the economy. The banking sector deals with money and quasi-money technological equipment like we have in the industrial sector.

There is no need for the usage of raw material nor is there nay need to incure production cost and waste human being to pin-point specially the investors and the industrialist are their raw materials, while “the staff cost in terms of wages and salaries and remuneration are to be counted as their production cost”.

As tradition might have it, the bank of any banks has been depicted to encompass the development of the economy, peoples and the bank itself. As noted by Jerry Onyebula, a senior manager with Allied Bank Plc.

The direction which the development takes decision whether the economy will becomes more productive or reluctant “he goes further to argue that” when bank develop, its subordination in the right direction. It helps them to grow and become bigger and richer person.

This will directly determine whether he or she will develop, grow or whether improve or deteriorate. It is an under fact that no matter how the economy is depressed, people will still transact business and save their money in the banks since our economy is not quenched type of economy, people must still save, no mater what the economy seems to be .

It was in pursuit of these objectives that the first issue o treasury bill of N8million was made by the central bank of Nigeria in 1960, by the end of the year, treasury bill outstanding amounted to N18million.

Instead the Nigeria money market has expanded in both the number and value of money market instrument that were introduced during the period of 1960 to 1978. This was therefore, helped to stern the outflow of funds to the foreign market.

The treasury bill obligation during the same period accounted for over 94 percent of the total money market instrument. These securities, judged by the minimum amount required of potential inceptors are geared to large institutional investors rather than individual who, however could contribute but only indirectly through saving type of institution most of which were inaccessible to large area of the country.

The money market is of great important to the government and other institution in need of short-term funds who because of the nature of their habitués undertaken to maintain part of their assets in relatively liquidity of the instrument traded in the money market.

The single most important function of any financial system is to mobilize savings from the surplus unit to deficit units where the funds are needed for investment.

But much more problem will grow up, if there is no body to land while those to borrow are available or that there are those to borrow but there is nobody to lend.

Saving according to advanced Lerner’s dictionary of current “English is defined as that which redeems or compensate.

Richard Glepsey in this book, an introduction to position economics defined savings as “the income not spent on goods and services for current consumption.

He went further to explain how saving are made, he said that household save when they elect not to spent part of their current income on goods and services for consumption.

The firms save when they elect not to pay out to their owners some of the project that they have earned.

That will profits belong loyalty to the owner, only some are actually paid out while the rest are withheld by the firm of finance part of its gross investments. Then to our critical bent of mind, we may say that saving is that part of money saved or which is not spent on goods and services and are there to attract some kind of interest.

Mobilization on the other hand is defined in the advanced learner’s dictionary as “mobilizing of being mobilized”.

The money authorizes extend a lot of influence on the money market to regulate the supply of money, unlike each asset which are sterile in terms of earnings money market securities provided purpose of meeting liquidity requirement for under taking investments.

The chief operations of the Nigeria money market are the Central bank of Nigeria (CBN) as the Chief controller, government bank of Nigeria others are insurance companies, national provident fund, monetary board, individuals, local government, saving type institution statutory boards and corporations.

Government needs short-term funds in participation of tax revenue, firms need working capital while merchants need bridge financing. A borrower of the money market today may be a leader of another time and vice-verses today performing one of the functions for which it was established.

That is mobilizing saving and ensuring that no loose funds lie ill.

1.2 Statement of Problem

An active money market is know for an effective mobilization of savings for investment purpose. The Nigeria money market has often been criticized for inactivity and for not living up to the expectation since it’s inception.

The problems can be stated as follows:

  1. There is inadequacy of information to the activities of the Nigeria money market and what is stands for
  2. The money market is besieged by infrastructural problems.
  3. Thirdly is the pre-pondnet dominance of government instrument in the market. This arises because government demands for short borrowing dictates the time of the market.
  4. The increasing uncertainty arising from the high interest rate and he wide gap between lending and deposit rates.
  5. Lastly, is the increasing resort of funding in the capital market rather than as better to from the banking system, this is further buttressed by the rising trend in financial intermediate on as sizeable funds are now channeled from investors to borrowers through securitization without necessary using the banking medium.

And, note that the market is characterized by instability arising from excess liquidity and inadequate investment out let during 1960 – 1985 period. Since SAP/structural adjustment programme in 1986 intensity was due to sudden and frequent changes in regulatory requirement liquidity shortage and high interest rate.

1.3 Purpose of the Study

After about 35 years of the existence of the Nigeria money market. It is the burning desire of the researcher to assess the extent to which the money market has contributed to the mobilization of saving for capital investment in Nigeria and how it plays the vital role that is expected of it invalidly, the money market is to false care of mobilizing fund in the economy and then channel them into he Nigeria money market for short-term lending to the deceit unit of the economy and the investors can obtain these funds when their liquidity position is threatened.

Also, the research work will trance the evolution and development of the Nigeria money market, the objectives for its establishment and the instrument that have been evolved over the years for use in the market and how it has been able to mobilize loose funds in the economy.

Also, important among the issue to be looked it include, the efficiency of the money market in savings mobilization and how that great task can be enhanced. The composition of the market will be touched.

Finally, the researcher will look at the problem also that have hindered the growth, of the market and also one future prospect of the market.

The research will cover an overview of the money market, that is, the background of the money market.

Also it will cover the reason for it’s establishment and the instrument traded in the market. The instrument will access and evaluate the market and factors which have trended to hinder the smooth operation of the market.

In addition, the financial institution that makes up the market and also their contribution to savings formation will be highlighted.

It is an obvious fact that there is no physical place where the money market is situated since it is an arrangement which bring together borrowers and lenders to transact business on short-term basis, the research work will cover only the Nigeria money market.

1.4 Significant of the Study

The study would be significance in its outing way because the research would highlight some vital functions of the money market in savings formation.

The research work will touch on how the money market has aided the mobilization of savings for tending he sectors of the economy.

Also, it has been observed that in spite of the effort being made by the Central Bank of Nigeria (CBN), the money market is yet to effectively realize this great role. The critics of its operation have buttressed by pointing out a number of problems which besiege the money market in terms of savings mobilization.

1.5 Definition of Terms

i. Idle Funds/Loose Funds:

Loose funds not being employed are money availing investment price capital. The term is also often applied to “excess research” of the banking system.

ii. Surplus Unit:

In economic theory, it means any economy unit having the factors of production in excess of what was needed to draw into production.

iii. Deficit Unit:

It means any economic unit having the factors of production short of what as proceeded to draw into production.

iv. Short- term Funds:

It refers to the purchases of security which has a maturity of less than twelve months.

v. Disintermediation:

A tendency for money to be draw out of savings institution (bank savings and loans association life insurance company etc).

vi. Investment:

Investment is any employment of capitals in expectation of gain, whether in a business, urban real estate, bound stock merchandise or an education.

vii. Liquidity:

It is a term refereeing to that condition of individual or business where high percentage of the assets can be quickly converted into cash without involving any consideration less.

viii. IOU:

It is simply mean an acknowledgement of indebtedness.

ix. Financial Institution:

General name for firms which specialize in making loans to business or individual or both.

x. Securities:

A written instrument showing evidence of indebtedness or equity ownership of a business.

xi. Liquidity Squeeze:

When there is limited amount of money in circulation.

xii. Commercial Paper:

It is short-term promissory note of highly reputable business firms.

xiii. Monetary Policy:

It means government policy aimed at influencing the simply availability and cost credit in the economy.

Chapter Five

Summary, Observation and Conclusion


The money market has evolved as an efficient mechanism for trading in short term funds. The Nigerian money market after the reform period, has witnessed tremendous growth and diversification. The financial system through its institutions has over time met the short-term financing requirements of priority sectors like aviation, services, industry and agriculture. Over the past two decades, the Nigerian money market under the supervision and control of the Central Bank, has exhibited the requisite maturity and resilience required for sustainable growth. Coupled with the government‟s policy on private sector involvement, it has fostered healthy competition and continued improvement in the market‟s functioning. Sequel to the global financial crisis, a major concern for most economies has been the insulation of domestic markets from volatility in the international markets. A number of monetary authorities have sought to restrict exposure of investors to loss and enhance market confidence as well as financial stability.

Prospects and Opportunities

Notwithstanding the significant challenges facing the financial markets, the outlook for the money market in particular is bright. It exhibits among others, the potential to attract more investors into the economy. Taking into account the huge potentials of the country in terms of natural resources, human capital and the strategic focus of government, the money market is perceived by investors as a well supervised and controlled establishment, vibrant in nature and capable of offering consistent returns on investment. However, in the attempt to attract and retain foreign capital in the Nigerian money market, there is need to improve the economic fundamentals that drive investments. There is need to provide an enabling environment, complemented with a stable political and economic structure, backed by appropriate legislature. Nigerian financial institutions in a bid to improve service delivery and catch up with global developments have invested heavily in technology, anchored on electronic and telecommunication networks to introduce new and innovative products and services. The new pension scheme and other similar reforms introduced are also indicative of new opportunities in the money market in Nigeria.

Limitations of the Nigerian Money Market

First, the Nigerian money market when compared to markets of developed economies is still infantile and lacks depth in terms of product diversification and technological infrastructure. The market lacks the appropriate legal framework required for the introduction and operation of new financial products. Second, the primary money market is also virtually dominated by government activity on the demand side via government‟s borrowing during deficit budget financing. The market is typically awash with large issues of government instruments. Government issues also form the bulk of instruments in the secondary market, as they further serve as collateral for short term interbank transactions. Correspondingly, the dearth of private sector instruments limits the supply of money market products available to possible investors wishing to diversify their portfolios. Furthermore, the banking sector is still plagued with large margins between lending and deposit rates. This has a significant impact on savings and investment. Low deposit rates hinder savings, while high lending rates make borrowing expensive, which restricts private sector investment and growth. Third, the global financial crisis of 2008, put significant pressure on the money markets of many economies due to the limited restriction of capital movement across many market exchanges. The contagion effect of the crisis had significant consequences for the Nigerian money market, which culminated in the Nigerian banking crisis of 2009. Subsequently, there has been some uncertainties and lack of confidence in the market, coupled with foreign exchange rate volatility. This has prompted significant interest rate movements in the banking system, a negative indication for investors. In addition, the Nigerian financial system following the banking crisis of 2009 has witnessed sustained excess liquidity, following the mitigating intervention policies of the CBN. The liquidity surfeit has inadvertently blunted the impact of monetary policy in influencing money market rates, credit conditions and bank lending to priority sectors. This has serious implications for sustaining price and monetary stability, necessary for promoting economic development. Finally, the high returns offered in the money market on government securities when compared to other developed and developing nations has led to significant capital inflows of a short-term nature. The fear of capital repatriation is ever present, with negative consequences for the nation‟s foreign reserves and currency valuation. Retention of short-term portfolio investment poses a serious concern for the monetary authorities, due to its knock on effects on price and monetary stability.


The Nigerian money market continues to evolve and grow; coupled with product innovation and the adoption of new technology, the CBN‟s continued effort at sustaining welcomed change in the market and the Government‟s commitment to long term growth the stage has therefore been set for the Nigerian money market to become a key player in fostering private sector investment and spurring economic growth and development in the economy.

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