STUDY OF FINANCIAL INTERMEDIATION AND RESOURCE MOBILIZATION (IMPLICATION FOR ECONOMIC DEVELOPMENT IN NIGERIA)

CHAPTER ONE

INTRODUCTION.

1.1     BACKGROUND OF STUDY

The concept of financial intermediation and resources mobilization are not new in financial literature, their relationship with economic development has also been widely discussed. Relevant literatures on financial intermediations and resources mobilization have attempted to distinguish the concept of self-finance, direct finance and indirect finance.

          Direct finance involves the use of marketing techniques in which primary securities (or the liabilities of ultimate borrowers). In such forms as bonds corporate securities mortgage etc. are distributed among those financial assets. This mode of finance through encourages high savings rate and alertness to new profitable investment opportunities, total reliance on self finance is not probably a desirable long run strategy.

          The other form of finance the indirect finance on he other hand involves the existence of financial intermediaries with place themselves between ultimate lenders and ultimate borrowers by purchasing the primary securities of the latter and issuing claims against themselves. Indirect securities for the portfolio of ultimate lenders while self finance makes for a balanced budget the direct and indirect finance which are forms of external fiancé make for deficit financing in which intermediaries solicit for loan able funds from the simple limits and allocate these to the deficit units whose direct debt. They absorb

          From the three methods of financing highlighted above writes on this issue identified the indirect finance as the only are that calls for the intermediation by the financial institution following the above conception, gurley and show (1960) attempted the definition of the concept of financial intermediation as intermediating or go between function of financial institutions in purchasing primary securities from ultimate borrowers and issuing indirect debt (secondary securities) of the portfolio of the ultimate lenders by so doing the financial intermediaries establish a link between the borrowers. The deficit units and the lenders the simple units with this linkage they transfer resources from the surplus to the deficit unit. 

1.2     STATE OF THE STUDY

It is general acknowledged fact by economist that high level of financial intermediation is associated with high rate of economic development. This has been experience by the grossly inadequate number of financial intermediaries, inadequate spread of banking habits to all the nooks and corners of the country, lack of actual practical indegenisation of the banking industry. The ultimate effect is that the existing financial intermediaries find it impossible to effectively mobilizes available resources and allocate them to enhance the rate of economic development.

In the final analysis there is low level of financial intermediation in Nigeria which culminate in a disappointedly low level of economic growth and development. These are the problem this study is set to look into which a view to finding possible solutions and recommendations.

1.3     OBJECTIVES OF THE STUDY

          The objectives of the study are

a.     To establish extent of financial intermediation in Nigeria and the likely effect on economic development.

b.     To reveal the economic development position (as measures by gross national/domestic income) of countries that have comparatively the same level of financial intermediation and those whose level of financial intermediation are relatively high.

1.4     SIGNIFICANCE OF THE STUDY

The financial intermediation in Nigeria like their counterparts else where in the world play a number of vital roles which are not only necessary for the smooth running of the economy. Among those roles the first that comes readily to mind is their dealing in finance in which they transfer spending money. Furthermore, some of them like central and commercial banks are involved in the provision at the legal tender for the economy and the money creation activity respectively while the central bank of Nigeria issues the legal tender currently which lubricates economic transaction as lither to experienced trade by barter the commercial banks create money (no form of credit) base on the level of their demand deposit after providing for this safety stock.

          There are a lot of important roles played by the financial intermediaries but it will be discussed fully in chapter two.

1.5     SCOPE AND LIMITATION OF THE STUDY