Security Market As A Source Of Finance For The Public And Private Sectors In Nigeria

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Security Market As A Source Of Finance For The Public And Private Sectors In Nigeria


Abstract


This study is on the security market as a source of finance for the public and private sectors in Nigeria. It was carried out to cover the gap on the difficulties in financing business projects experienced in many organisations in Nigeria. To achieve the objectives of this study, a survey analysis was carried out with questionnaires been distributed to staff of SEC Abuja. Two hypotheses were formulated and tested using the chi-square. Data obtained from the survey was analysed using simple frequency and percentages. Based on results obtained, conclusions and recommendations were made.


Chapter One


Introduction

1.1 Background of the Study

The security market is the prime motor that drives any economy on its path to growth and development because it is responsible for long-term-growth capital formation. The money market only complements the security market by providing the necessary working capital to support gross fixed capital formation. Unfortunately, the Nigerian security market has not fully performed its natural function of funding investment. One of the major indicators of security market development is the proportion of long-term fixed capital that is raise in relation to the gross domestic product. Between 1999 and 2004, capital formation in terms of long-term funds raised from the market through new issues of securities to the gross domestic product averages only 1.36%, while the new issues to gross fixed capital formation averages 16.0%. Market capitalization to gross domestic product also averaged only 14.25% during the same period. It is therefore not surprising that the Nigerian economy has only been growing at an average of 3.2% annum over the period. Most of the funds raised in Nigeria have been short-term from the money market and these are not growth funds. According to Mary et al. (2012), financial institutions have not contributed much in financing capital investment but they have however contributed towards stock market development. The security market has not been a popular source of funds because of the instability in the economy, low yields to investors in security market instruments, and government’s overbearing presence in economic matters.

Security market or financial market in a broad sense is an institutions arrangement that facilitates the intermediation of funds in an economy. Financial intermediation means the mobilization of financial resources from surplus –spending unity and channeling of such funds to deficit –spending units for productive investment and generation of assets or securities exchange such as bonds and shares, which is approved by the exchange authorities. And as a market it acts as a meeting place or where sellers and buyers of financial resources come into contact.

It is also a financial market in which shares, bond debentures stock, treasury bill, treasury certificate, call money and other financial securities are exchanged provide a means through which firms and government raised long-term fund for business expansion and development projects through investors who own shares in business, firm for the eventual economic benefit of all members of all the society.

This market is segmented into two. The money market, which deals in short term funds and the security market, which is mainly for long-term loanable funds. The reason for the distinction between money market and security market is based on the degrees of liquidity of the instruments traded in. it can be sub-divided into primary market and secondary market. The primary market is that segment of the security market where financial securities are first floated for subscription. Put differently, it is a market for the quotations of new issues of securities. Secondary market is a market where financial securities that have been fully subscribed and paid for, are offered for sale. In order words it is a market for the transfer of ownership of shares, debenture stock and bonds. In as much as the secondary market does not has effect on the creation or allocation or newly created wealth (new issues), it still supports the primary market.

The market performs an economic function by facilitating the transfer of real economic resources from the lender to the borrowers. By the inducement of interest income, the market facilitates the transfer of purchasing power from the lenders to the investors who wish to exercise demand over real resources. As a real resources flow from the lenders to borrowers the production of goods and services is enhanced and consequently the welfare of the people is improved.


1.2 Statement of the Problem

World Bank estimate identifies lack of access to formal financing of productive activities as a key constraint to businesses. 73.24% of the top most priority of assistance needed by organisations was access to finance (SMEDAN 2010). As a result, many Nigerian businesses fund their activities through retained earnings as only a few large enterprises benefit from formal financial sector intermediation for their working capital or investment needs (IMF 2013). It is estimated that, despite the fact that 80 percent of businesses seek financing only 5 percent of enterprises have a loan.

In light of the important role Businesses play as engines of growth, it is critical to ensure that Businesses in Nigeria have access to the necessary credit they need to expand and continue to perform their function in investment, growth, innovation and employment. In a country where underemployment is estimated at 70.5%3, Businesses finance is important in supporting growth and reducing poverty through employment creation. The security market presents an opportunity of financing the business sector. Security markets have always played a role in bringing together those with savings to invest and those who need capital thereby supporting economic growth. The International Organisation of Securities Commissions (IOSCO) has emphasized the need for security markets to support small and medium-scale enterprises in addressing this financing challenge by providing alternative funding sources. This study intends to appraise the security market as a source for financing both private and public sectors businesses.


1.3 Objective of the Study

The specific objective of this study is to access the security market as a source of finance for the public and private sectors in Nigeria. Other objectives include;

  1. To access the level of efficiency of the security market as a source of finance for businesses.
  2. To evaluate the level of knowledge of business managers in private and public sectors on the availability of the security market as a source of finance.
  3. To suggest solutions to the challenges of the security market as a source of finance.

1.4 Research Hypotheses

Hypotheses one
  • Ho: To security market is not efficient as a source of finance for public and private sectors.
  • Hi: To security market is efficient as a source of finance for public and private sectors.
Hypotheses Two
  • Ho: Business managers in Nigeria are not aware of the security market been a source of finance for business.
  • Hi: Business managers in Nigeria are aware of the security market been a source of finance for business.

1.5 Significance of the Study

This study on the security market as a source of finance for the public and private sector will be beneficial to both the public and private sector managers in recognising and utilising the security market in sourcing for funds for the organisation. It will be beneficial to policy makers in formulating policies that will be enhance the performance of the security market and help the growth of private and public organisations in the long run.

The study will also serve as a research material to other researchers who intend to embark on similar or same study.


1.6 Scope and Limitation of the Study

This study is primarily concerned with the security market as a source of finance for the public and private sectors in Nigeria. This study covers the security and exchange commission (SEC) Abuja. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following.

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.


1.7 Definition of Terms

Security Market:

Securities market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply. Primary markets, where new securities are issued and secondary markets where existing securities can be bought and sold.

Finance:

Finance is defined as the management of money and includes activities like investing, borrowing, lending, budgeting, saving, and forecasting. Corporate finance also includes the tools and analysis utilized to prioritize and distribute financial resources.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to have a critical analysis of security market as a source of finance for the public and private sectors in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of financing public and private projects in Nigeria.


5.2 Summary

This study aimed at having a critical analysis of security market as a source of finance for the public and private sectors in Nigeria. Three objectives were raised to guide the study. These objectives include: To access the level of efficiency of the security market as a source of finance for businesses, to evaluate the level of knowledge of business managers in private and public sectors on the availability of the security market as a source of finance, to suggest solutions to the challenges of the security market as a source of finance.


5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
Nigeria is part of the global community and should imitate policies that have benefited other countries. The security market is a veritable tool that can be used to enhance the development of Nigeria. No doubt, the security market is a vital and efficient vehicle for long-term funds mobilization and channelling. Funds could be mobilized from the market to address the huge infrastructural gap in Nigeria. In many countries bonds, are known to have financed numerous development projects such as colleges and universities, hospitals, power stations. This can also be achieved in Nigeria.


5.4 Recommendation

Although, the country is making effort to come out of the effect of the global financial meltdown, adequate policies should be put in place to ensure that the security market contributes its role towards the overall development of the economy.

Given their potential to accelerate development in Nigeria, bond issuance should be encouraged.

A good regulatory environment with adequate safeguards to protect investors and other participant is being pursued by the Commission. It is also important to ensure that projects for which funds are obtained are strictly executed. This informs the on and off-site inspections carried out by the Commission.


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