CHAPTER ONE1.0 INTRODUCTION1.1 BACKGROUND OF THE STUDYFinancial institution, market, regulator and instrument allcomprises a set of complex and closely interconnected financialsystem, proving financial services in an economy, such servicesincludes mobilization and allocation of resources, distribution ofinvestment funds among firms, financial intermediation and foreignexchange transactions.The Nigeria financial system can be categorized into two via: theformal or organized and informal or unorganized financial system,the banks and non banks financial institutions make up theorganized financial system while the unorganized sector comprisesof indigenous bankers local money lenders‟ (ISUSU), shop-keepersor traders, merchants, landlords, saving associations, friends andrelatives etc. the system is poorly developed, limited economicsinformation, defective system of according are not integrated intothe formal financial system, but very important to the Nigerianfinancial system. Capital formations, buying and selling of bondsand securities, creation of new assets and liabilities, executingmonetary and credit policies of the central bank etc.10Are the roles and functions of financial system geared towardseconomic development of an economy? Patriotic researchers andpolicy makers have observed a declining savings rate in Nigeria overthe past decades; this is due to the critical importance of saving forthe maintenance of strong and sustainable growth in the worldeconomy particularly in Nigeria.A sound, healthy and reliable financial system relates to savingsmobilization and efficient financial intermediation roles:First, reduces hoarding and help spread the risk betweenhousehold and firms.Second, lowers interest rates thereby bringing about stability incapital market.Third, they create liquidity in the economy by borrowing short-termand lending long-term.Fourth, disseminate information between ultimate lenders andultimate borrowers thereby mobilizing savings from surplus unitsand channeling them to deficit units through the help of financialtechniques, instruments and institutions. Fifth the intermediariespromote development investment.11The Nigerian financial system comprise the regulatory /supervisoryauthorities, bank and non- bank financial institutions. As at theend of 2007, the system comprised of the Regulatory/ Supervisoryauthority, the Central Bank of Nigeria (CBN), the Nigerian DepositInsurance Corporation (NDIC), the Securities and ExchangeCommission (ESC), the national Insurance Comedienne (NAICOM),the National Pension Commission (NPC), and the Federal MortgageBank of Nigeria (FMBN).the CBN is the principal regulate andsupervisor in the money market, consisting of a Deposit MoneyBanks (DMBs), Discount Houses, the Peoples Bank of Nigeria andCommunity Banks.The CBN exclusively regulates the activities of finance Companiesand promotes the establishment of specialized or developmentfinancial institutions. The SEC is the apex regulatory/ supervisoryauthority in the capital market. The Nigerian Stock Exchange (NSE)is a self-regulatory or user-regulatory institution. The issuingHouses, Registrar and stock brokers, who also interact with themoney market, complex the chain in the capital. The FederalMinistry of Finance, together with the CBN constitutes themonetary authorities and share control over Bureau de change. TheNAICOM is the regulatory authority in the insurance industry, while12the FMBN regulates mortgage finance activities in Nigeria. Saving isa sacrifice of current consumption that provides for theaccumulations of capital, which in term provides additional outputthat can potential be used for consumption in the future(Gersovitz1988). In other words, savings is the difference betweencurrent earnings and consumption. It has also been defined as“deferred consumption” or part of income, which is not spent.Savings is described as a financial assets accumulated by thepublic- both government and private agents in the organizedfinancial system. To expand financial savings involves shifting offunds from the personal and household sector to the business orcorporate sector which in turn, leads to greater investment, incomegrowth, employment and capital formation: which cannot beachieved without increasing the rate of savings, Nigeria‟s savingstill falls below the requirements of its financial system due to lowper capital income, under- investment in productive instruments,and investment in unproductive channels, e.g. gold, jewelry, incomeinequalities and demonstration effect Etc. to remedy thisproblems depend on the level of development of the financial sectormentioned above as well as the savings habit of the citizenry. Theavailability of investible funds can be a starting point for all13investments in the economy, which will eventually translate toeconomic growth and development (Uremadu, 2006). Therelationship among saving, investment and growth has historicallybeen very close; hence, the unsatisfactory growth performance ofseveral developing countries. Example: Nigeria has been attributedto poor saving and investment. This poor growth performance hasgenerally led to a dramatic decline in investment. Domestic savingrates have not fared better, thus worsening the already uncertainbalance of payments position (Chete, 1999). The role of savings inthe economic growth of any country cannot be overemphasized.Conceptually, savings represents that part of income not spent oncurrent consumption. Instructions in financial sector like depositmoney banks (DMBs)/commercial banks mobilize savings in aeconomy, the deposit rate must be relatively high and inflation ratestabilized to ensured a high positive real interest rate, whichmotivates investors to save from their disposable income. In NigeriaNnann, Odoko and Englama (2004) are of the view that the level offunds mobilization by financial institutions are quite low due to anumber of reasons, ranging from low savings deposits rates of thepoor banking habit or culture of the people.14According to them, another impediment to funds mobilization is theattitudes of banks to small savers. Another Limitation to savingsmobilization is the fact that the concentration of banks and theiroffices are biased in favor of urban areas. Among the reasons forthis, is the fact that the established banks under- rate the volumeof saving to be mobilized and channeled into productive investmentin the rural areas. It is often argued that since the rural economyoperates at a near subsistence level, there is very little that can besqueezed out of income and consumption. Because of this, it hasnot been realized that large volume of idle funds, though in smallunits per individual exist in the rural areas. In Nigeria, there isbasically lack of incentives to savings which had adversely affectssavings. Some of these factors include; poor banking habits,attitudes of banks to small savers, poor orientation, unemployment,instability in the political system, corrupt taxation system,instability in the banking system, etc. one of the economic growthand development in Nigeria.