THE ROLE DEVELOPMENT BANKING IN NIGERIA

ECONOMY:
{A CASE STUDY OF NIGERIA BANKS.}

BY

ANYANWU, VIVIAN, NGOZI

HND/BAM/2010/41368

BEING

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF

BUSINESS ADMINSTRATION AND MANAGEMENT: SCHOOL
OF BUSINESS AND MANAGEMENT TECHNOLOGY, IO STATE
POLYTECHNIC UMUAGWO OHAJI, IN PARTIAL FULFILLMENT
OF THE REQUIRMENTS FOR THE AWARD OF HIGHER
NATIONAL DIPLOMA {HND} IN BUSINESS ADMINISTRATION
AND MANAGEMENT

OCTOBER, 2012
1

CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Development banking in Nigeria was established,
as a result of strong needs to close the gap created by
the inability of the operating banks in Nigeria such as
commercial banks, central bank and merchant banks
to provide the needed funds to finance some special
sectors of the economy such sectors which must be
financed mainly with long-term and sometimes with
medium term funds, need finance from specialized
banks such as development banks. These banks were
established for the purpose of providing medium and
long term loans for capital projects in Agriculture
commerce, industry and other essential projects that
are

necessary

for

economic

development

of

the

country, such loans are usually provided from the

banks internally resources. For projects that require
2

huge capital resources than it can provided alone,

development bank usually mobilizes other financial
institutions

to

raise

the

required

loan

for

the

establishment that requires it.

Apart from providing medium and long term loans
for

capital

mentioned,

projects

in

development

specific
banks

areas

as

render

already
ancillary

services like proving technical advice on new and

existing projects to their customers, engaging in
promotional activities to stimulate interests among
their customers on new prefects which the banks
consider necessary and profitable.
The commercial banks in operation provided short
term funds which was as a result of the nature of
funds available to them. Occasionally the provided
medium term funds and long-term basis. Development
banks perform this function by providing long-term
loans for capital projects in specific areas. In Nigeria,
3

we have the Nigerian industrial development bank

(NIDB), the Nigerian bank for commerce and industry
(NBCI) and the Nigerian Agricultural co-operative bank
(NACB) now known as Nigerian Agricultural, cooperative

and

rural

development

bank

limited

(NACRD). These banks are owned by the federal

government.
Following

the

reconstruction

of

the

Nigeria

industrial development bank limited, NIDB in 2001,

which incorporated the mandate of the Nigerian bank
of commerce and industry (NBCI), the (NBCI) appear
to have lost its identify. Today you may not discuss the
NBCI without seeing it as a part of NIDB.
Nevertheless, since NBCI, is still in existence
having not be swallowed by the NIDB,
The NBCI was established through decree 22 of 5 th
may 1973 by the federal government of Nigeria. The
bank which is believe to be a child of circumstance
4

because it came up after the Nigeria civil was when the

indigestion decree was set up. It started its operation
on 4th October, 1974.
The banks authorized capital at inception was N50
million N35 million of this fully paid up and subscribed
by the federal government with 60% and the central
bank of Nigeria, which had the remaining 40.
The bank when established was meant to assist
the implementation of the indigenization decree of
1972
By the decree No22 of 2 nd April 1973, the bank
was to provide equity capitates and funds by way of
loans to indigenous persons, institutions and Nigerias
for medium and long term investments in industry and
commerce at such rates and upon board in accordance
with the policy directed by the federal executive
council

This decree empowered the bank to borrow

monies from any source it can, to enable it meet its
obligations and discharge functions.
1.2 STATEMENT OF PROBLEM
Following
Nigeria,

the

increase

commercial

banks

economic
which

activities
have

in

been

established to provide their customers with short term

loans can no longer meet up with duties of providing
medium. At this point in time the monetary authority
and the federal government saw the need to create a
bank that will cater for the need of people living in
rural and urban areas and those who want to invest on
capital projects.
The aim of establishing this bank was to grant
medium and long term loans to Nigeria investors. The
aim or establishing this bank was defeated due to
culminated by the economic depression pampging the
Nigeria economy which had lead to the Nigeria
6

economy which had lead to the folding up or wounding

up of many industries which had slowed-down the
business activates in our industries which affect the
development banking in Nigeria.
Development

banking

have

not

performed

satisfactorily area of capital projects and promotional

activities to stimulate interests among their customers
on new projects which the bank consider necessary
and profitable. This can be attributed to in equate
capital base, the high rate of interest charged on loans
borrowed and high cost of building houses. New
initiatives

are

therefore

needed

to

tackle

these

problems.
1.3 OBJECTIVES OF THE STUDY
The objectives of this study are as follows:
1.

To final out the role played by development

banking in the development of Agriculture, commerce

and industrial sectors.
7

2.

To highlight the impact of development banking in

the Nigeria Economy.

3.

To examine the extent of mobilization of funds to

finance capital projects.

4.

To

examine

the

sources

of

funds

to

the

development banking in Nigeria.

5.

To determine whether there is any difference in

functions of bank that makeup development banking.

6.

Finally

to

recommendations

make
for

general

worthwhile

and
for

specific

development

banking in Nigeria.
1.4 RESEARCH QUESTIONS
The

following

research

questions

have

been

formulated for the study

1.
the

What is the role played by development banking in

development

of

Agriculture,

commerce

and

industrial sectors?

2.

What are the impact of development banking in

the Nigeria economy.

3.

What is the extent of mobilization of funds to

finance capital projects?

4.

What are the source of funds to development

banking in Nigeria.
5.

What are the difference in functions in banks that

make-up development banking?

1.5 SIGNIFICANCE OF THE STUDY
The results of the study will be beneficial to
different people in different ways. It will be beneficial
to stakeholders in development banking industry,
management and staff of the development-banking
sector where achievement has been minimal.
The

study

will

benefit

the

public

who

will

understand the role played by development banking

and use to apply for micro credit loans. It will be
equally

beneficiary

to

investors

who

applied

for
9

medium and long-term loan on how development

banking finance capital projects. It will also stimulate
new thoughts and ideas on how development banking
in Nigeria carry out its activities.
Finally, the study forms the basis upon which
further research can be actuated.

1.6 SCOPE AND LIMITATION OF THE STUDY

The study was limited to development banking in
Nigeria. Because of the time frame and finance
constraint on the side of the researcher, the scope of
the study was limited to developing banking in Enugu
metropolis, Nigeria.
However, the researcher encountered problem in
area of gathering materials/data for the research work
due to dearth of research materials on the topic. This
however, does not distort the researcher from getting

10

relevant documents that aided her in carrying out

research work of this nature.

1.7 HISTORICAL

BACKGROUND

OF

NIGERIAN

BANKS
The Nigerian banking industry which is regulated by the
Central Bank of Nigeria, is made up of; deposit money
banks referred to as commercial banks, development
finance institutions and other financial institutions
which include; micro-finance banks, finance companies,
bureau de changes, discount houses and primary
mortgage institutions. Essentially the industry consists
are 24 commercial banks, 5 discount houses, 5
development finance institutions, 50 class A bureau de
change, 598 bureau de change, 98 Primary Mortgage
Institutions, 84 finance companies and 914 Microfinance institutions. Before we arrived here however,
there is a history which must be preserved for the sake
11

of posterity. That is the cardinal reason for releasing

this report - to preserve information. This report can
arguably pass for the only remaining public knowledge
of the history of banking in Nigeria. The report traces
the history of banking in Nigeria from 1892 to 2010
presenting 118 years of complete banking history.
Right from the establishment of the foundation banks in
Nigeria, the African Banking Corporation and the Bank
of British West Africa to the first attempt at an
indigenous bank in Nigeria in 1929 up until the
establishment of the Central Bank of Nigeria in 1959.
Moving also to the SAP and the liberalization of the
financial services sector in 1986 up till the 2005
consolidation and the most recent establishment of the
Asset Management Company.

The report is introduced

with a 118 year chronology of banking in Nigeria

followed by well laid pieces on developments in the
industry over the period in review.

A list of all the

12

Governors (past and present), a list of the banks that

were liquidated by the NDIC between 1994 and 1998
plus a list of Nigerias oldest banks is also contained in
this report. Also inside is a list of todays banks and the
mergers that formed them.

1.8 DEFINITION OF TERMS

RESUSCITATE AILING INDUSTRIES:
resuscitating

ailing

industries

that

This bank

can

operate

competitively in the countrys economy.

LOCAL SOURCES OF FUNDS: This are funds provided
to the development bank by the federal government of
Nigeria and the central bank of Nigeria.
INTERNATIONAL SOURCES OF FUNDS: This is a
way by which development bank obtain foreign loans
and grants from international agencies.
ABSORPTION

OF

EXCHANGE

RISK:

The

bank

provides facilities that will encourage the absorption of

13

exchange risk encountered by funds users in respect of

foreign dominated loans.
REFERENCES
Nwakoby:

C.N

(2004),

Banking

practice

and

operations
in Nigeria; principles issues and practice, EmeneEnugu, New Generation Books Publishing Banks ltd, p
119.

Okeke, C.C.S (1990), Senior Secondary Economics,

Onitsha, Jet Publishing Banks.

14

CHAPTER TWO
2.0 LITERATURE REVIEW
A substantial body of literature has been devoted to
the link between finance and economic development in
Banking System in Nigeria, both in developing and
developed economies. Patrick (1966) postulates a bidirectional relationship between financial development
and economic growth. Since the publication of this
work, a large body of empirical literature has emerged
to test the hypothesis. Two main approaches to the
test of this hypothesis have emerged. The first group
led by Erdal et al, 2007, adopts a single measure of
financial development and tests the hypothesis on a
number of countries using either cross-sectional or
panel data.

The second group tested the hypothesis

using time series data of particular countries. For

example,

Murinde

and

Eng

(1994)

tested

the
15

hypothesis on Singapore; Lyons and Murinde (1994)

on Ghana; Odedokun (1998) on Nigeria; Agung and
Ford (1998) on Indonesia; Wood (1993) on Barbados;
and James and Warwick (2005) on Malaysia.
Some other authors including King and Levine, (1993a
and

(1993b);

Demetriades

and

Hussein,

(1996);

Levine, (1997); Demirguckunt and Maksimovic,(1998);

Beck et al. (2000); Beck and Levine (2004); Wachtel
(2003); and Demetriades and Andrinova (2004) used
different econometric methodologies and data sets to
study the role of the financial sector in the economy.
These studies were generally modeled after the works
of Shumpeter (1912), Gurley and Shaw (1955);
Goldsmith (1966); and Mckinnon (1973).
Results from these various studies have shown that
countries with well-developed financial systems tend to
grow faster, especially those with (a) large privately
owned banks that channel credit to the private sector
16

and (b) liquid stock exchanges. They assert that a

well-developed

banking

sector

and

liquid

stock

markets exert positive influence on the economy. This

is because well-functioning financial systems ease
external financing constraints that obstruct firm and
industrial expansion.
In the last two decades, a new empirical approach to
testing the long run causality pattern of financial
system and economic development has emerged. This
methodology

has

been

used

by

Gupta(1994);

Jung(1986); Murinde and Eng (1994), among others.

The Vector Autoregression approach was adopted for
these studies using different country data sets. The
results show that the causality pattern varies from one
country to another, depending on the success of
financial sector liberalization policies and the level of
development of the financial sector.

17

In Nigeria, the policy of financial liberalization has

been pursued since the introduction of the Structural
Adjustment Programme in the mid-1980s and this has
been supported by greater openness to world trade
and a higher degree of financial inclusion.

2.1 THEORETICAL FRAMEWORK:

2.1.1

Linking

Banking

and

Economic

Development
The process of reforming the financial sector for
greater efficiency consists of the movement from an
initial situation of controlled interest rates, poorly
developed money and securities market and underdeveloped banking system, towards a situation of
flexible interest rates, an expanded role for market
forces in resource allocation, increased autonomy for
the central bank and a deepening of the money and
capital markets.
18

The

ability of

the financial

system

to engender

economic growth and development hinges largely on

the health, soundness, efficiency and stability of the
banking

system.

Banking

reforms

are

therefore

undertaken to strengthen and reposition the banking

industry, to enable it contribute meaningfully to the
development

of

the

intermediation process.

real

sector

through

its

It involves a comprehensive

process of substantially improving the regulatory and

surveillance framework; fostering healthy competition
in operation, ensuring an efficient framework for
monetary

management,

expansion

of

savings

mobilization base, enforcement of capital adequacy,

promotion of investment and growth through marketbased interest rates.
The theoretical argument for linking bank reforms to
growth is that a well developed financial system
enhances the efficiency of intermediation by reducing
19

information, transaction, and monitoring costs. On the

one hand, it broadens the deposit base of the economy
and on the other hand it promotes investment by
identifying and funding good business opportunities,
hedging and diversifying risk and facilitating the
exchange of goods and services. These result in a
more efficient allocation of resources, in more rapid
accumulation of physical and human capital, and in
faster technological progress, which in turn feed
economic growth (Creane, et al, 2004).
Ultimately, bank reforms aim at ensuring financial
deepening

which

implies

institutions

to

effectively

the

ability

mobilize

of

financial

savings

for

investment purposes. The growth of domestic savings

provides

the

real

structure

for

the

creation

of

diversified financial claims. It also presupposes active

participation

of

financial

institutions

in

financial

markets, which in turn entail the supply of quality

20

(financial) instruments and financial services (Ndekwu,

1998).
Financial deepening largely entails an increased ratio
of money supply to gross domestic product (GDP),
Popiel (1990), Nnanna and Dogo (1999) and Nzotta
(2004). It is thus measured by relating monetary and
financial aggregates, such as M1, M2 and M3 to the
GDP. The logic here is that the more liquid money is
available to an economy, the more opportunities exist
for growth.
However it is important to remember that it is
impossible to

win any game

without having an

enforceable set of rules to guide the way it is played.

Therefore, the benefits of the banking sector reforms
cannot be achieved without strong institutions that set
and enforce the rules (Soludo, 2006). Institutions are
dynamic and will continue to evolve or lead the
continuously changing economic circumstances. North,
21

D.C (1993) laments that Neoclassical economists have

implicitly assumed that institutions (economic as well
as political) dont matter and that the static analysis
embodied in allocative efficiency models should be the
guide to policy; that is, getting the prices right by
eliminating exchange and price controls. On the
contrary, he asserts that the state can never be
treated as an exogenous actor in development policy
and that getting the prices right only has the desired
consequences if and only if there already exists a set
of property rights and enforcement mechanisms that
will

then

produce

the

competitive

conditions.

Furthermore, North defines institutions as the rules of

the game of a society or more formally, as the
humanly-devised constraints that structure human
interactions. They include formal rules (statute law,
common

law,

regulations),

informal

constraints

(conventions, norms of behavior, and self-imposed

22

codes of conduct), and the enforcement characteristics

of both.

2.2 HISTORY OF NIGERIAN BANKS AND THE

ECOMOMY
In 1892 Nigeria's first bank, the African Banking
Corporation, was established. No banking legislation
existed until 1952, at which point Nigeria had three
foreign

banks

(the

Bank of British

West

Africa,

Barclays Bank, and the British and French Bank) and

two indigenous banks (the National Bank of Nigeria
and the African Continental Bank) with a collective
total

of

forty

branches.

1952

ordinance

set

standards, required reserve funds, established bank

examinations,

and

provided

for

assistance

to

indigenous banks. Yet for decades after 1952, the

growth of demand deposits was slowed by the Nigerian
23

propensity to prefer cash and to distrust checks for

debt settlements.
British colonial officials established the West African
Currency Board in 1912 to help finance the export
trade of foreign firms in West Africa and to issue a
West African currency convertible to British pounds
sterling. But colonial policies barred local investment of
reserves, discouraged deposit expansion, precluded
discretion for monetary management, and did nothing
to train Africans in developing indigenous financial
institutions. In 1952 several Nigerian members of the
federal House of Assembly called for the establishment
of a central bank to facilitate economic development.
Although

the

motion

was

defeated,

the

colonial

administration appointed a Bank of England official to

study the issue. He advised against a central bank,
questioning

such

bank's

effectiveness

in

an
24

undeveloped capital market. In 1957 the Colonial

Office sponsored another study that resulted in the
establishment of a Nigerian central bank and the
introduction of a Nigerian currency. The Nigerian
pound (see Glossary), on a par with the pound sterling
until the British currency's devaluation in 1967, was
converted in 1973 to a decimal currency, the naira (N),
equivalent to two old Nigerian pounds. The smallest
unit of the new currency was the kobo, 100 of which
equaled 1 naira. The naira, which exchanged for
US$1.52 in January 1973 and again in March 1982 (or
N0.67 = US$1), despite the floating exchange rate,
depreciated relative to the United States dollar in the
1980s. The average exchange rate in 1990 was
N8.004 = US$1. Depreciation accelerated after the
creation of a second-tier foreign exchange market
under World Bank structural adjustment in September
1986.
25

The Central Bank of Nigeria, which was statutorily

independent of the federal government until 1968,
began operations on July 1, 1959. Following a decade
of

struggle

over

the

relationship

between

the

government and the Central Bank, a 1968 military

decree granted authority over banking and monetary
policy to the Federal Executive Council. The role of the
Central Bank, similar to that of central banks in North
America and Western Europe, was to establish the
Nigerian currency, control and regulate the banking
system, serve as banker to other banks in Nigeria, and
carry out the government's economic policy in the
monetary field. This policy included control of bank
credit growth, credit distribution by sector, cash
reserve requirements for commercial banks, discount
rates--interest

rates

the

Central

Bank

charged

commercial and merchant banks--and the ratio of

banks' long-term assets to deposits. Changes in
26

Central Bank restrictions on credit and monetary

expansion affected total demand and income. For
example, in 1988, as inflation accelerated, the Central
Bank tried to restrain monetary growth.
During the civil war, the government limited and later
suspended

repatriation

of

dividends

and

profits,

reduced foreign travel allowances for Nigerian citizens,

limited the size of allowances to overseas public
offices, required official permission for all foreign
payments, and, in January 1968, issued new currency
notes to replace those in circulation. Although in 1970
the Central Bank advised against dismantling of import
and financial constraints too soon after the war, the oil
boom soon permitted Nigeria to relax restrictions.
The three largest commercial banks held about onethird of total bank deposits. In 1973 the federal
government undertook to acquire a 40-percent equity
27

ownership of the three largest foreign banks. In 1976,

under

the

second Nigerian

Enterprises Promotion

Decree requiring 60-percent indigenous holdings, the

federal government acquired an additional 20-percent
holding in the three largest foreign banks and 60percent ownership in the other foreign banks. Yet
indigenization

did

not

change

the

management,

control, and lending orientation toward international

trade, particularly of foreign companies and their
Nigerian subsidiaries of foreign banks.
At the end of 1988, the banking system consisted of
the Central Bank of Nigeria, forty-two commercial
banks, and twentyfour merchant banks, a substantial
increase since 1986. Merchant banks were allowed to
open checking accounts for corporations only and
could not accept deposits below N50,000. Commercial
and merchant banks together had 1,500 branches in
28

1988, up from 1,000 in 1984. In 1988 commercial

banks had assets of N52.2 billion compared to N12.6
billion for merchant banks in early 1988. In FY 1990
the government put N503 million into establishing
community
development

banks

to

associations,

encourage
cooperative

community
societies,

farmers' groups, patriotic unions, trade groups, and

other local organizations, especially in rural areas.
Other financial institutions included government-owned
specialized development banks: the Nigerian Industrial
Development Bank, the Nigerian Bank for Commerce
and Industry, and the Nigerian Agricultural Bank, as
well as the Federal Savings Banks and the Federal
Mortgage Bank. Also active in Nigeria were numerous
insurance companies, pension funds, and finance and
leasing companies. Nigeria also had a stock exchange
(established in Lagos in 1961) and a number of
29

stockbrokerage firms. The Securities and Exchange

Commission (SEC) Decree of 1988 gave the Nigerian
SEC powers to regulate and supervise the capital
market. These powers included the right to revoke
stockbroker registrations and approve or disapprove
any new stock exchange. Established in 1988, the
Nigerian

Deposit

Insurance

Corporation

increased

confidence in the banks by protecting depositors

against bank failures in licensed banks up to N50,000
in return for an annual bank premium of nearly 1
percent of total deposit liabilities.
Finance and insurance services represented more than
3 percent of Nigeria's GDP in 1988. Economists agree
that

services,

consisting

disproportionately

of

nonessential items, tend to expand as a share of

national

income

as

national

economy

grows.

However, Nigeria, lacked comparable statistics over an

30

extended period, preventing generalizations about the

service sector. Statistics indicate, nevertheless, that
services went from 28.9 percent of GDP in 1981 to
31.1 percent in 1988, a period of no economic growth.
In 1988 services comprised the following percentages
of GDP: wholesale and retail trade, 17.1 percent;
hotels and restaurants, less than 1 percent; housing,
2.0 percent; government services, 6. percent; real
estate and business services, less than 1 percent; and
other services, less than 1 percent.

2.3 IMPACT OF ISLAMIC BANKING TO NIGERIA

ECONOMY
The current raging debate on Islamic banking is
apparently centered on parochial religious and ethnic
sentiments; the objective aspects of it are yet to be
31

explored.
There is the need to look at its viability, or otherwise,
its specialized banking operations in relation to the
nations developmental goals, as this piece intends to
do. The Islamic banking controversy was flared up by
penultimate Mondays announcement by the CBN that
it had licensed JAIZ Bank to operate Islamic banking,
and its subsequent issuance, the following day, of final
guidelines pertaining to the system in Nigeria. Islamic
banking products are sharia compliant, and unlike the
conventional banking practices do not charge interest
on financing whereas profits or losses are shared with
the borrower or
spreading

the

investor
risk

as the case may be,

involved

and

discouraging

superfluous speculations.
Nigeria has a long term economic perspective plan
with a set target of developing its economy to the level
32

of rating among the worlds top twenty economies by

the year 2020, code named Vision 20:2020.
And this noble vision is being driven by the nations
financial system; financial system being the backbone
of every economy. Nigerias financial system consists
of the Deposit Money Banks (DMBs), the Capital
Market ,other non-banking financial institutions like
insurance companies, pension fund administrators,
finance companies, mortgage institutions, and their
related regulatory agencies and the relevant enabling
laws guiding their operations.
To achieve Vision 2020 therefore, there is need for a
robust and vibrant financial system that will power the
economy, as the financial sector is expected to
facilitate medium and long term economic growth
rates.

It is a known fact that a rapid financial

development

has

helped

boost

growth

in

most
33

developed countries, and is currently paving way for

the emerging developing nations, particularly the Asian
giants (Hong Kong, Singapore, South Korea and
Taiwan) and Brazil, Russia, India and China, popularly
referred by the acronym BRICS.
Evidently at the take-off of Vision 2020, our nations
Financial
erstwhile

System

was

Governor

of

in

shambles.

Central

Bank,

Nigerias
Professor

Chukwuma Soludo (in a paper he delivered on FSS

2020, at the Abuja International Conference Centre,on
the 18th of june 2007) said, before the financial
industry reforms he introduced in 2004, Nigerias
financial system could not deliver on its defined roles
and was characterised by low aggregate banking credit
to the domestic economy (20% as percentage of
GDP): that it was engulfed in a systemic crisis; the
nations banks were continuously resorting to Central
34

Bank for bailouts, as they had inadequate capital base;

the structure of the industry was oligopolistic, with ten
out of 89 banks accounting for over

50% of total

banking system assets; poor corporate governance;

low banking/population density (with a bank branch
serving 30,432 people); a payment system that
encouraged

cash-based

insurance

industry

transactions;
was

also

the

nations

weak

and

undercapitalized; pension funds were largely absent,

and the Stock Market was shallow.
Soludo

went

on

to

restructure

the

system

for

competitiveness and also consolidated the banking

industry by increasing bank

capital base

from U.S

$15 million to U.S $200 million, implemented through

mergers and acquisitions, and/or injection of fresh
capital that brought down the number of the banks
from 89 to 24. Wholesale banking came into being
35

with some banks acquiring other financial institutions

such as stockbrokerages and insurance firms in order
to offer one-stop financial services.
The emergence of stronger banks offered ground for
fast-tracking the vision through a road-map policy
called Financial System Strategy 2020 (FSS 2020)
aimed at making Nigeria the financial supermarket of
African economies by 2020. Lagos was proposed to be
developed into a financial hub, a world commercial
nerve centre like London, New York, Hong Kong,
Tokyo, Frankfurt etc that would offer onshore financial
and capital market services; this would facilitate the
position

of

Lagos

to

function

as

centre

for

intermediation of financial services between Western

Europe, North America, Middle East and Asia.
For Nigeria to propel the rest of African economy, an
integrated financial system is essential, with deep and
36

efficient financial markets capable of improving access

to

finance

inclusion

of

and

wooing

international

investors. In this direction, the CBN under Soludo

issued a draft framework for non-interest banking
(Islamic banking) in March 2009 an initiative
intended as a platform for seamless and robust link to
international financial markets. The draft was as a
result of the amendment of Central Bank of Nigeria Act
of 1999, in 2007, that incorporated Islamic banking
among others to expand and broaden the nations
financial markets.
As according to Reuters (Nigeria eyes role as African
Islamic banking hubMar 8, 2011 ,By Nick Tattersall)
Islamic financial system is estimated to be a $1 trillion
global industry, and that Ratings Agency Moodys
forecasts that the industry could hit $5 trillion over
time, with Asian economies including Malaysia and
37

Indonesia experiencing rapid growth in Islamic banking

by taping from this huge and growing industry.
The draft of Islamic banking framework was also
necessitated by the effect of global meltdown that
castrated our financial system and slowed the growth
of the economy: The All-Share Index and Market
Capitalization of the Nigerian Capital Market (NSE)
declined from 64,848.70 in the first week of March to
59,124.87 in the first week of May 2008, falling by
45.8 in the year.
Similarly, the market capitalization declined from
N12.34 trillion in the first week of March 2008 to
N11.43 trillion in the first week of May, 2008; and by
July ending, investors had lost an estimated N4 trillion,
amounting to some 37 percent erosion in market
capitalisation. The market dipped further by 34% in
2009, and continued. This saw the shares of most
38

banks

plummeting

from

double

to

single

digits.

Therefore the proposed Islamic bond (Sukuk) that is

part of the Islamic banking will greatly assist in
reviving the ailing market.
In Mid-August 2009, few weeks after Sanusi Lamido
Sanusi assumed office in June as CBN Governor, it was
discovered that many of the nations banks were
distressed, and virtually surviving on loan from CBNs
Expanded Discount Window (EDW), and were unable
to settle their obligations. CBN had to sack their
Executive Directors and Executive Officers, some of
who were later prosecuted, and bailed the banks with
further N400 billion public funds as a sort of tier 2
capital

to

be

repaid

from

proceeds

of

their

recapitalization.
The insurance sector is not also on its feet, as its
contribution to GDP is still below 1%. The 2006 Sigma
39

publication on World Insurance Outlook said, out of of

88 countries rated, Nigeria was ranked 86th in
premium per capita with $5.3 per head and numbered
84th in premiums as a percentage of GDP, at 0.6%;
the Prime Mortgage Finance Institutions are not worth
writing home about; the nascent Pension Fund subsector is toddling, and the sorry situation of the
countrys industrial sector that operates at less than
30% capacity utilization and contributing less than 4%
to GDP.
Therefore the restructuring of the insurance industry
saw an evolution in Islamic Insurance (Takaful) in
Nigeria where many of the big players incorporated the
practice. The product is part of the global insurance
industry of $ 2.5 trillion; where the global Takaful
premium is up to $3 billion, and is the fastest growing
area of the world insurance market. Takaful is growing
40

at

20

to

25

percent

per

annum

against

6%

conventional insurance growth. It is also growing in

Nigeria, as the Coordinator of Halal Takaful Nigeria, a
division of Cornerstone Insurance Plc, Hajia Thaibat
Adeniran, told pressmen that Takaful market has been
very encouraging, Presently, we are having the
highest sales in Port Harcourt and this has shocked
many people who think it is not possible. We are
moving very fast here in Lagos too.
The recent kick-off of Islamic banking in the country is
aimed at f diversifying the countrys financial system in
order to mitigate risks in addition to the opportunities
it would offer to banks and investors. As Sanusi
correctly observed in an interview: Islamic banking
products are tied to the real economy, so they are part
of our reform programme of getting banks to lend to
the real economy. They also discourage excessive
41

speculations and risk taking, which is consistent with

some of the new guidelines we are putting in place. So
from a financial stability perspective and from a
financial deepening perspective, Islamic banking is an
important part of our agenda.
Islamic banking is expected to give depositors another
choice of where to invest their wealth, especially the
Muslims who are prohibited under Sharia Islamic law
to give or take interest, which is considered as usury.
In this dispensation, the customer and the bank share
the risk of any investment on agreed terms, and divide
any profits that accrue there from. Non Muslims are
also not excluded, while non-Islamic countries like
United Kingdom, Germany and South Africa have
championed the practice of Islamic banking amongst
the 75 countries practicing it. South Africas Stanbic

42

IBTC bank had since signified its interest to the CBN

for a license to practice Islamic banking.

1.4 ELECTRONIC BANKING AS AN ADDITION TO

THE DEVELOPMENT OF NIGERIAN ECONOMY
Banking service when introduced in our rural areas will
bring

development

or

specifically

economic

development to the doorstep of every citizen in this

country since between 70 80 percent of Nigerians
lives in the rural area.
Every Nigeria want to go to the urban area because of
availability of infrastructural amenities like electricity,
43

good

roads,

pipe

borne

water,

civilized

market

operation, job opportunities and so on. If these social

amenities continue to exist in urban areas, life in rural
areas will still remain underdeveloped.

Money they

say is the blood that nourishes or gives life to any

prosperous economy of a nation.

For money to

accomplish its aims in an economy, it needs to be

properly managed and controlled in the banking
sector.
Agriculture is the second major sources that generate
revenue to the Nigeria government after oil industry.
The sector of the economy right from time has been
neglected. The rural areas have not felt any positive
impact on the development plan but only recorded a
decline in agricultural productivity, which shows that
the rural areas have been neglected at the expense of
the urban areas.
44

The banking industries one of every nations sectors

that

has

controlling

impact

on

the

economy

particularly in terms of monetary policy, this is why

federal

government

has

continuously

encouraged

banks to expend their services and facilities not only to

the urban cities but also rural areas.

Current Banking Reforms and National Economic

Development.
The Nigerian banking system has steadily evolved,
following wide reaching reforms embarked upon by the
authorities. The current major reforms which began in
2004 were necessitated by the need to strengthen the
banks. At the inception of the reforms, the thrust of
policy was to grow the banks and position them to play
pivotal roles in driving development in other sectors of
the economy, as well as induce improvements in their
45

own operational efficiency.

As a result, banks were

consolidated through mergers and acquisitions, raising

the capital base from N2 billion to a minimum of N25
billion, which reduced the number of banks to 25 from
89 in 2005 and later to 24. The table below shows the
impact of the banking sector reforms on the economy.

CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
This chapter focuses on the methodology employed in
this research.
3.1

RESEARCH DESIGN
In defining research design Nwana, (1981:19)

stated that, research design is a term used to describe

a number of decision which need to be taken regarding
the collection of data before other data are been
collected.
46

A descriptive method of research was used for

this study. It is of great importance to identify the
method and procedure adopted in this research work,
since it gives the reader background information on
how to evaluate the findings and conclusion.
3.2

SOURCES OF DATA COLLECTION

In adopting any method in research study, it is

imperative to put into consideration the approach that

will yield the most productive result relevant to the
problems at hand. In this regard, data for this
study/research

were

gathered

from

the

following

sources.

Primary source

Secondary source

3.2.1 PRIMARY SOURCE OF DATA

Primary data are first hand data obtained from
the respondents. The research used both structured
47

interviews and questionnaires including observation

method to obtain relevant data from the respondents.
3.2.2 SECONDARY SOURCE OF DATA
Secondary data are data obtained from review
of related literatures of opinions of expects in the
subject matter. These data were obtained from text
books, magazine, newspaper, from private
professionals, public and academic libraries.
3.3 POPULATION OF THE STUDY
Asika(1991:52) assess population of the study as
a census of all items or subject that possess the
characteristics, or that have knowledge of the
phenomenon being study. The population of the study
was composed of staff of Nigerian Banks Enugu and
the customers of Nigerian Banks. The staff of Nigerian
Banks was 20 from the data obtained in the Nigerian
Banks. The researcher conveniently chooses 100

48

customers of Nigerian Banks. Thus, the population of

the study was 120.
3.4 SAMPLE DESIGN AND DETERMINATION OF
SAMPLE SIZE.
Sample according to Nwabueke (1993:8), is the
population of the total population of the universe to
the studied. Since the population is a finite one,
application of statistical formula becomes imperative in
determining the sample size. The sample size
according to Okeke (1995:25) can be determined by
using
Yaro Yamani Formula:
n

N
1 + N(e)

Where

n = Sample size
N = Population of the study
e = Tolerable error (5%)
n =

120
1 + 120 (0.05)
49

n =

120
1 + 120 (0.0025)

n =

120
1 + 0.3

n=

120
1.3

92.307

n = 92
Using Bourleys proportional allocation formula:
n =

n (n)
N

Where n = Element within the sample frame. i.e number

allocated to esch

employees and customers.

n = Sample or proportion of the universe used for

the study (total sample size)
N = Population of the study.
Staff:

n = 20 x 92
120
=

1840
50

120
=

15.33

15

Customer:
n = 100 x 92
120

9200
120

76.66

77
To cross check:
15 + 77 = 92 (Sample size)

3.5 METHOD OF DATA COLLECTION

The researcher constructed a questionnaire which
consist of 25 item that where both open and close
ended questions, with multiple options for the
respondent to choose. This instrument was submitted
to my supervisor who studied it and made corrections
to be in line with the subject of the research.

51

3.5.1

QUESTIONNAIRE DESIGN, DIISTRIBUTION

AND COLLECTION OF RESPONSE.

In designing the questionnaires, conscious efforts were
made to structure the questions into multiple choice
question which gave the respondent the opportunity of
answering either Yes or No or choose from the range
answers. The researcher used simple random sampling
technique to choose the respondents or the sample
size from the population without bias. Random
sampling is a process of choosing randomly from the
population to have a representative sample.
3.6 METHOD OF DATA ANALYSIS
In analyzing the data collected using questionnaire,
the researcher used descriptive sample percentage
tables and chi square statistical tools which is used
in testing two random samples.
Chi square is given as:
X = (o e)
52

e
Where

X = Chi square
o = Observed frequency
e = Expected frequency
= Summation of the frequency.

This text is based strictly on the primary data gotten from the
use of questionnaire.
DECISION RULE: Reject Null Hypothesis if calculated value of
(X) is greater than the critical value and accept Null
Hypothesis if calculated value of (X) is less than the
critical value.
The Degree of Freedom = (n - 1)(k - 1)
Where

Df = Degree of freedom
n = Number of Rows
k = Number of Column.

53

CHAPTRER FOUR
DATA PRESENTATION AND ANALYSIS
4.1

DATA PRESENTATION

54

This chapter focuses on presentation, analysis and

interpretation of data Collected through the use of
questionnaire that was distributed to both staff and
Customers of Nigerian Banks. This analysis of data is
necessary to bring out the result of the research work done
and to able comment to be made on data collected and
draw conclusion based on it.
Table 4.11 distribution and return of questionnaires.
Options

Staff
Customer
s
Total

Number
distributed
20
72

Number Percentage
returned of returned
%
18
21%
68
79%

92

86

100

Not
Percentage
returned of not
returned %
2
33%
4
67%
6

100

Source: field survey 2010

The above table indicate that out 92 questionnaire
distributed 20, were distributed to
completed and returned while 2 representing 33% were
no returned. 72

55

questionnaires was distributed to the customers, 68

representing79% were
returned while 4, representing 67% were not returned.
4.1.2

PRESENTATION ACCORDING TO KEY RESEARCH

QUESTIONS

RESEARCH QUESTION 1
Why is Banking Development necessary in Nigeria?
Table 4.1.2
Option
To boost
corporate
image
To enhance
Nigeria
societal
relationship
To enhance
productivity
Total
Source: field survey 2010

Number of
respondent
26

Percentage
%
30.2

45

52.3

15

17.4

86

100

From the table, 26 respondent with 30.2% said that Banking

Development is necessary in Nigeria to boost corporate
56

image, 45 respondents with 52.3% said that it is

necessary because it enhances Nigeria societal
relationship while 15 respondents with 17.4% said that
Banking Development is necessary because it
enhances productivity in Nigeria.
From the table above, it can be concluded that Banking
Development is necessary because it enhances Nigeria
societal relationship.
RESEARCH QUESTION 2
To what extent does Nigeria involvement in Banking
Development have an effect on the Banks and its
community?
Table 4.1.3
Option
Very
Satisfactory
Fairly
Satisfactory
Satisfactory
Not

Number of
Respondents
15

Percentage%

21

24

40
10

47
12

17

57

Satisfactory
Total
86
Source: field survey 2010

100

From the table above, 17% which represents 15 respondents

indicates that Nigeria involvement in Banking Development
is very satisfactory to the Banks and its customers, 21
respondent which represents 24% indicates fairly
satisfactory, 40 respondents with 47% said that the
involvement in Banking Development is satisfactory while
12% which represents 10 respondents indicates that the
involvement of Nigeria in Banking Development is not
satisfactory.
Therefore, the researcher found out that the involvement in
Banking Development is satisfactory to the Banks and
its customers.
RESEARCH QUESTIONS THREE.
What factors motivates the Banks in carrying out
Banking Development activities.
Table 4.1.4
58

Option
Public
pressure
Voluntary
action
No idea
Total
Source: field survey

Number of
respondent
21

Percentage
%
24

60

70

5
86
2010

6
100

From the table above, 21 respondent representing

24% are of the opinion that public pressure motivate
the Banks in carrying out their Banking Development
activities, 60 respondent representing 70% indicate
the Banks voluntary action while 5 respondent
representing 6% indicate no idea.
It can be conclude that, the Banks carryout their
Banking Development activities voluntarily.
RESEARCH QUESTION FOUR
Who do think are the beneficiaries of the Banking
development?
Table 4.1.5
59

Option

Number of
respondent
Community
55
Customers
20
Government
11
Total
86
Source: field survey 2010

Percentage
%
64
13
13
100

From the table 55 respondents with 64% said that the

beneficiariess of Banking Development are the
community, 20 respondent representing 23% said that
the customers are beneficiaries of the Banking
Development activities while 11 respondents with 13%
indicate the government as the beneficial.
RESEARCH QUESTION SIX
Do you think that Nigerian Banks, Banking
Development initiative has an impact on Nigeria?
Table 4.1.7
Option

Number of
respondent
Yes
70
No
16
Total
86
Source: field survey 2010

Percentage
%
81
19
100
60

The above table shows that 70 respondents

representing 81% agrees that Nigerian Banks,
Banking Development initiative has an impact in
Nigeria economy, while 16 respondent representing
19% disagrees to the claim.
One would be inclined to believe that Nigerian
Banks, Banking Development initiative has an impact
on Nigeria.
RESEARCH QUESTION SEVEN
How often does the government intervene in your
corporate Banking Development activities?
Table 4.1.8
Option

Number of
respondent
Very often
20
Quiet often
35
Often
16
Not often
15
Total
86
Source: field survey 2010

Percentage
%
23
41
19
17
100

61

In the table, 20 respondent with 23% indicate that the

government intervene very often in the Banks Banking
Developmentactivities, 35 respondent with 41% indicate
quiet often, 16 respondent with 19% indicate often while
15 respondent representing 17% indicate not often.
It would be observed that government intervene quiet
often in Banks Banking Development activities.

RESEARCH QUESTION EIGHT

Of what quality is the Bankss product?
Table 4.1.9
Option

Number of
Respondents
40
36
10

High
Low
Substandard
Total
86
Source: Field Survey, 2010

Percentage
%
46.5
41.8
11.6
100

62

In the table above, 40 respondent representing 46.5%

said that the Banks product is of high quality, 36
respondents representing 41.8% said low quality while
10 respondents representing 11.6% said that the
Banks product is sub-standard.
It was observed that the Banks products is of high
quality
RESEARCH QUESTION NINE
Has there been any disagreement between your
Banks and the community.
Table 4.1.10
Option

Number of
respondents
Yes
30
No
45
No idea
11
Total
86
Source: Field Survey, 2010

Percentage%
34.8
52.3
12.7
100

From the table, 30 respondents which represents 34.8

said that there have been disagreement between the
63

Banks and the community, 45 respondents representing

52.3% said that the Banks has not experience any
disagreement with the community while 11 respondents
representing 12.7% indicate that they do not have any
idea.

4.2 TESTING OF HYPOTHESES

This section deals with the testing of the
hypothesis associated with the research work.
Hypotheses can either be Null hypotheses (Ho) or the
Alternative hypotheses (Ha).
The hypothesis shall be base on 5% level of
significance where the table value of 1 from degree of
freedom= (n-1) is 3.841.
Hypotheses One
Ho: Nigeria involvement in Banking Development does
not have an effect on the Banks and the community.

64

Ha: Nigeria involvement in social responsible has an

effect on the Banks and its community.
To test this hypothesis, the researcher employed
the statistical (x) chi-square test base on the reaction
of respondents.
A Response to Hypothesis One
Table 4.2.1
Option

Number of
respondents
Yes
60
No
26
Total
86
Source: Field Survey, 2010.

Percentage%
70
30
100

Using x
= 86 = 43
2
x = (o-e)
e
O

60

43

O-E

17

(OE)

(OE)

289

E
6.72
65

26

43

-17

289

6.72
13.44

X calculated = 13.44
Level of significance = 5%
Degree of freedom = n-1 = 2-1 = 1
x = 3.841 at 1 degree of freedom (0.05) level of
significance.
DECISION RULE:
Since x calculated value is greater than tabulated
value 3.841 required for 5% of significance for one
degree.
CONCLUSION
Based on the above analysis, the researcher rejects
the null hypothesis (Ho) and accepts the alternative
hypothesis (Ha) we therefore conclude that the
Nigerias involvement in Banking Development has an
effect on the Banks and its community.
HYPOTHESIS TWO

66

Ho: Nigerian Banks corporate Banking

Developmentprogramme does not enhance Nigeriasocietal relationship.
Ha: Nigerian Banks corporate Banking Development
programme enhance Nigeria-societal relationship.
A Response to Hypothesis Two.
TABLE 4.2.2
OPTION

NO OF
RESPONDENTS
YES
70
NO
16
TOTAL
86
SOURCE: Field survey 2010

PERCENTAGE
%
81%
19%
100%

Using x = (o-e)
e
O

70
16

43
43

O-E

(O-E)

27
-27

(O-E)

729
729

E
16.95
16.95
33.9

X calculated value = 33.9

Level of significance = 5%
67

Degree of freedom = n-1 = 2-1 = 1

DECISION RULE
Since calculated value of x 33.9 is greater than the
tabulated critical vakue 3.841 required for 5% level of
significance of 1 degree.

CHAPTER FIVE
CONCLUSION, RECOMMENDATION AND
SUMMARY
5.0 Conclusion
This paper has attempted to discuss the banking
development

in

Nigeria.

Empirical

literature

has

affirmed that the banking sector is at the heart of

economic

development

with

its

institutions

as
68

indispensable facilitators and enablers. Theoretically, a

robust and strong financial system elicits a robust and
stronger growth of the economy.

Banking reforms in Nigeria have, thus far, succeeded

but could succeed better if institutions such as the
RMAFC are strengthened. One way to achieve this is
by ensuring that human capacity is built and upgraded
with new challenges and opportunities in mind and
that there is closer collaboration with sister agencies in
the

system

to

enhance

synergy

and

policy

coordination.

5.2 CONCLUSION
The survival of any Nigeria Banks is dependent
upon series of exchange between the Nigeria Banks
and its environment. The involvement of Banksbacom
Nigeria Limited, Enugu, and participation in

Banking
69

Development practices shows that the Banks is socially

responsible to its immediate environment.
For any Nigeria Banks to survive, it has to
properly take part in

Banking Development activity.

Most Nigeria Bankss and government agencies agrees

that

Banking Development is well and truly on the

agenda in the business world because businesses

operate in an environment where her resources are
sourced and for this citizens will be looking up to them
with high expectations and if this expectations

are dashed, it will not go well with both the Nigeria

Banks and the citizens.
Where

shareholders

refuse

the

approval

of

Banking Development they may receive wrath from

the government and its host community. Having said
this, Nigeria Bankss should take up the issue of
Banking Development seriously.

If a Banks fails to
70

meet stakeholders expectations, it can put its own

future at risk.
In conclusion, corporate

Banking Development

can therefore be best described as a total approach to

business.

Corporate

Banking Development creeps

into all aspect of operations.

Like quality it is

something that you know when you see it.

It is

something that business today should genuinely and

wholeheartedly be committed to.

The dangers of

ignoring Banking Development are too dangerous

When it is remembered how important brands are to
the

overall

Bankss

value.

Corporate

Banking

Development is therefore something that a Banks

should try and get right in implementing.

5.3

RECOMMENDATION.
The idea that the only function of business Nigeria
Banks is profit maximization for the shareholders
71

should be erased and become obsolete and thus they

should shift emphasis to a newer term Banking
Development.

To this effect Nigeria Banks would

protect their long-term interest by redefining their

objectives to include those of the communities in which
they carry out their business operations,
In

view

of

the

above,

the

following

recommendations are made which will be based on the

findings presented in the study.
The Banks should expand their activities by going into
other areas like health, education, charity giving,
instead of focusing on only sport and entertainment.
The Nigeria Banks should provide adequate amenities
to it immediate environment.
The Banks should improve on their service; most times
the network reception is very poor.
Despite the fact that Banks does not cover many rural
areas

in

Nigeria,

their

Banking

Development
72

programme should not only center in the urban areas.

Their banking development project should also be
shifted to rural areas where there is no network
coverage.
A committee should be established to oversee their
Banking Development activities.
The Banks should partner with the government to
ensure

effectiveness

in

running

their

banking

development programmes.
Without

endangering

corporate

survival,

businessmen should realize the advantages of giving

grants to universities and other institutions and to its
community, to mention a few.

Nigeria Banks should

realize that an increase in the entrepreneur spirit of

the populace can only be beneficial to the business
sector and that the government cannot do this all
alone.

73

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78

QUESTIONNAIRE FOR STAFF.

1.

Gender.
Male ( )

2.

30 51 (

),

MBA/PhD (

NCE/OND (

), BSc/HND (

),

How long have you been with Banking System?

0 4 yrs.( ), 4 10yrs, (

5.

50 and above (

Educational Qualification:
SSCE (

4.

Age:
18 - 30 (

3.

Female (

) 10 and above (

Is Banking Development activities incorporate into

the Nigerian policy?

Yes (
6.

No

How long has Banking System been involved in

Banking Development?
(Specify)

79

7.

Does the Nigerians involvement in Banking

Development has any

effect On Banks?
8

No (

If yes what is the nature of the effect?

Favourable (

9.

Yes

Unfavourable)

Do your Nigerian consider her immediate enrolment in

Banking Development activities?

Yes (

No (

).

10. Do Nigerian invite customers of the host community

for consultation in matters relating to Banking
Development?
Yes

No

11. Does Banking System Banking Development activities

improve the Nigerians productivity?

Yes

No

( ).
12. Do you think Banking System Banking
Developmentinitiative has an impact on Nigeria
economy and its host community?
Yes (

No

)
80

13.. Is Banking System totally committed to Banking

Development?
Yes

No

14. Does the involvement of Banking System in Banking

Development beneficial to both the Nigerian and its
host community?
Yes (
15.

No

Does the Nigerian involvement in Banking

Development
improve the marketing of the Nigerian
products?
Yes (

No (

16. Does your Banking Development project come up

as a result of
pressure from government or immediate
environment where your
Nigerian operates?
81

Yes (
17.

No

Does your companys Banking Development

programme focus
Yes (

on all sector of the economy?

No (

).

18. Does government intervene in your Banking

Development
activities?

Yes (

No (

19. If yes, how often?

Very often (
Not often (

),

Quite often (

Often

20. Do you benefit from Bankss Banking

Developmentactivities?
Yes (

No

21. In what area of the Banking Developmentactivity

of Banks have you
Benefited from?

82