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THE ROLE OF NIGERIAN CAPITAL MARKET IN FINANCING BUSINESS ENTERPRISES

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

Emerging capital market all over the world have a history and Nigeria is not in any way different. The Nigerian capital market represents a small but growing proportion of the nation’s economy. The capital market institution in Nigerian seeks to examine not only how it came to be established but also how this institution has evolved to impact upon the Nigerian economy. The Nigerian capital market is principally a market for long-term investments where corporate equities and long-term debt securities are issued and traded. It is a market that is regulated by the securities and exchange commission, which is the apex regulatory body of the Nigerian capital market. The capital market is so vital to the development of any economy that no counting can risk its existence without putting place measures to regulate the activities of the market. Consequently, government, at various points in time sought to promote an orderly growth and development of the market for viable investment opportunities. The origins of the Nigerian capital market date back to colonial times when the British government ruling Nigeria at the time sought funds for running the local administration. Most these funds derived from agriculture, produce marketing and solid mineral mining. Discovering that these sources were inadequate to meet its growing financial obligations, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilization, taxations and other payments. It also saw the need to raise funds from public sector to cover temporary shortfalls in funds availability. Hence it found it necessary to establish a financial system by setting up the basic infrastructure for its take off pending the development of an organized private sector.

Later in 1957, the colonial government adopted the professor barback committee so as to scrutinize the means of developing a share market in Nigerian and part of the topical and central subject of the committee was to establish a capital market in Nigeria. Then with the set up of the central bank of Nigeria in 1959 proceeded by the Lagos stock exchange establishment in 1961 though was afterward transformed as Nigeria stock exchange by the Lagos stock exchange Act in 1959, concrete foundation was laid for the kick off of the Nigerian capital markets for trading financial instrument of indefinite marking needed to find the economy at large.

The production of goods and services in the most efficient manner has continued to be the only viable and reliable option for development, growth and survival of any economies. The development of small scale enterprises in Nigeria is therefore an essential element in the growth strategy. Small and medium scale enterprises not only contribute significantly to improve living standards they also bring substantial local capital formation and achieve high level of productivity.

It was however, observed that the major gap in Nigeria’s industrial development process in the past years was of the death of long-term finance for small scale industries. In other word the significance of the small and medium industry equity investment scheme derives from the critical economic role of the real sector, the sector that engage in actual production in economic growth. The concept of SMEs in Nigeria was the initiative of the central bank of Nigeria with the voluntary support and efforts of the bankers committee. The scheme requires that all banks in Nigeria should set aside 10 percent of their profit before tax annually for equity investment in small and medium industries this arrangement will eliminate the burden of interest and other charges associated with normal bank lending (Anyamiu,1993). The scheme is therefore an innovative way of financing the real sector and it has a considerable developmental potential. Consequently, the approval of the bankers committee on June 19, 2001 and subsequent launching of SMEs by the president of the federal republic of Nigeria chief Olusegun Obsanjo on august 21, 2001 gave impetus to the commencement of the scheme in Nigeria. Onyema, (2013).

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