Term paper assignment

History of development banking in nigeria

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 establishedfor the purpose of providing medium and long term loansfor 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 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 forcapital projects in specific areas as already mentioned, development banks render ancillary services like proving technical advice on new and existing projects to their customers, engaging in promotional activities to stimulate interests among their customerson 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, we havethe 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, co-operative and rural development bank limited (NACRD). These banks are ownedby 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 havelost 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 5th may 1973 by the federal government of Nigeria. The bank which is believe to be a child of circumstance 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 bank’s 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 2nd 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.

Following the increase economic activities in

Nigeria, commercial banks which have 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

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

Meaning of development bank

A Development bank is a financial institution that

focuses on creating and delivering projects that

have a development and economic impact. They do

this through investing in infrastructure, public,

and financial administration systems, as well as

healthcare services. It can also be refers to as a

Financial institutions dedicated to fund new and

upcoming businesses and economic development

projects by providing equity capital and/or loan

capital. National or regional financial

institution designed to provide medium- and long-

term capital for productive investment. Such

investment is usually accompanied by technical

assistance. Some development banks are government-

owned and -operated, while others are private.

Many have been established under the auspices of

the World Bank. Among the largest are the Inter-

American Development Bank, the Asian Development

Bank, and the African Development Bank.

List of Financial Institutions

Development Finance Institutions

1 BANK OF INDUSTRY 2 FEDERAL MORTGAGE BANK OF NIGERIA 

3 NIGERIA AGRICULTURAL COOPERATIVE AND RURAL DEVELOP 

4 NIGERIA EXPORT IMPORT BANK 

5 URBAN DEVELOPMENT BANK OF NIGERIA PLC. 

BANK OF INDUSTRY 

The Bank of Industry Limited (BOI) is one of Nigeria's major development financing institution. It was formerly Nigerian Industrial Development Bank (NIDB) Limited, which was incorporated in 1964.

The bank of Industry has the mandate of providing financial assistance for the establishment of large, medium and small projects as well as expansion, diversification and modernization of existing enterprises; and rehabilitation of ailing ones.

CORE ACTIVITIESProject Identification and SelectionResource MobilizationFinancing (Long Term, Short Term and Equity)Industrial Policy FormulationBusiness Development SupportAdvocacy towards improving the effectiveness and efficiency of the local Entrepreneurs throughReduction initial set-up costs, taxation, timing and cost of obtaining consent to mortgage as well as obtaining C of O.Improving the enabling environmentEncouraging the effective resource utilization through the formation of coherent Public-Private-Partnership (PPP)

OPERATIONAL OBJECTIVEThe Bank of Industry (BOI) is committed to rapid development of SMEs in line with the federal Government’s industrial policy focus, within the framework of NEEDS. The Bank’s strategic thrust is the structured industrial transformation of the nation aimed at :Stimulation of economic activities throughout the country and mobilization of local resources towards progressive and sustainable growth and development of the economy.Stimulation of local entrepreneurship and revampingof indigenous economic activities where comparative advantages can be harnessed.Employment generation, with preference for Enterprises with potential to generate foreign exchange.

FEDERAL MORTGAGE BANK OF NIGERIA 

An Act to establish the Federal Mortgage Bank of Nigeria to provide long-term credit facilities to mortgage institutions in Nigeria and encourage and promote the development of mortgage institutions at therural, local, State and Federal levels.

Functions of the Mortgage Bank

The functions of the Mortgage Bank shall be to-

(a)           provide long-term credit facilities to mortgage institutions in Nigeria at such rates and  such terms as may be determined by the Board in accordance with the policy directedby the Federal Government, being rates and terms designed to enable the mortgage institutions to grant comparable facilities to Nigerian individuals desiring to acquire                                  houses of their own;

(b)           license and encourage the emergence and growth of the required number of viable secondary mortgage institutions to service the need of housing delivery in all parts of Nigeria;

(c)           encourage and promote the development of mortgage institutions at rural, local, State and Federal levels;

(d)           supervise and control the activities of mortgage institutions in Nigeria;

(e)           collect, manage and administer the National Housing Fund in accordance with the  provisions of the National Housing Fund Act;

Powers of the Mortgage Bank

(1) Without prejudice to the generality of section 5 ofthis Act, the Mortgage Bank shall have power to-

                (a)           accept deposits and savings from mortgage institutions and other institutional   depositors;

                (b)           issue its own securities,including debentures and bonds under Federal Government  guarantees and issue promissory notes and other bills of exchange for the purpose ofraising funds from financial institutions;

                (c)           establish a sinking fund for the redemption of securities by the Mortgage Bank and  provide for contributions by it to the sinking fund;

                (d)           carry out research aimed at improving housing patterns and standards in both urban  and rural areas of Nigeria;

                (e)           carry out research on mortgage finance activities and the building construction industry  in Nigeria;

                (f)            organise and operate, incollaboration with reputable insurance companies, a mortgage protection system designed to guarantee liquidity to mortgage institutions as well asafford them the opportunity of having liberal premium terms; and

                (g)           do anything and enter into any transaction which in its opinion is necessary to ensure   the proper performance of its functions under this Act.

(2) The liability of the Mortgage Bank, which may be incurred in connection with the exercise of the Mortgage Bank's powers under subsection (1) of this

section, shall be re-discountable with the Central Bankof Nigeria.

NIGERIA AGRICULTURAL COOPERATIVE AND RURAL DEVELOPMENT BANK

A bank is a financial institution that deals with

money. Bank draw surplus or idle fund from customers

and lend them to those who would invest them into

productive business or investment. Therefore bank have

been defined by different school of taught arising from

the multifarious function and services, they perform in

recent years in most cases either the term banker have

been defined in negative sense or in a ways which lay

itself to different interpretation for example, section

41 of the Nigerian banking Act of 1969 defined a bank

as any institution, person, company who carries out

banking business and which a commercial bank, and the

same section of the Act went further to define Banking

business as the business of recurring moneys from

outside sources as deposit irrespective of the payment

of interest or the granting of money loans and

acceptance of credit of the purchase of bills and

cheques or the purchase and sale of securities. Section

61 of the Banks and other financial institutions decree

No 25 of 1991 (BOHIO) deposits on current accounts

savings account or other similar account paying or

collecting cheques drawn by or paid in by customers,

provision of finance or such other business as the

governor may by order published in the Gazette,

designate as banking business. Section 3 of the

negotiable instrument Act 1881 states that the term

banker includes a person or persons corporate or a

company acting as a banker. This is mere cantology and

has not succeeded in defining whoa banker is. In

America the term banker is often used in a broad sense

to include capitalist, the financers, the stockbrokers

and even the high bank official.

Banks have also been defined as nay institution

that is dealing on shares and stock. The first

successful definition of a bank was made by law maker

(legislators) in the United State of America. They

define banking as dealing in credits, according to them

a bank include a firm, person or companies having a

place of business where credit is operated through

deposits and collection of money or currency subject to

be paid or remitted on drafts, cheques or money in

advance or loaned or stock bonds, billion bills of

exchange or promissory notes are received for discount.

In Japan, the Japanese Act of 1927 defines a bank as an

institution which carries on the operation of giving as

well as receiving credits. Inspite of the absence of an

acceptable definition of the term, some writers have

attempted to give a sound definition of banker.

According to Hart H, G. (1991) a banker is one who in

his ordinary course of his business honours cheques

drawn upon him by person from and for whom he receive

money as current account. Another was given by Sir John

Paget. According to him no other person, body,

corporate or others can be a banker who does not take

deposits account take current account issue and pay

cheques and collect crossed or uncrossed. This is a

more compressive definition of banking business, but

does not include most of the present day banking

operation like agency and general utility business.

Also banking in Nigeria has gone through very

dramatic change within this decade, the industry has

grown beyond optimistic expectation. Over the year and

period, the number of bank expanded, the variety of

bank increased. Banking operation were substantially

deregulated, competition increased and bank were forced

to be more innovative and services oriented.

From the above definition, the functions of commercial

bank or development bank could be visualized. There

function include

-      Receiving deposit

-      Advancing loan

RECEIVING DEPOSIT

This is an important business in banking operation

because bank depend merely on these funds for it’s day

to day operation. These are the three types of deposit:

-      Current demand deposits

-      Fixed and time deposits

-      Savings deposits

Current and Demand Deposit: These are deposit made by

customers which are virtually interest free. Such

deposit can be withdrawn in part of full at anytime by

the customers through the use of cheques.

Fixed and time: These deposits attract higher interest

rates and can only be withdrawn after a given period.

Saving Deposits: These are deposit that can be

withdrawn subject to certain limitation, regarding

frequency and amount to be withdrawn. This aspect of

banking business requires the bank to keep enough fund

or money available for transactionary and operation

purpose so as to be able to meet withdrawals or demand

by customers. According to IIjere (1986) the bank

should keep enough cash sufficient to meet any demand

made by customer.

ADVANCING LOANSThe bank makes profit by advancing loan to customers.

Because banks deal with other people money as such

while advancing, these loan, bank try to strike a

balance between profitability, liquidity and security.

This is done in order to meet the customer obligation

and at the same time to ensure the liquidity and

survival of the banks.

After the bank has satisfied itself that the purpose

for which a loan is required is economically sound, the

bank gives the customer right to draw cheques. The loan

thus becomes a deposit through issuance and drawing of

cheque such as loan than creates credit.

Advance constituted the most important asset of the

bank. It is said to be income sterile until invested

(Okoafor 1987). Amongst the major types of bank asset

loan and advances are the most dependable and highest

yielding sources of income Lot (1983)

Bank as a result of their nature don’t seek to maximize

its profit simply by maximizing its advances according

to Ijere (1986) certain prudent policies are followed

by bank before granting loan and advances. These

include

a.   The sources of Repayment: the probability that the

business will generate enough funds to enable the

entrepreneur to honour his business obligation as and

when due to maintain himself and repay the bank

advances.

b.   The personal character of the borrower: No banker

would like to lend to a dishonest person who does not

intend to pay back.

c.   The period of the advances: the bank would prefer

this period to be as short as possible so that he doe

not suffer risk for losing.

d.   The purpose of advances:- Banker request for clear

and very well articulated purpose or use of loan before

grating such request. They insist on this since very

high risk ventures bothering on gambling and betting

are usually not considered.

e.   The personal worth of the borrower: banker are

always weary of lending to men of straw who could not

even raise the base minimum amount required for the

advance.

f.    The security offered: Banker would like to lend

only against security sot that if the borrower defaults

in repayment he can exercise his right against the

borrower asset.

AGRICULTURAL LENDING Agricultural and agro-based industries fall within the

high risk zone. The risk in agricultural business sin

Nigeria is not only a function of the vagaries of the

climate condition of a place on which farming depend,

other factors such as the small and scattered nature of

most agricultural holding which together with the

relative lack of sophistication of the bulk of the

small scales farmer make the bank cost of servicing

them high. Because banks are risk aversive they are

therefore reluctant to operate in rural areas or

community where they are left with only the farmers and

have no alternative other than to develop the rural

environment. As a result of the role of agriculture as

a major sources of the food for teaming populations and

the need to diversify export based resources, the

federal government decided to emback on rural banking

programmes and also established some specialized

lending institution to take care of agricultural sector

of the economy

NIGERIA EXPORT IMPORT BANK 

1.Objects of the Bank

       (a)              to establish and carry on the business of export credit guarantee and exportcredit insurance, with a head office in Nigeria and other place of business in

Nigeria, as may be determined by the Board of the Bank from time to time;

       (b)              to design and implement schemes of export credit guarantee for parties carrying on business in Nigeria in connection with the export or the manufacture,treatment or distribution of goods for export or the rendering of services or of any other matter which appears to the Bank conducive to the purpose of encouraging trade with other countries;

      (c)               to undertake and guarantee theinsurance of export credit and for that purpose to enter, with or for the benefit of parties carrying on business in Nigeria, contracts of insurance against risk of monetary loss or othermonetary detriment attributable to circumstancesoutside the control of the person suffering the loss or detriment and resulting from the failureto receive payment in connectionwith or otherwise arising out of acts or transactions in the course of or for the purposeof trade with persons in any other country;

     (d)              to accept reinsurance of all kinds and to enter into reinsurance agreements with parties whether resident in or outside Nigeria against all or any risk or liabilityassumed by the Bank under any agreement, insurance policy or other schemesentered into by the Bank;

       (e)               to enter into guarantee agreements with other parties to guarantee payment in specified circumstances;

      (f)                to provide insurance against loss whether on the export of goods or the provision of services or on loans made to facilitate the export of such goods or the provisions of such services;

      (g)               to lend and advance money or give credit to such persons or companies on suchterms and conditions as may seem expedient and in particular to customers, companies, corporations, firms and other bodies which have dealings withthe Bank and to give guarantee or become surety and give security for any such persons or companies;

      (h)               subject to the provisions of any law in force, to buy and sell foreign currency and exchange and to accept money for remittance to all countries.

Functions of the Bank

(1) The Bank may, for the purpose of recovering any sums owed to it under any of its facilities and services, acquire such interests, rights or property inthe assets of any person concerned in such transactionsin satisfaction thereof and may retain, invest, sell orotherwise dispose of any interest, right or property soacquired.

(2) The Bank may-

      (a)        receive or recover such commissions andfees as may be agreed upon in consideration of anyguarantee or under-writing by the Bank;

      (b)        invest and deal with the monies of the Bank not immediately required uponsuch securities and in such manner as it may, fromtime to time, determine;

      (c)        establish and manage funds connected with the objects of the Bank;

      (d)        subject to this Act and the Land Use Act, acquire, hold and dispose of anymovable or immovable property for the purpose of the Bank's objects andfunctions under this Act.