Mobilization of Domestic Savings for Economic Growth and Development in the Banking Industry

 Mobilization of Domestic Savings for Economic Growth and Development in the Banking Industry

Domestic Financial Resource Mobilization Efforts of The Nigeria Financial System

            The Central Bank of Nigeria has no specific satiation duty / responsibility for domestic financial resources mobilization. However, for the CBN to achieve one of its principle objective i.e to promote monitoring stability and a sound financial system in Nigeria, it performs some functions aimed at promoting financial savings.

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One of the most important of these objectives is stated as to achieve greater mobilization of savings and its efficient and effective channeling” Whist therefore the CBN may not have a statutory role in this matter of savings mobilization or indeed a transitional risk is obvious from what it does that that the institution appreciated that given the level of development of our financial environment, it has and plays . Some development / promotional roles.

The Banks and other financial institutions Decree (Bo fid) grants power to the CBN to influence the operations of deposit taking institutions, convened by the decree to ensure effective financial savings mobilization. Indirectly but never the less positively and effort aimed at mobilizing domestic resources for economic development.

The rural Banking scheme was a most important appropriate and effective mechanism for promoting domestic resources for development in the rural areas of Nigeria. The noble objectives of that scheme were.

(i)        Cultivation of banking habits among the rural dwellers.

(ii)              Mobilization of savings from the rural areas for the purpose of channeling the same to profitable venture.

(iii)            Creation of credit by way of equity and loans for small scale industries.

(iv)            Development of agriculture and agro –  lied industries in the rural areas with a view to achieving the national objective of self sufficiency in food production.

(v)              Reducing to a contractible  extent the drift of young school leaves from the rural areas to urban centre

It appear clear to me from redoing

(1)    –  (x)   above that the scheme was put in place to promote  domestic savings mobilization for development in the rural parts of Nigeria where the silent circumstance oppressed majority of our citizens live and work without the minimum facilities. The scheme was able to positively impact an savings mobilization. Provision banking facilities in the rural areas and the generation of rural employment.

Principal Sources of Savings

Bank saving represent the assets of a bank (Adekanye 1986: 172) saving themselves represents excess of income over expenditure. Savings can be of other transitory nature or of a medium term nature. The type of deposit account a customer operates depend on his motive if the motive is that of investment the customer may decide to operate tome / savings deposit  account.

Banks operates with savings made available to them by depositors. Therefore banks demand for savings while customers supply savings. It is therefore important for bank to study the source of savings as well as the supply behavior of savers. Thus will enable them to adopt appropriate strategies to induce more savings, available to them.

The Principal Sources of Savings Are:-

(i)                Household: House hold that accumulate savings most often then not pretor to operate either demand deposit or saving/ time deposits or both accounts with a bank funds from the principal sources of funds for a commercial banks. This should make to study in details those factors that induce household to operate deposit account wish banks and why a particular bank is chosen instead of other within the save locality . ( Read et al 1989:58)

(ii)             Business Firms: Business firms of whatever size funds banks as partners in progress.  Therefore their success depends to a greater extent upon their relationship with banks: This is the more reason why business firm exhibit the highest degrees of consumer royalty to their primary banks.

The location of bank is of great importance to all categories  of business firms and especially the small scale ones forms normally near  to their head offices. The above three categories of customers provide the highest percentages total bank liabilities Bank should therefore study their withdrawals behavior.

To Effective Mobilization of Savings for Economic Growth and Development

            In spite of the impressive performance of the Nigerian financial system as discussed above in domestic financial resources mobilization the proportion of money supply that lies outside the financial institutions still remains significant and indeed crossed the 50.0 percent mark 1994 and increased from 52.6 percent in that year to 67.5 percent in 1995 shows that the financial system is not succeeding in that critical function the reason for this poor performances can be traced to the following :

(i)                Low level of development of the banking habit in Nigeria. This situation has not been helped by the recent wise spread distress in the financial system  and the inability of many financial institutions to meat their customers deposit withdrawal demands.

(ii)              Particularly in developing countries like Nigeria, small – scale entrepreneur and even individual saver use banks and financial institutions not solely as custodians of mains. They save with financial institutions within the hope of enjoying credit facilities. This hope has often been disappointed as a result of the difficult conditions attached to loan facilities. As a result, rather then fianncialised their savings many potential

Depositors keep and turn over whatever funs are available to them for running their business. This not only are banking institutions, in particular are not receiving new depositors but are unable to create derivative deposits.

  1. The level of negative read interest rate is too high in Nigeria to encourage saving this disincentive to save compounds the resource mobilization problem already accentuated by high rate of inflation which leaves income earners with little disposable income little ability and propensity to save.
  2. Poor marketing of financial services.

Inadequate banking facilities that inevitably leads to crawled banking halls and long agonizing queries for services.

  1. Inadequate variety and unattractive deposit products.
  2. Growing frequency of frauds, insider abuses and malpractice which all combine in on unholy alliance to erode publics confidence in financial institutions and do painful damage to whatever level of baking habit has been developed.
  3. Discouragement of the creation of customer bank

The widespread and never demand allegation of banks rejection and  avoidance of deposit a very saol commentary on this aspect of commercial banks operations. It is an unfortunate paradox that in the same country where the government is making strenuous effort to encourage savings the principle institution that can aid regularly all sorts of delaying tactics to discourage savings. On how else do you interpret the practice whereby some banks offers to open new account during specified period of these by easily observable fact that many banks counter clerks appear not should in the act of treating the customer, if not as kings which they are but level of curtsey. Too many of us are being made to feed that we are being done some favour by setters of financial services in Nigeria.

Effect of Bank Distress in Mobilization of Savings.

The financial sector of any economy plays on important role in promoting and supporting economic growth and development. However, if the financial sector is in distress, it can not perform this role effectively.

The Union bank’s quarterly magazine (the Stallian: Jan  – Mar 2002) reports that banks in the world over occupy a strategic and leading position in the financial  sector. Consequently monetary authorities pay great attention to the banking industry. In the process they are sometimes faced with the problem of how best to handle distress in banks. At the extreme, the resolution of a banks distress would involve other rehabilitation or liquidation.

Since the establishment of the Central Bank , of Nigeria (CBN) in 1959 and subsequently the structural adjustment program. SAP introduced in 1986, rehabilitation had been a favored strategy for the resolution of the problems of distressed banks. This is because, it is generally believed that in assessing the financial condition of banks, two major problems are usually of serious concern. These are liquidity and insolvency. While a bank is said to be insolvent when the value of its realizable assets is less than the total value of its liabilities ( Uche 1996 – 436)

However, in the 1990s the liquidation strategy was embarked on and this lead to the suspension and the licenses of some banks revoked. According to Uche during 1994 alone, tow banks Republic Bank Ltd and Broad bank of Nigeria Ltd . Had then licenses suspended. Another form banks (Alpha Merchant Bank and Kaputal Merchant Bank Financial Merchant bank and Unmated Commercial Bank) has their licenses revoked.

Furthermore in the same year , the CBN obtained a higher court order to acquire for one Naira each for other banks, namely African continental Bank, National Bank of Nigeria, New Nigerian Bank and co-operative and commerce Bank. Also in 1994 the number of institutions adjudges distressed by the Central Bank of Nigeria rose by 10 to 42 excluding the various banks that were commercial banks.

According to Onyia (1994: 27) the causes of banking distress can be summarized under five headings or the Camel theory:

(1)             Capital Indecency

(2)             Poor Assets quality

(3)             Bad Management

(4)             Negative earning

(5)             Dividing Liquidation.

Effects of Income Earned to Savings Mobilization

In the simple keynesian model of income determination (Nabi 1992: 1)    we have

Y = C +  S

Where                       Y  =  Income

C =  Consumption

S = Savings

The equation simply states that income is made up of two parts, the part consumed that is, consumption © and that part which is not consumed immediately but deferred for investment or future consumption, that is savings (s) .

In addition we can assume a relationship between Y,  C, and S as follows (Akinmade 1994:3)

C = C0  +  CY

S = S)0  + SY

Where C = marginal properly to consumer i.e the proportion of the income consumed.

S = Marginal propensity to save, i.e the proportion of income saved.

Its is act that the higher the propensity served all things being equal, the higher the level of capital formation, which is both physical and financial terms have direct effect on productive activities and hence on growth and development. Akinmade observed that income poses great constraint to savings mobilization .  As earlier indicated, both consumption and savings are functions of income and thing can be  expressed in the linear relationship.

S . SO  +   SY .

Where S is the marginal propensity to save, that is that proportion of  means that is not consumed. According to Alabi (1992: 5) empirical evidence suggests that at poor income levels S, is consumed to meet basic needs with higher income levels much of basic needs are met, the marginal propensity to consume C, declines while S rise.

This, the general low level of income among the people in Nigeria is a limiting factor to savings mobilization. Expect for partially under the that present high cost of living syndrome, poor people are handle able to save after satisfying their basic needs.

The problem of banking going distress is one of the greatest challenges facing the banking industry today. Distress in banks do erode public confidence in the banking system the effect of which is transferred to the entire economy . According to Uche and Osho 1997 P. 240.

The current distress in the Nigeria banking sector has extensively eroded public confidence in banks and there have been massive deposit runs from custable banks procured as stable. Also some people have lost confidence in the while banking system, performing to rely on the safety of the home and market place to store their money”

This had due consequences for commercial banking system and poses  big problem in commercial banks deposit mobilization and also to the entire payments system which intern affected not just the conduct of monetary and fiscal policies, but also macro –  economic planning.

Effect of Interest Rate in Mobilization of Domestic Savings

Interest rates are paid on savings of different maturates (Offiah 1991 :3) the primary role of interest rate is to help in the mobilization of financial resources ensure the efficient utilization of such resources in the promotion of economic growth and development.

According to Central Bank of Nigeria Brief of 1994, interest rates affects the level of consumption on one hand  and the level and pattern of investments on the other they are crucial in financial intermediation what involves transferring finds from surplus on economy to deficit units. According to the brief interest rates are useful in ganging financial market conditions and them our major tool of monetary policies. It went further to say that when the structure of interest rates of return will induce shifts in  the asset portfolio of both the banks and the non bank public. Hence, the direction and magnitude of changes in market interest of are of primary importance to economic agents and policies marker.

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