Nigerian Capital Market: It’s Importance to Business Organizations

Nigerian Capital Market: It’s Importance to Business Organizations

Nigerian Capital Market – According to Awhaniokohr (1981)” Capital market is defined as the complex of institutions and mechanisms through which  intermediate term funds and long term funds are padded and made available to business, government and individual and instruments already, outstanding and transferred”’. The Key element of the designation can be summarized as follows; the institution and subdivision of the market into primary and secondary market.

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According to Adekanye (1987), the capital market is the market from which large companies and public enterprises attract long-term investment fund through a network of financial institutions and stock brokers licensed to perform capital market functions. In other words, it is the market for buying and selling of shares in limited companies and other stocks. The market actually performs the function for financial intermediation whereby savings of some members of the society are made for production and investment.

According to Iloh (2001), The capital market is the market form which large corporate organizations, and public institutions can source long-term inventible friend by the use of the capital market is the market from which large corporate organizations and public institutions can source long –term inventible friend by the use of the capital market institution. It can also be described as the market for the buying and selling of capital market instruments such as shares, bonds, debentures etc. this market mobilizes the savings of some members of the society and markets same available to other members of the society for investment purposes.

According to Orji (2001),The Capital market refers to a collection of financial institution, which provides long-term funds for investment purposes. It offers investors the opportunity of borrowing and lending funds on a long term basis.

According to Ekwundayo (1990), the capital market can be broadly defined as an institution where quoted investment including stock and shares may be exchanged between buyers and sellers.

Traditionally, the capital market is divided into primary and secondary market. A primary market is a market for the issuance, sale and purchase of new issues of capital market investment such as shares and other debit instrument. The secondary market is a market for trading or reselling of primary market instrument like shares and other debt instruments.

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Africa stock exchanges are developing and growing in size, although they are still in their infancy, even by the emerging markets standards. Within Africa, however South Africa remains a great force in capital market development with market capitalization exceeding those of countries in Latin America and some south East Asian countries the south and East Asian regions remains the most advance and active among emerging markets.

According to Briton (1970) in the UK, where percentage of funds raised by issue of considered is be the highest among developed  countries, it has been shown by professor Briton that net capital        issues unlikely constitute much more than 10 percent of the total sources of funds for British companies between 1963 and 1974, internal sources of funds provided more than half of companies     financial requirement in the U.K. while percentage grew by 70 percent in subsequent tears, the contribution of the stock market was very minimal. However, in these days of high industrial and technological advancement, the contribution of the stock market to companies in the U.K has been enormous

Baker, (1970) also observed that the German financial system   witnessed or rather passed through a revolutionary period in 1948, this was when the first joint – stock  compares which could issue shares or departures to the general public to raise its required capital.

This the importance of the stock market in the generation of funds for large industries worldwide cannot be over emphasized. The Nigerian stock market can aid enterprise in the country thereby contributing to the economic development of the country.

As at independence in 1960, Nigerian had no capital market rather like many developing countries in the 50’s and 60s’, the financial system comprised mainly short- term commercial trade for their immediate needs had no market for them  and had to repatriate these funds for investment overseas. This resulted in a net export of capital at a time it was needed most for development purposes. This problem thus provided the catalyst for the establishment of a capital market in Nigerian. The year 1959 remains a milestone in            the development of the Nigerian financial system. It was the year that the key financial institutions such as the central Bank of Nigeria (CBN), the Nigerian stock exchange. (NISE), etc. (Akwamiokor, 1981)According to Mpambugo (1998), To ensure that capital is allocated       between competing ends, also to channel savings investments for economic growth and development, it is important to develop a well co-ordinate capital market within the frame work of any development of a stock market in Nigeria was induced and fostered by the government as in some developing countries Attempts at capital formation dates back to 1951 when a loan fund for financing some public utilities was created. This and some other endeavours contained in the ten-year development plan 1946 – 1955, constituted the first significant attempt under the British Colonial administration to give opportunities to Nigerians and revotutionalize the capital market. Despite this, however, the colonial policy of that era held back the growth of the market as it was perceived to have a reducing effect on the market of British made goods the need to set up an organized stock market in the country was recognized when the then federal minister of commerce and industry in may 1958, appointed a committee under professor R.H. Barback, the direct of the Nigerian institute of social and economic Research (NISER), to consider ways and means of fostering a share market in Nigeria. The committee’s report was as expected, favourable and it recommended amongst other things.

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(i)        The creation of facilities for dealing in shares.

(ii)       The establishment of rules regulating transfers.

(iii)      Measures to encourage savings and issues of securities of the government and other organization in May 1959, the central Bank if Nigeria in pursuance of its role in respect of the development of      a market in Nigeria folded the first federation of Nigerian Development loan stock of H4 million behalf of the government. Because forma stock had not been established, the central Bank had to except of effort and time to ensure that the stock was floated by introducing arrangement, involving the maintain of a central register for marching buyers and sellers of share suggesting a price at which a deal had been conducted.The favourable report of the Barback committee saw the emergence of the Lagos stock exchange now the Nigerian stock Exchange) on the 15th of September 1960. The need for government recognition and protection promoted the promulgation of the Lagos sock exchange Act 1961. This act restricted the business of stock broking in Nigeria to only members of the exchange. The membership of the stock exchange has continued to grow from year to year.


According to Olufemi (2000), the basic function of any economy is the allocated scare material resources for the production of goods       and services needed by society. Any economy must therefore combine inputs-land and other natural resources, labour and managerial skills and capital requirements in order to allocated     resources, distribution of income and producing needed goods and services. In order to appreciate the relationship between the capital    market and economic development, it is appropriate to highlight the objectives of development which according to Tadoro (2001) are basically stated as follows:…………………………………………………

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