1.0 INTRODUCTION
The financial structure of Nigeria is the composite of the
instruments and institutions. It consists of the present stock of various
financial assets together with the pattern of financial institutions in
existence. The institutions differ from one another by the kind of secondary
claim they issue and the type of primary claim they buy. We will be looking at
the structure of the Nigerian financial system and the various regulatory bodies.
2.0 OBJECTIVES
By the end of this note, you should be able to:
explain the structure of the Nigeria financial system
identify the regulatory bodies of financial institutions .
3.0 MAIN CONTENT
3.1 The Structure of the Nigerian Financial System
The Nigerian financial system can be broadly divided into two,
namely: the formal and the informal sector. The formal sector can be subdivided
into money and capital market institutions and these comprises of banks, non-bank
and specialised financial institutions.
i. The banking financial
institutions are active agents in the money market. They mobilise short-term
funds from the surplus sector of the economy to the deficit sector. This
comprises of the following:
a. Commercial Banks and
Merchant Banks: These institutions operate under the legal framework of the
banks and other financial institutions decree 25 of 1991 (as amended). The commercial
banks perform three major functions, namely: acceptance of deposits, granting
of loans and the operation of payment and settlement mechanism.
The merchant banks take deposits and cater for the need of
corporate and institutional customers by the way of providing medium and
longterm financing. They also engage in equipment leasing, debt factoring, etc.
However, following the adoption of universal banking policy, most merchant
banks were converted to commercial banks.
b. Micro Finance Banks ( community Banks): A community bank in Nigeria is a self-sustaining
financial institution owned and managed by the community to provide financial services to
that community. National Board issues
provisional license of community banks
for community Banks (NBCB) while the
find license is issued by the CBN after operating for two years with the
banking reforms, these banks have been transformed to micro finance banks and
their capital based has been raised.
ii. The non-banking financials consist of insurance companies, pension
funds, mortgage houses, stock broking firms, daily collection bureau de change.
They are also of great importance to the Nigerian financial system. Most of
them give long-term loans.
iii. The Specialized Banks
or Development Finance Institutions (DFIS) was established to contribute to the
development of specific sectors of the economy. They consist of the Nigeria Industrial
Development Bank (NIDB), Nigeria Bank for Commerce and Industry (NBCI),
Nigerian Agricultural and Cooperative Bank (NACB) and Urban Development Bank
(UDB).
3.2 The Regulatory Agencies of Financial Institutions
There are several financial institution regulatory agencies in
Nigeria, among which are:
The Federal Ministry of Finance (FMF): The FMF advises the Federal
Government on its fiscal operations and cooperates with CBN on monetary
matters. It was at the top of the financial system until recently, the CBN was
under its control. However, an amendment in 2006 to the laws of the CBN compels
the CBN to report to the presidency through the Federal Ministry of Finance.
The Central Bank of Nigeria: The CBN is the apex regulatory authority
in the financial system. Among its other primary functions, the bank promotes
monetary stability and a sound financial system; acts as bank and financial
adviser to the Federal Government; and act as banker of the last resort to other
banks in the country. Enabling laws made in 1991, gave the CBN more flexibility
in regulatory and overseeing the banking sector and licensing finance
companies, which hitherto operated outside any regulatory framework.
The Nigerian Deposit Insurance Cooperation (NDIC): Although an autonomous
entity from the CBN, NDIC complements the regulatory and supervisory role of
the CBN. NDIC commenced operations in 1989 with the aim of providing deposit
insurance and related services for banks to promote confidence in the banking
industry. It examines the books of deposit money and financial institutions.
The Securities and Exchange Commission (SEC): Formally known as the
Capital Issues Commission, SEC is the apex regulatory organ of the exchange
market. Its major objective is to promote an orderly and active capital market
by ensuring the adequate protection of securities, registering all securities
dealers in order to maintain proper standard of conduct and professionalism,
approving and regulating mergers and acquisitions and maintaining surveillance
over the market to enhance efficiency.
National Insurance
Commission (NIC): The NIC is charged with effective administration,
supervision, regulation and control of the business of insurance in Nigeria,
high technical expertise and judicious fund placement in the insurance
industry.
The Federal Mortgage Bank of Nigeria: FMBN is the successor
of the Nigerian Building Society. It provides banking and advisory services, and
undertakes research activities pertaining to housing. With the adoption of
National Housing Policy in 1990, FMBN was empowered to regulate primary
mortgage institutions in Nigeria. The financing function of FMBN was carved out
and transferred to the federal mortgage finance, while the FMBN retained the
regulatory role. FMBN is under the control of the CBN.
Financial Service Coordinating Committee (FSCC): This is a committee
established to coordinate the activities of all regulatory institutions in the
financial system. The Federal Ministry of Finance chairs the committee.
4.0 CONCLUSION The above discussion has shown us that there are many institutions
in the Nigerian financial system. These institutions have varying responsibilities,
thus, there is need for different regulatory bodies to be set-up to cater and
regulate their activities. This is to check abnormalities and ensure the smooth
running of the financial system in Nigeria.
5.0 SUMMARY This note has explained to us the financial system of Nigeria. The
classification of financial institutions was considered alongside with the regulatory
bodies set up by government to monitor the activities of these institutions to
keep them in check.
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