In Nigeria, the consolidation of banks in 2004 led to the re-emergence of Universal Banks whereby they can perform both commercial and merchant banking.
Some of the Merchant Banks that operated in Nigeria in the past includes: Abacuses Merchant Bank Nigeria Plc, ABC Merchant Bank Nigeria Pie, Alpha Merchant Bank Plc, First City Merchant Bank Nigeria Plc, First Interstate Merchant Bank Nigeria Pie, international Merchant Bank Plc, NAL Merchant Bank Nigeria Plc. In Ghana, we have the National Finance and Merchant Bank of Ghana.
Insurance Companies
Insurance companies offer financial compensation as protection against the risks of accident, theft, death, fire, flood and other disasters. Regular payment of money called premiums is made by insurance policy holders who are prospective beneficiaries of such funds. The premium accumulated from insurance policy holders or customers are pooled together and invested by the insurance company in short-term and long-term securities especially on the capital market.
The Capital ‘i-key
It is a medium whereby medium term and long-term loans are sold and bought. Issued stocks, shares, debentures and bonds are some of the long and medium term securities being traded on the capital market.
The major institutions that participate on the capital market are the Central Bank, Securities and Exchange Commission which provides guidelines for activities on the Nigerian Stock Exchange which is the pivotal institution in the capital market. Other participating institutions ace stock-booking firms, building societies, insurance companies, development banks, finance corporations, merchant banks, savings banks, investment trusts and others.
Agencies involved in the capital Market
1. Central Bank
2. Securities and Exchange Commission
3. Stock-booking Firms
4, Building Societies
5. Insurance Companies
6. Development Banks
7. Saving Banks
8. Social Security and Provident Fund
The Lagos Stock Exchange (Securities and Exchange Commission
It was established in 1960. Presently, it has branches Lagos, Port Courtyard, Kadun Ibadan, Abuja, Onitsha. The stock exchange run by the Nigerian Stock Exchange Coincide which stipulates the standard of business conduct (or conduct of dealings), membership settlement of disputes, and inspection of new quotations.Traditionally, we have brokers and jobbers or buyers and sellers respectively in the Stock Exchange Market. Brokers act as agents for firms or individual buyers or seller of securities. They purchase or sell stocks and shares (and other securities) on behalf of their
clients. They charge commission for performing this service.
Jobbers deal in particular types of shares and stocks. He is like a wholesaler in the stock,
market. Whenever jobber is transacting business with brokers (who are like retailers on the
stock exchange), he quotes two prices the selling price and the buying price for the shares
The difference between his buying price and selling price is called the Jobbers turn or pro&
However on the Nigerian Stock Exchange, we have only brokers who are dealing
members on the Stock Exchange. There are no jobbers on the Nigerian Stock Exchange n
because the trading activities on the stock exchange are limited due to relatively
numbers of shares on the Stock Exchange.
Nevertheless, the number of shares on the stock exchange has increased gradually especially due to the implementation of the Nigerian Enterprises Promotion Decree of 1972 and 1974 and the recent privatization and commercialization of some government pastorals and the debt-equity swap scheme of the Federal Government’s Structural,Adjustment Programmer (SAP).
Members of the public buy shares on the basis of two major motives:
(1) To invest their money in specific shares or securities. Those with such motivation
end up buying shares and holding on to them as a source of regular income.
(ii) To speculate and buy shares purposely so as to study fluctuations in prices of stocks
and shares and buy in periods when share prices are low to resell when prices are at
a very high level. Consequently, they aim to take advantage of price fluctuation
the Stock Exchange Market.. Speculators are thus classified.
(a) Bulls: Are speculators who rush to buy shares with the expectation offprint
increase in the future.
(b) Bears: Are speculators who sell their shares in the hope that prices will falL
They aim at utilizing such opportunity to make quick profit. -
(c) Stags: Are those who purchase newly-issued shares hoping to resell them
when price rises.
Building Societies/Mortgage
Mortgage banks (or building societies) accept deposits from customers and later lend money.
to these customers for the purpose of procuring land or building their own houses. They
therefore aid people to save with a view of procuring their own houses or landed property.
In Nigeria, we have the Nigerian Building Society, several state owned Housing Corporations, a government funded bank, Federal Mortgage Bank of Nigeria Plc, as typical examples of Mortgage Banks/Building Societies. In Ghana, we have a similar body called First Ghana Building Society. In July 1991, ten new privately-owned mortgage banks have been licensed to operate in Nigeria and many more since then.
Social Security and Provident Fund
Social Security and Provident Fund organisations provide compensation to workers during illness, unemployment, or retirement. To achieve this goal, the body collects regular contributions from workers and their employers. Such fund is invested in government long- tern] securities. A typical example of this nature was the National Provident Fund in Nigeria. With the Pension Reforms started in 2004, some financial institutions called Pensions Fund Administrators (PFA) were established to collect contributions from workers and their employers and invest such on behalf of the workers so as to pay them their retirement benefits as at when due. Some of such PFA are: IBTC Pensions Fund Administrators, Lead way Pensions Fund Administrators, Crusaders Pensions Fund Administrators, etc.
Savings Bank
Savings banks are specialized institutions that provide savings account services. The Nigerian Post Office Savings Bank (now known as Federal Savings Bank) and Cooperative Thrift and Credit Societies are examples of Savings Banks. The deposits are made regularly in small units and can be withdrawn whenever required. Some of these funds are usually invested in government securities and bonds (e.g. treasury bills).
Development Banks
These are banks that provide short-term and long-term loans for specific sectors of the economy. These banks are funded and owned by the government. The aim is to accelerate the growth and development over time in the sectors under the jurisdiction of such banks. In Nigeria, we have the Nigeria Agricultural and Cooperative Bank, Nigerian Bank for commerce and Industry, Nigerian Industrial Development Bank while Sierra Leone has the Sierra Leone National Development Bank. Ghana’s National Investment Bank serves the purpose of a Development Bank. The Gambia Commercial and Development Bank serve the dual role of commercial and development bank.
Summary
In this chapter, we have discussed the following: Financial institutions refer to organisations and arrangements concerned with lending, borrowing, investing and managing money or funds. They are sometimes referred to as financial markets. These financial institutions use financial instruments in carrying out their different activities.
These include: The promissory notes, bill of exchange, call money funds, bonds, stocks and shares, cheques.
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