IMPACT OF FINANCIAL INSTITUTION ON THE PERFORMANCE OF MICRO FINANCE INSTITUTION

CHAPTER ONE

INRODUCTION

1.1 BACKGROUND TO OF STUDY

The banking of any country constitutes a crucial instrument for economic growth and development. It provides a vehicle for the mobilization of fund from the saving surplus sectors of an economy to the saving deficit sectors. According to Duoglal and Gambits (1986) Capital Market comprises of institutions and mechanism through which intermediate and long-term fund are pooled and made available to business, government and individuals. This allocate role of the capital market is vital for the overall development and growth of an economy. In respect of the vital roles as the capital in an economy many countries including Nigeria have established or facilitated the established of the capital markets. These consists both the primary (New Issue) market and secondary (Stock). The history of the Nigeria capital market dates back to 1946 when the first public issue of securities was stated by the federal government of Nigeria for infrastructure development.

More so, a lot of development has taken place in the Nigeria capital market, for example the Lagos Stock Exchange was incorporated in 1961 as a non-profit organization limited by guarantee. It was later renamed the Nigerian Stock Exchange (NSE) in 1977. For now, there are nine branches of the Nigerian Stock Exchange located in F.C.T Abuja, Lagos, Kaduna, Port Harcourt, Kano, Ibadan, Onisha, Yola and Benin City. The objective of the NSE as contained in its memorandums and Article of Association include among others the provision of facilities for trading in securities and ensuring fair and equitable prices for securities. It is significant to note that the Nigeria Securities and Exchange Commission (SEC), which is the apex regulatory body for the Nigeria Capital Market, was established in 1979. The SEC evolved from the capital issue commission which was created in 1962 to regulate the activities of the Nigeria Capital Market by protecting investors through orderly fair and equitable dealing in the market.

Going by the age of the Nigerian Capital Market one can claim that the market is far from being adequate. As recently observed by Alile (1994) "lack of adequate long term capital for economic development has been a lane of African economic" including that of Nigeria. He therefore opined that fund must be effectively mobilized to enable these economy use Capital Market developments as a potential conduct for channeling long ­term fund to productive sectors. Moreover effort of improving the Nigeria Capital Market the Federal Government of Nigeria (FGN).recently set up a panel (headed by Odifa) to look into the activities of the market. One of the most fundamental issues of the Nigerian Capital Market is the pricing of securities. There has been disenchantment with the pricing mechanism and the manipulation of share price movement in the Capital Market in 1993 the SEC role in price determination was taken away and handed down to the stock brokers and issuing houses as enunciated in the 1993 Budget pronouncement and contained in SEC circular reference SEC/60/1/93. This government decision was as a result of the continuous criticism of the pricing mechanism of SEC which was perceived as unfair to the investing public.

The accurate pricing of securities is of vital important if it is to provide a credible vehicle for the efficient allocation of scarce resources and in tum making the Capital Market a major determinant country growth and development given the importance of appropriate pricing of securities in the Nigerian Capital Market, studies are required to ascertain the impact of certain macro-economic variable on stock share prices movement in the Nigerian Capital Market. For instance, it has been argued that macro-economic variables such as interest rates, inflation rate, foreign exchange rates and money supply may affect stock price movement although the extents of the effect in still a matter of conjunction. The main focus of this study is to investigate the extent it affect macro-economic variables such as interest rates, inflation rates, foreign exchange rates and money supply on stock price movement in the Nigerian Capital Market.

1.1   STATEMENT OF THE PROBLEM

The securities in the banking sector has been a major area of concern to the market participants and (observers) all and sundry. It has also been growing concern emphatically by financial analysis and economist on the determinant of stock prices. In the Nigerian Newspapers particularly the financial standard, captions such as pricing of securities queried and frivolous pricing worries shareholders are reflection of public concern and disenchantment about stock pricing in the Nigerian Capital Market. Meanwhile reflecting the views of an observes, Daily times of Nigeria (1995) has urged stock brokers to reflect through appropriate pricing of securities the real value of quoted companies _ during a period of inflation and massive devaluation of the National currency to make prices of equities in the country complete with those in other international exchanges. Also the effect of their macro-economic aggregates such as inflation rates, exchange interest rate and money supply are mostly important.

1.2   OBJECTIVES OF THE STUDY

The objective of this study is to- determine the performance of the financial institution on the micro-finance institution. When the performance is independent variable and microfinance is the dependent variable as to determine the employment rate, sales, Lending services, control of cash flow, savings

To determine if savings rate enhances employment rate

To evaluate whether lending services increase employment rate

To determine if the control of cash flow enhances sales