CHAPTER I

INTRODUCTION
This research work review the impact of financial institution on the economic development of Nigeria, especially in Enugu Urban.

1.1 Background of the Study
The Nigeria financial institutions are integral part of the nation financial intermediation mechanism through which the saving of households firms, public corporations and even oversea resident are made available to borrows at home.
Financial intermediation channels the fund from the potentials surplus units to potential deficit units quickly, cheaply, safely, and conveniently thereby influencing the overall economic development of the state.
The principal financial institution in Enugu urban financial system may be classified into bank and non-bank financial institutions. The banking financial institutions include the Central Bank of Nigeria (CBN) Commercial Banks, Merchant Banks, Development Banks. The Non-Bank Financial Institution (NBFI) on the other hand, include insurance companies, permission funds, National provident fund. Credit and cooperative society, investment corporations, Discount House Finance Companies, Building societies and Hire purchase companies.
There is also the financial market comprising of money and capital markets, where most financial institution operate for the purpose of accelerating financial intermediation thereby improving the liquidity of the economy.
Nigeria economic development depends solely on the activities of financial institution. This assertion is based on the contention that capital accumulation, which is basic pre-requisite for and development take-off, is being financed mainly by the activities and tools of financial institution and its intermediation mechanism.
In view of the above, government has been involved in developmental programmes with aim of increasing a lot of people through a steady increase in per capital income. Government in a bid to do this has involved itself in different programmes that could evolve a good investment culture in the nation such programmes might aim reducing the interest race so as to stimulate investment of a programme put in place to stimulate savings so that there could be enough advances to investors. This has been pursued with zeal over the years.
Besides, there have various grants and aids, subsides and the like to so many sectors of the economy to stimulate investment. They have also tried as much possible to attain stability in every sector of the economy. However, this has not been easy since the nation has been into a state of economic instability for the past ten years in their quest for the solution to his economic uncertainty, the federal government of Nigeria established various development bank to give long-term advance to investors as a way of encouraging investment and instilling an investment culture in Nigeria business climate.
To appreciate the influence the financial institutions have on Nigeria economy, a Review of the native and function of bank and non-bank financial institution is necessary so that one can place the important aspect of this research work in right perspective.

1.1.1 Central Bank of Nigeria (CBN)
The traditional role of Central Bank is the stabilization of the economy. The CBN uses the monetary policy to expand or contact the quantity of money in circulation.
By so doing, they effect the overall stability of the economy. It is however said to note due to underdevelopment nature of our capital market, the Central Bank of Nigeria has not been using this all important policy.

1.1.2 Commercial Bank
Commercial Bank is the primary unit of Enugu and also Nigeria’s banking system.
It is a financial institution, which dedicates itself to serve the public by accepting deposit from the member of the public and giving out advance as well as performing other function or service for its customers, it can also be understood as a financial institution, which form the most part makes short-term commercial bodies.
Commercial bank in Enugu also own or facilitate foreign bills of exchange letters of their customers. This is great significance because through this facility, importer in Enugu urban can buy goods on credit from manufactures in foreign countries or other state.
Commercial bank helps in economic development. They do this collecting money from the saving public and land money thus collected as overdraft or advance to people when need them.
In this way, they assist economic development by providing investment capital to manufacturers, market women and other business men.
1.1.3 Development Bank and Merchant Bank
Initially, it was though that Merchant Bank could fill gap, created by the provision of mainly short-term financial for working capital purpose by commercial banks, by providing the much needed medium and long-term finances to industries.
But it was later discovered that the merchant banks were ill equipped to fill the gap. This neither the CBN, the commercial banks nor marchant bank were ready and able to provide the much needed medium and long-term finance to industries.
Hence, the need for development bank were conceive with the primary objectives of stimulating the private sector of economy, and concern itself with the promotion and the finance of enterprises by the provision of long-term and medium-term finance.
Due to the quest for development immediately after independence in Nigeria, the federal government with the assistance, support and encouragement of the World Bank established the Nigeria Industrial Development Bank (NIDB) which will be responsible for a network of development programmes in Nigeria and some of the state like Enugu.

1.1.4 Non-Bank Financial Institutions
When a businessmen obtains money from saving to invest on plant development and equipment new jobs are created. Whenever businessmen invest borrowed saving of others to invest in a new house, economic activity is stimulated. There is thus a chain reaction in our economy every time someone invests saving in the creation of some thing new.
Borrowers and savers, we can see must somehow get together in our economy. Saving absolutely necessary if investors are to have anything to invest. One of the non-bank financial institutions in which savers and investors come together is to security market despite this; the individual savers have many channels for his saving. He may deposit his saving in a community bank or he may purchase securities in the securities market. He also has the alternate of putting his funds in of the non-bank financial institution.
In conclusion, therefore, financial institution both and non-bank made it easier for people to save by providing them with a convenient and availability of saving accumulated in these institution help our economy immeasurably. Since investment depends people’s propensity to save in a given economy.

1.2 Statement of the Problem
The impact of financial institution exist all over the world like other private enterprise with their traditional role of issuing financial obligations such as demand deposit in order to acquire funds from the public. These corporate institution pool these funds and provide them in larger amount to business units government and individuals ordinarily financial institutions make credit facilities available to potential investment in an economic unit.
Besides, they see to it that credit to the investors in judiciously use by extending expent business advise to the investors. By so doing the financial institution in no hall measures contribute in speeding up the overall economic development of a state such like Enugu urban.
Financing of industrial production technology and other sectors development is within the completeness and responsibility of the financial system available information have shown that local industries depends on financial institution to the tune of about sixty percent hence one could imagine financial involvement in other field of endeavors that insures economic development of the state.
It is also important to reflect on the effect of the Central Banks use of monetary policy on development process of an economy. This control measure affect overall economic activities of the state such as money and credit creation, unemployment take in inflationary rule national growth and infact the stabilization of the entire state of economy.
It has been stated above that the both banking and non-banking financial institution help in bringing both banking and non banking together. The effect their interaction, no doubt, will affect the economy positively. Despite and these contribution in view, the banking and non-banking financial institution, which abound in commercial banks, has not made any necessary impact on the economy. The per capital income is still very low, unemployment roaring very high. Inflationary roaring as defined all economic approach hence there is a general instability in the economical as people still living in object propriety and hopeless.
The above picture leaves one in doubt as whether financial institution in commercial bank are really playing their traditional role of being a catalyst to economic development or does it imply that the investors in the state are making use of the availability of the service of those financial institution in the state.
This research project therefore is aimed at addressing the above problems and again given an empirical investigation in the economic development of the state.

1.3 Purpose of the Study
This research is designed to investigate and critically study the impact of financial institution in the economic development of commercial banks. It aims at development strategies for addressing the problem that hinder those institution from performing their traditional role of accdraling development processing.
Specifically however, the purpose of this studies include the following:
i. To find out why commercial Bank are not developed to an appreciable level despite the numerous member.
ii. To find out whether investors actually source for and use the loans obtained from the bank for development purpose.
iii. To find out how many development projects, which financial institution have undertaken in commercial bank.

1.4 Significance of Study
Many reasons have been suggested for the negations disposition of a significant percentage of Nigeria’s toward saving their money with financial institution, which can channel these fund to where investment are most required. The most popular of this reason is that banking services are not easily available to all Nigerians because of the uneven geographical distribution of banks, ie, while most urban centers are having branch offices of most the existing banks, there are little or no bank in the rural area within a radius of 70 kilometers even with the establishment of people and community banks, little or no impact has been felt as it concerns the above problem.
It has also bee suggested that even where bank operate, most Nigerians particularly the less educated, may avoid using their service because of the apparently long time it take to consummate a simple transactions. This has necessitated the large transaction balance kept by individual in cash form. Wealthy and educated individuals also tend to keep large cash balance for reasons ranging from meeting social requirements and extended family commitments, whichever is the case, we can agree that all these have been responsible for the creation of the saving gap.
However, and effort at increasing the level of financial intermediaries must therefore examine the possibilities that exis for changing these attitudes and reducing the saving gap. Incidentially, this is exactly what this research work aims at achieving, especially as it is in line with the belief of keys “That saving in the corner-starts of and development ventures”.
It is therefore researchers candid opinion that this project on the financial institution and economic development in Nigeria will be a useful guide to the policy formular and implements in Nigeria generally students of social science, especially student economic, financial studies and other academics and citizens of mature experience who may have cause the seek for credit for investment purpose will benefit immensely form this work. This is because the major factors militating against financial institution playing their traditional role of being a catalyst of economic development and what individuals, private and public concern are expected of.
Finally, it is expected that if the suggestions proposed in this research project are implemented judiciously, the hopelessness and underdeveloped nature of the state will be improved.

1.5 Research Questions
In this research work there are so many question that are going to be solve, there include:
i. In what ways can financial institution be develop in Enugu urban.
ii. To what extend can development of financial institution improve economic development in Enugu urban.
iii. Did financial institution have any impact in economic development in Enugu urban.
iv. How can you compare the impact of financial institution and economic development in Enugu urban.

1.6 Scope/Delimitation of the Study
This work concentrates on the operation of the selected impact of financial institutions, which commercial bank between 1980 and 1990. It also covers the laws governing the establishment of these institution it is a basically a blend of observational analysis and library work. Also papers delivered at seminars symposia and classroom lectures, and found very useful in this study.

1.7 Limitations of Study
Generally speaking, conducting a research in Enugu urban as confirmed by previous researcher has always been fraught with difficulty and frustrations. The researcher cannot, as a result of his experience in doing this work help in sharing these views already expresses.
Although the researcher sincerely felt he done a hard honest job and obtain reliable results, these world have made possible presentation of implacable finding for the following constraints:
a. Finance:
Financial constraint also contributed adversely in limiting the scope and operational area, which transportation cost made it impossible for the researcher to make many callbacks as possible to obtain in all the information necessary.
b. Illiteracy:
A good effort made to limit the sample size to love of class, but there was a deviation from this in a bid to reach the man whose surplus saving are made available to deficit borrowers for investment purpose. Low literacy level of these people was another inhibiting factor in the performance of this research work. Even where lengthy explanations succeeded in convincing them their inability to comprehend the implication of some question because another handicap. Since the research topic require the view of the cross-section of the public, one had no choice but the accept with sceptism the adequacy of the answer supplied, though they might not full represent their feeling.
c. Time:
Time constrain posed that most difficult handicap suffered while carrying out this project work. Though the project called for state coverage, time factor made it impossible to cover all the local government areas in the state and so the work has to be confirmed to the state capital.

1.8 Definition of Major Terms
For proper understanding of this study, it is imperative to define some term, which shall of be used.
i. Economic Development: Economic development is a process whereby the level of national production (ie. National income) per capital income increase over a period of time. It involved change in the structure of the economy.
ii. Financial Institution: These are establishment that issue obligations (such as demand deposit) in order acquire funds from the public. The institution then pool these funds and provide then in large amount to business, government or individuals for investment purposes.
iii. Capital Market: Capital market is the market in which long term financial instrument such as equities and bonds are raised and traded.
iv. Financial Intermediary: It is an institution, which links an ultimate lender with an ultimate borrower, banks link depositing and borrowing customers, building societies links depositors and mortgagers.
v. Money Market: Money in which short term such as treasury bills, certificate of deposits and commercial bill are traded.
vi. Shares: One of a number of equal portion in the nominal capital of a company entitling the owner to a portion of distributed profits and residual value of the company goes into liquidation.
vii. Bonds: A form of fixed–interest security issued by central of local government companies, bank or other instructions.