THE ROLE OF INSURANCE COMPANY IN NIGERIA AS NON-BANKING FINANCIAL INSTITUTION: PROBLEMS AND PROSPECTS
Abstract
Banks are so prominent in the Nigerian economy that non-bank financial institutions (NBFIs) are hardly noticed. It is against this background that this study sets out to investigate the role of insurance company in Nigeria as a non-financial institution; problems and prospect. It discovered that NBFIs play a fundamental and complementary developmental role in the economy. To assess the impact of NBFIs on the economy the study used data obtained from primary sources and the Statistical Directory of the National Insurance Commission.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
A close examination of financial literature exposes the lopsided attention paid to banks. While it is awash with information on the scope and intensity of banks’ contribution to the economy, little is said about the input of non-bank financial institutions (NBFIs) to development. It is true that banks in a developing economy outclass the NBFIs in volume of transaction, versatility of operations, diversity of products and degree of market penetration (Acha, 2005:1). This does not in any way diminish the contributions of NBFIs as they perform similar functions with the banks and complement the efforts of the banks in the financial intermediation process. Despite their complementary role to banks in the areas mentioned above, NBFIs are known to possess potential advantages in the performance of economic development functions. For instance, certain NBFIs are rural in nature, like the community banks (now microfinance banks), and are therefore able to access greater population of Nigerians and their latent savings potentials. Nigeria is a country in dire need of development and cannot overlook the development potentials of NBFIs. There is therefore the need for close examination of NBFIs to identify the various types operating in Nigeria. Nigerian financial institution are regarded as the part of financial industries that deals with exploitation, exploration and sourcing funds, investment and sharing of funds to individuals. However, the Nigerian financial system can be said to consist of the following subsystems:
1. The banking system
2. The non-banking financial institution
3. The regulatory financial institution
4. The traditional financial institution.
In practice, the growth of most of these financial institution has become that of “Survival of the fittest” due to the lukewarm attitude of the Nigerian citizens in exposing their business interest to organizations incorporated under this system. Banks are financial institutions that engage in the acceptance of deposits and safe keeping of valuables (Jhingan,2005). On the other hand, Non-Bank financial institutions (NBFIs) are financial institutions that do not have full banking license and are not fully supervised by national or international banking regulatory agencies. NBFIs facilitate bank related financial services such as investments, risk pooling, contractual savings etc. These financial institutions (bank and non-bank) complement the activities of each other in the intermediation process in an economy. This intermediation process involves fund initialization from the surplus to the deficit units, which in turn facilitates the process of economic development. An economy is said to be growing or developing when increases in its productive capacity later yield to more production of goods and services. It has been posited that the expected increase in economic output and a sustained increase in national income per head may not be realized if the financial sector is not sound, healthy, and virile (Nwankwo and Ejikeme, 2007). This is because a well-developed financial sector performs a very critical function such as enhancing the efficiency of financial intermediation. A well-developed financial sector also enhances investment by identifying and funding good business opportunities, mobilizing savings etc. According to Oluyemi (1995) financial institutions are seen as the engine room for growth and development. Schumpeter (1934) affirmed this position where he identified the importance of bank and non-banking institutions in facilitating technological innovation.