1.1 Introduction
Financial liberalization has become an important economic policy package in both advanced and advancing countries (Ghosh, 2005). It serves as a panacea to financial constraints in a financially repressed economy. The Nigeria financial sector, like those of many other less developed countries was highly regulated leading to financial disintermediation which retarded the growth of the economy. Under the financial repression regime, bank-specific credit ceilings and selective credit allocation, mandatory holding of treasuring bills and bonds issued by the government, and finally a non-competitive and segmented financial system (Achy, 2003). The impact of financial liberalization on economic growth like other economic phenomenon has been a source of debate for policy makers. Financial systems contribute to the process of economic development (Azmeh et al., 2017).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The Nigeria financial system like other countries especially developing countries is characterized by the existence of two types of financial intermediaries operating side by side, a situation refer to as financial dualism (Oloyede, 2008). The financial sector encompasses financial institutions, financial markets and financial intermediaries that help direct financial resources from the owners of these resources to those who use them to finance productive activities.
The financial system in any economy plays significant role in stimulating economic growth and development. It channels fund to various economic agents that need them for productive uses. This function is very imperative for any economy that intends to be viable with respect to economy growth and development because it creates and make links between the surplus and deficit units of an economy (Adam, 1998; Osabuohien and Duriji, 2005). This account for why it becomes necessary to formulate policies for the sector. In vary degrees; these policies are aimed at achieving macro-economic objectives, stability, efficiency and soundness of the financial system, to the neglect of the informal capital market (Adeusi and Familoni, 2004).
The capital market is divided into two segments: the primary market where companies’ shares are issued for the first time before being quoted on the stock exchange and secondary market where is trading is done in existing stocks. The capital market has served as a source of long- term fund to finance investment in the private sector of the Nigerian Economy. Just like other African Economies, Nigeria’s financial sector is underdeveloped and unorganized. It is characterized by dualism, market segmentation and spatial fragmentation (Iyoha, 2002).
The role played by the financial sector is an Economy can be important in determining Economic Growth. A growing empirical literature demonstrates that the Development of the financial system has positive effects on the long run rate of Economic Growth and the volume and efficiency of investment (Fry, 1995 Philip Arestis et al, 2002), through the removal of the elements of financial repression, particularly controlled interest rates, financial sector liberalization is expected to lead to higher nominal and real interest rate (Emenuga, 2001).
Financial sector facilitates the conduct of trade transactions, the efficient use of financial resources, mobilization of savings and risk taking which are central to sustained Economic Growth and Development. Even though the money and capital markets in Nigeria are not as deep as desirable, a start seems to have been made in the late 1980s and early 1990s to develop a more robust and balanced financial structure that would improve the ability of the domestic financial system to mobilize savings and contribute to self sustained Economic Growth (Iyoha, 2002).
The objectives of the liberalization are to build more efficient, robust and deeper financial systems, which can support the growth of private sector enterprise (Brown et al., 2001). The operators in the informal financial sector include professional money lenders, part-time money lenders. Their operations are flexible and sometimes contracts are unwritten. Other characteristics common to these institutions are free entry, free exist, lending is done mainly on personal recognition (Iganiga and Assemot, 2008).
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Financial Sector Liberalization and Capital Market Development.
1.3 Statement of Problems
Investigation revealed that the dimension of international trade has given rise to the contemporary challenges posed by globalization. The export-led economic growth hypothesis is hinged on the stimulation of production as a result of larger demand arising from international trade, which induces economies of scale. The main problem of the thrift and credit societies is inadequacy of fund, which prompt them to approach banks which would charge high interest. However, Credit societies often come together to form larger units called credit unions.
Apart from the stiff competition in the range of financial activities, banks also faced problems associated with a stubborn slow-down in economic activities, severe political instability, virulent inflation, worsening economic and financial conditions of their corporate borrowers, and increasing incidence of fraud and embezzlement.
This study is concerned with the impact of the liberalization policy on the information problems, which is in the form of informational asymmetries between the suppliers and uses of financial services.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Financial Sector Liberalization and Capital Market Development in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To find out the extent to which the liberalization policy has resolve the problem of externalities;
- To examine the comprehensive insight into the structure of the capital market in Nigeria;
- To examine the impacts of liberalization on the Development of the capital market;
- To assess the impact of reform policies like debt conversion programs; and
- To examine the extent to which the liberalization policy has resolve the problems existing in the system which are direct controls, the pervasive Government intervention in the financial system and the resultant stifling of competition and resource misallocation.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Has the financial sector liberalization measures been able to solve the repressed nature of the Nigerian capital market?
- Has the financial sector liberalization measures been effective in achieving its stated objectives?
- Has financial sector liberalization measures improved the efficiency in resource allocation and quality of investment in Nigeria?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Financial sector liberalization does not have a positive impact on capital market development.
- H1: Financial sector liberalization does have a positive impact on capital market Development.
Hypothesis Two
- H0: Capital market development does not have a positive impact on Economic Growth.
- H1: Capital market developments do have a positive impact on Economic Growth.
1.7 Significance of Study
The relevance of the findings of financial liberalization has impacted stock market development in Nigeria. The liberalization of financial institutions and markets is an improvement in financial intermediation, which is considered a necessary condition for stimulating investment, raising productive capacity and fostering Economic Growth and Development. The positive role played by informal capital market has been established in this work through its ability to provide residual finance objecting some doubt about the orthodox thinking and policy prescription which emphasizes on the formal financial system. Financial liberalization increased the real deposit ratio and also will lead to a substitution into financial asset resulting in a greater supply credit to finance real investment for capital market development and economic growth.
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of Study
The scope of the research is focused on the Financial Sector Liberalization and Capital Market Development in Nigeria.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Liberalization: It refers to the removal of controls and restrictions placed on the financial sector by a governing authority.
Electronic Money: Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.
Internet Banking: This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.
