Last Updated on July 1, 2024 by admin
The importance of banking in any economy cannot be underscored, the macroeconomic effect, financial inclusion, all contribute to a robust economy of any prosperous nation. The banking sector is crucial to the modern economy. As the primary supplier of credit, it provides money for people to buy cars and homes and for businesses to buy equipment, expand their operations, and meet their payrolls.
In this case, we may not be doing proper justice to this cause if we fail to take an optical appraisal into the history of banking in Nigeria.
Accordly to International monetary fund IMF, banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money). The amount banks pay for deposits and the income they receive on their loans are both called interest.
Depositors can be individuals and households, financial and nonfinancial firms, or national and local governments. Borrowers are, well, the same. Deposits can be available on demand (a checking account, for example) or with some restrictions (such as savings and time deposits).
History of banking in Nigeria
The history and origin of modern banking in Nigeria dates back to 1883 following the establishment of the African banking corporation, then the establishment of British Bank of west Africa in 1884. The British Bank of West Africa has transitioned into various banks to arrive at the present day First Bank of Nigeria PLC.
What is banking?
Banking is the practice or business activities centered around accepting and safeguarding money, usually referred as cash deposit owned by customers or other entities. The safeguarded funds are usually made available to these owners on request, often referred to as cash withdrawal.
However, loans can be given to qualified obligatory from a fraction of the deposited cash, where the bank makes money from the interest charged on those loans.
Owners of these principals or better still depositors get a fraction of this interest monthly as compensation for funds being traded as loan. In the larger perspective, a bank is a licensed financial institution empowered by the Central Bank of a nation to carry out financial services within its regulatory and approval limits.
This article will address the role banking has played so far in the Nigeria’s economy as it has affected the most populous black nation’s unemployment rate at every instance.
Roles of banking in Nigeria
1. Banking encourages entrepreneurship
When you think of stimulating the economy, the role of private sector and businesses cannot be underscored, however, the private sectors owe their economic viability to the role banks play in facilitating their business transactions and daily activities.
Given this, a closer look at most banks packages indicates they are strictly designed to enhance and boost businesses, by doing this, private sector businesses grow geometrically and provide employment opportunities.
2. Direct economic advancement
One of the major roles of banks is providing loans, these loans could either be short or long term. By this provision, entrepreneurs on a small scale can scale up their businesses which directly contributes to economic advancement of Nigeria.
For instance, most startups/fintechs can actually be funded through bank loans, they are considered one of the most viable economic simulators of the 21st Century.
The impact of bank loans can also be felt in the agricultural sectors just like the bank of industry has been doing, on a wider scale, there are many commercial bank loans targeted at farmers, etc.
3. Business transactions are made swift
Generally, entrepreneurship is basically a time conscious outfit, the presence of banks help business owners to reach out and complete their business transactions on time, there are instances where delays in completing payments has led to loss of business which proportionately results to loss of revenue.
In modern day business, banking has improved geometrically in terms of speed, accuracy and timeliness since transactions are pegged around turn-around-time.
On a flip end, e-channel platforms, internet and Mobile banking have been established to de-congest the banking halls and enhance a swift transaction on the spot from the comfort of your home, which are timeless 24/7.
Also read: What is the role of banks in country economy development
4. Boosts national income
I make bold to reiterate the fact that the banks through their daily business activities generate income to the government, from which salaries are paid, infrastructural projects undertaken, etc.
The banks charge a percentage of interest for loans granted, they in turn remit part of these interests as well VAT to the government. Banks generate revenue from which the government undertakes and consolidates its expenditure for the smooth running of the government.
Invariably, the businesses being granted loans grow in production and relevant services, in turn pay taxes to the government. The emergence of new industries through affordable loans give rise to more taxes being paid to the government.
5. Regulates the economy
The apex bank through its authority regulates the activities of banks which proportionately regulates the economy itself.
For instance, the cashless policy introduced ensures businesses and individuals will not have to carry much cash at their disposal rather should embrace e-channels and online transactions.
The introduction of stamp duty is geared at regulating the economy and at every instance these policies are aimed to reshaping the direction of the Nigerian economy at large.
How banking has affected unemployment in Nigeria
Unemployment is equivocally the problem of the Nigerian populace, its rate is alarmingly outrageous that something has to be done to mitigate a looming effect on the Africa’s most populous nation.
The banks on their part have played a responsive role to reduce unemployment rate found to be around 33.3% by employing Nigerians into key and relevant positions in banking industry.
While most of the bank staff may be underemployed considering their monthly take home, it’s considered a bit manageable than to be entirely out of employment.
Majority of the bank staff are support/outsourced staff who occupy the following positions
1. Teller/who pay and receive cash alongside other cash transactions
2. Customer service
3. Dispatch
4. Marketers
5. Security
6. Cleaners
On average, there are 9000 support staff working in each commercial bank in Nigeria, where the core staff stood to about 4000 compounding averagely 13,000 staff a bank nationwide.
You can see how far this has gone in solving the problem of unemployment in Nigeria.
However, the banking industry is performance driven, most times on performance basis, some of these staff are being laid-off after appraisal and supported with cash compensation to start small businesses and support themselves. Where majority sometimes grow these businesses to enviable heights.
Additionally, new graduates are Being employed on yearly basis by most banks, though most job seekers do not make it into the industry via this window considering the age difference often announced in the job advertisement.
Conclusion
Nigerian banks have contributed tremendously to the growth of the Nigeria’s economy by supporting startups and private sector businesses. While unemployment rate in Nigeria is high, the sector has employed considerably a large chunk. Unemployment rate would have been a bit low if other sectors playing in the economy have employed as much too.
