NON-BANK FINANCIAL INSTITUTIONS AND ECONOMIC GROWTH IN NIGERIA

Anuoluwapo Tiwatope OGUNMADE

MATRIC NO: 170601228

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY

OF ADMINISTRATION AND MANAGEMENT SCIENCES, ADEKUNLE AJASIN
UNIVERSITY, AKUNGBA-AKOKO, ONDO STATE, IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc.) IN
ACCOUNTING.

Supervisor: Dr O.E Igbekoyi

MARCH, 2023.

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 DECLARATION
I, Anuoluwapo Tiwatope OGUNMADE with matriculation number 170601228 declare that this

research was carried out under the supervision of the Department of Accounting, Adekunle

Ajasin University, Akungba-Akoko, Ondo State. I declare that this project has not been

presented either wholly or partially for the award of any degree elsewhere.

____________________________
Anuoluwapo Tiwatope OGUNMADE Signature & Date

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 CERTIFICATION

This is to certify that this project was carried out by Anuoluwapo Tiwatope OGUNMADE with

matriculation number 170601228 under our supervision in partial fulfillment of the requirement

for the award of Bachelor of Science (B.Sc.) in the Department of Accounting, Faculty of

Administration and Management Sciences, Adekunle Ajasin University, Akungba-Akoko, Ondo

State, Nigeria.

_________________________ ________________________
Dr. Igbekoyi O. E Date
(Supervisor)

_________________________ _________________________
Dr. Alade M. E Date
(Head of Department)

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 DEDICATION
This project work is dedicated to God Almighty, who in his love and grace gave me the
opportunity to complete this research work.

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 ACKNOWLEDGEMENTS
I give praise to God, for his constant help in completing this research work despite all

odds, I am sincerely grateful.

My sincere gratitude goes to my supervisor, Dr. Igbekoyi O.E. for her motherly love,

guidance, assistance and tolerance during the course of this research work. God bless her and her

family abundantly. My profound gratitude also goes to Dr. Alade M.E., my amiable Head of

Department and to Prof Felix Olurankinse the Dean Faculty of Administration and Management

Sciences for their fatherly love and tutelage. My gratitude also goes to lecturers of the

Department of Accounting: Dr. Agbaje W.H., Dr. Adegbayibi A.T., Dr. Ologun O.V., Dr.

Oladutire E.O., Dr. Adeusi S.A., Dr Ayesan O.O., Dr. Olabisi O.S., Mrs. Odugbemi O.M., Mr.

Adegboyegun A.E., Dr Salemcity, Mr. Oloruntoba S.R. and Mrs. Gbemigun C.O. Their impact

in my life during this research work cannot be overemphasized.

My appreciation also goes to my parent, Mr. and Mrs. Oladipupo Ogunmade and to my

big daddy Prof. Akinnawo for their love, advice, financial supports and prayers throughout this

research study. I am also grateful to my Uncle Akin, and younger siblings; Iyanu and Tumise for

their supports and concern.

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 I would also like to appreciate my dearest friend Funsho for his support and assistance

during this research study. I will not forget to acknowledge the support of my friends and

colleagues who contributed to the success of this research study, I appreciate and love you all.

TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of contents vi
List of Tables vii
List of Abbreviation viii
Abstract ix
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 3
1.3 Research Questions 4
1.4 Objectives of the Study 5
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1.5 Research Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Operational Definition of Terms 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Review 8
2.1.1 Non-Bank Financial Institution 8
2.1.2 Economic Growth 11
2.1.3 NBFI and Economic Growth 11
2.1.4 Financial Intermediaries 12
2.2 Theoretical review 13
2.2.1 Agency theory 13
2.2.2 Sustainability theory 15
2.2.3 Endogenous Growth Theory of Inspired Confidence 17
2.3 Empirical Review 18
2.4 Gap in Literature 23
CHAPTER THREE: METHODOLOGY
3.1 Research Design 25
3.2 Source of Data
25
3.3 Population of the Study 25
3.4 Sample size and Sampling Technique 25
3.5 Model specification 26
3.6 Measurement of Variables 27
3.7 Data Analysis Technique 28
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF
FINDINGS
4.1 Descriptive Statistics 29
4.2 Test of Variables 31
4.2.1 Correlation Matrix of Dependent and Independent Variables 31
4.2.2 Normality Test 32
4.2.3 Multicollinearity Test 33
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4.2.4 Test for Heteroskedasticity and Auto-Correlation 34
4.2.5 Panel Unit Root Test of the Variables 34
4.3 Trend of Non-Bank Financial Institution Evolvement in Nigeria 35
4.4 Effect of Non-Bank Financial Institution to Economic Growth in Nigeria 36
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 39
5.2 Conclusion 40
5.3 Recommendations 40
References 42
Appendix 45

LIST OF TABLES

Tables Pages

3.6 Measurements of variables 27

4.1 Descriptive Statistics 30

4.2 Correlation Analysis of Study Variables 32

4.3 Shapiro Wilk K Test for Normal Data 32

4.4 Tolerance and VIF Value 33

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4.5 Summary of Post Estimation Test Results 34

4.6 Panel Unit Root Test 35

4.7 Trend of Non-Bank Financial Total Assets Evolvement 35

4.8 Panel Corrected Standard Error Regression 38

LIST OF ABBREVIATIONS

NBFI Non-Bank Financial Institutions

MFB Micro Finance Banks

PMI Primary Mortgage Institutions

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GDP Gross Domestic Product

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 ABSTRACT
The role of non-bank financial institutions (NBFIs) in economic growth has been downplayed as
a result of banks' enormous dominance of Nigeria's financial system. Due to their limited access
to funding, non-bank financial institutions' participation in Nigeria turned out to be smaller than
expected. They however, offer alternative financial services to complement established banking
institutions. It is in this light that this study examines the effect of Non-Bank financial
institutions and their evolvement on economic growth in Nigeria. The study used ex-post facto
research design. Secondary data were sourced from the CBN Statistical Bulletin, annual report,
and Statistical Directory by National Insurance Commission. A population of 23 listed Non-bank
Financial Institutions in Nigeria. Purposive sampling technique was used to select 10 sample
size. The data collected was analyzed using descriptive and inferential statistics and the
hypotheses were tested using regression analysis to test the relationship between the variables.
The analysis of data was done with a multiple regression technique. The findings revealed that
the total assets of NBFIs experience positive increase and has a significant effect on the GDP in
Nigeria. The findings also revealed that non-financial performance has a significant effect on
Non-bank financial institutions. Lastly, findings revealed that financial performance showed no
significant effect on GDP in Nigeria. The study concluded that there are more prospect and
potentials of the effect of NBFIs to economic growth in Nigeria. The study thus recommends that
NBFIs should have a clearing system and diversify their product portfolio to meet the needs of
the economy.

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The advent of Non-bank Financial Institutions (NBFIs) has been quite prominent in the

banking as well as financial sector, but there seems to be some constraint hindering their

performance, which has a great effect in the financial sector globally. NBFIs in most developing

and developed countries do not have full banking license and thus cannot accept deposits

(Rateiwa and Aziakpono, 2020). Customer deposits being the main source of cash for banks

allows banks survive in spite of heavy losses, whereas NBFIs always have to windup their

operations. There has been a speculation that if the financial sector is not strong and healthy, the

expected increase in economic output and a sustained increase in national income per head may

not be realized. This is because establishing a sustained economic growth and an open, vibrant

economic system requires an effective financial system (Adekunle et al., 2018).

Just as it is happening in other countries, NBIFs in Nigeria do not accept customer’s

deposits. Nigeria's financial system is not yet completely evolved, and as a result, non-bank

institutions have not met the criteria that are required of them as the country develops

economically. It has been discovered that non-bank financial institutions' contributions proved

lower than anticipated in Nigeria because of their restricted access to fund. The economic

depression as a result of the Covid-19, completely wiped off NBFIs from the market. During this

time, several NBFIs (Micro-finance banks, PMIs, Finance firms, etc.) experienced liquidity

problems and were subsequently liquidated. A number of factors such as insufficient

capitalization, poor management, and illiquidity, may be blamed for the distress the NBFIs are

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experiencing. The crisis vividly proves that NBFI development when not properly regulated may

result in the creation of financial crisis-prone conditions.

NBFIs should be appropriately regulated to prevent them from allowing an unsustainable

appetite for risk, which might have severe effects on the financial system and the general

economy. It is widely accepted that economic growth is a sign of an economy's development as it

moves a nation from one economic level to another. It cannot be overstated how important it is

for economic units with surpluses and deficits to be in sync with every economic system. Alan

Greenspan (2019) asserts that non-banking financial institutions contribute in empowering the

economy as they deliver multiple alternatives to transform an economy’s savings into capital

investments. Emmanuel and Adegboyega (2021) also argue that Nigeria's Non-financial industry

has a significant effect on economic growth in terms of the flow of capital. This is indicative of

their potential as a pool of non-bank long term finance to invest in productive capital, especially

in a period of constrained bank lending.

NBFI supplement traditional banking institutions by offering alternative financial

services such as contractual savings (pension funds and insurance companies), investment

intermediaries (finance companies, mutual funds, and money market funds), microloan

organizations, and venture capitalists. With regards to offering loans, NBFIs offers business,

personal and retail loans. NBFIs facilitate long term investment and financial services, and also

facilitate a sound competitive environment in the financial market. They are well acknowledged

and may thus reach a larger number of Nigerians and leverage their underutilized savings

potential. It is the desire of all non-bank financial institutions to create an impact on the Nigeria

economy. This study aims at determining the effect of Non-bank financial institutions on

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economic growth in Nigeria and also examines the effect of Non-bank financial institutions on

economic growth in Nigeria.

1.2 Statement of the Problem

It has become challenging for non-banks to obtain funds at a fair price due to their

present liquidity issue. NBFIs receive the majority of their funding from commercial banks, their

ability to raise money from a variety of sources allows for high funding costs. Because of the

high cost of funds, majority of NBFIs were founded with very little funding and as such,

mobilizing funds for their operation became a critical problem. Compared to commercial banks,

they have substantially greater funding costs, which have made their situation worse. As said

earlier, most NBFIs were established with little capital, and bad debt weakened the capital basis

of those who had appropriate capitalization. Due to their insufficient capitalization, these

institutions are unable to withstand losses and economy disruptions. Other problems stem from

fierce competition from banks, asset liability mismatch, unstable stock market, poor capital

market condition, and lack of trained human resources.

With the deregulation of the Nigerian economy in the 90's, there was a tremendous

upsurge in the number of banks and NBFIs operating in Nigeria. This increase in number

endangered keen competition amongst them for deposits. NBFIs having fewer branches or no

branches at all could not possibly compete effectively with financial institutions. Acha (2018)

revealed that for all types of depository institutions, the average asset maturity is higher than the

average liability, which generates interest risk for financial intermediaries. Managing the

imbalance between their asset and liabilities puts NBFIs in a difficult situation. If NBFIs can

match the tenure of their asset products with their loan products, they can address one of the

major problems that any lending organization faces; asset liability mismatch. Yet, it is less

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impossible, which is a disappointment. Thus it is recommended that NBFIs adopt floating

interest rates throughout all of their loans.

Risk aversion and optimum expected return are trade-offs that determine optimal capital

allocation. Ratings of a company are lowered when solely high-risk assets are invested in.

Hence, NBFIs should invest in assets with standard risk (Bodie 2019). Acha (2018) studied how

non-bank financial institutions facilitate financial transactions. The outcome shows that leasing

firms have a problem due to the legal system's weakness. He discussed how the legal structure in

Nigeria prevents leasing companies from expanding. The study recommended that a modern and

dynamic regulatory framework is required for the rapid and effective growth of NBFIs in

Nigeria. Osuala and Odunze (2020) in their study of loans and advances on economic growth in

Nigeria showed a long-run relationship between economic growth and loans and advances of

insurance companies. They recommended investment friendly policies (which they failed to spell

out) from concerned authorities to promote insurance industry.

NBFIs are advised to look for alternative and inexpensive sources of funding like

commercial paper or sale of lease receivables to ease fund crisis and reduce the cost of fund.

NBFIS should also limit their involvement in high-risk projects, and seek out appropriate ways

to diversify their product lines. The foundation of economic growth in any market-based

economic system is a thriving capital market, which requires strong institutional backing.

Securitization of assets could be yet another innovative and appealing source of funding. By

using the securities markets to fund portions of the loan portfolio, NBFIs can allocate capital

more efficiently, access diverse and cost effective funding sources, and better manage business

risks. Securitization increases returns on capital by transforming an on-balance-sheet lending

business into an off-balance-sheet fee income stream that is less capital intensive. Depending on

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the type of structure used, securitization may also lower borrowing costs, release additional

capital for expansion or reinvestment purposes, and improves asset/liability and credit risk

management. Most of the operators in the productive sector are folding up due to the inability to

get loan from the financial institutions or the cost of borrowing was too outrageous.

It is within the scope of this study to evaluate the contribution (long term growth) non-

bank financial institutions to economic growth in Nigeria. This study will also assess the trend of

non-bank financial institution evolvement in Nigeria.

1.3 Research Questions

In order to achieve the objectives of this study, the study sought to answer the following

questions:

i. What is the trend of non-bank financial institution evolvement in Nigeria?

ii. How to determine the financial effect of non-bank financial institution on economic

growth in Nigeria?

iii. How to examine the non-financial effect of non-bank financial institution to economic

growth in Nigeria?

1.4 Objectives of the Study

The broad objective of the study is to determine how Nigeria's economic development is related

to non-bank financial institutions. The specific objectives are to:

i. to assess the trend of non-bank financial institution evolvement in Nigeria

ii. to determine the financial effect of non-bank financial institution to economic growth in

Nigeria

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 iii. to examine the non-financial effect of non-bank financial institution to economic growth

in Nigeria

1.5 Research Hypotheses

Ho1: Non-bank financial Institutions have no significant financial effect on economic growth.

Ho2: Non-bank financial Institutions have no significant non-financial effect on economic

growth.

1.6 Significance of the Study

The study will have a substantial impact on decision-makers, government and academician. The

outcome and recommendation from this study if adopted will be of great benefit to government

and policy makers; it would help government to rightly implement policies that will effectively

be of great significant in the non-bank financial sector. It would also serve as a useful navigator

for financial regulatory bodies on possible area to improve upon in order to minimize financial

leakages. Also, the study would be of great benefit to public and private employees, and general

public by shedding more lights on the significance of non-bank financial institutions and its

benefits. Lastly, it will also serve as a point of reference and stimulate more research in this

direction and it will be of immense benefits for academic purposes.

1.7 Scope of the Study

This study is within the area of Non-bank Financial Institutions and their effect to the economic

growth in Nigeria. The NBFIs to be considered are; micro-finance banks, primary mortgage

banks, insurance firms, bureau de change, and finance companies. The study focused on 23

NBFIs listed on the Nigerian Stock Group as at 31st December 2021. The study covers five (5)

years period spanning from 2017 to 2021. Base period represents the emergence of economic

17
recession. Information for this study will be derived from CBN Statistical Bulletin and the

Statistical Directory of the National Insurance Commission.

1.8 Operational Definition of Terms

For easy comprehension of this research work, the following terms have been defined as it

applies in the context of use in this study.

Non-Bank Financial Institution: Non-bank financial institutions are businesses that provide

financial services but lack banking licenses and are unable to accept deposits. Some examples of

non-bank financial organizations include insurance companies, brokerage houses, and businesses

that provide microloans.

Economic Growth: Economic growth is usually the focus of federal, state, and local

governments to improve our standard of living through the creation of jobs, the support of

innovation and new ideas, the creation of higher wealth, and the creation of an overall better

quality of life.

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 CHAPTER TWO

LITERATURE REVIEW

This chapter discussed the conceptual review of literatures, the theoretical review of theories and

empirical review of existing literatures. The gap in the literature was discussed thereafter.

2.1 Conceptual Review

This section discussed further on Non-bank financial institutions, economic growth and financial

intermediaries.

2.1.1 Non-Bank Financial Institution

Non-banking financial institutions (NBFI) are institutions responsible for providing

financial services but are not regulated by a national or international governing body and do not

hold a full-fledged license for conducting operations. The Banks and Other Financial Institutions

Act (BOFIA) 1991 defined non-bank financial institutions as "any individual, body, association

or group of persons; whether corporate or unincorporated, other than the banks licensed under

the Act which carries on the business of a discount house, finance company and money

brokerage and whose principal object include factoring, project financing, equipment leasing,

debt administration, fund management, private ledger services, investment management, local

purchase order financing, export finance, project consultancy, pension fund management and

such other business as the bank may from time to time designate" NBFIs as defined by the

BOFIA, are those that do not possess a complete banking license and are not allowed to accept

deposits from the general public. But nonetheless, they provide substitute banking services like

managing private and public investments, sending money, and risk sharing, among others.

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 NBFCs started in India in the 1960s as an option for investors and savers whose demands

were not fully satisfied by the country's then-existing banking system. The primary purpose is to

provide surplus resources to individuals and businesses with financial deficits, enabling them to

support banks. Non-bank financial institutions do much more than commercial banks in terms of

maturity transformation when they use deposits which are normally short term to fund loans that

are longer term. According to Alan Greenspan, non-banking financial institutions help the

economy by providing a variety of options for converting an economy's savings into capital

investments that serve as fallback options in the event that the primary form of intermediation

fails. NBFIs facilitate bank-related financial services, such as investing, risk sharing, contractual

savings, and market brokering.

This study will identify the following NBFIs operating in Nigeria; finance firms,

microfinance banks, bureaux de change, insurance companies and primary mortgage institutions.

It is essential that we explore each of them individually to comprehend how they each function.

2.1.1.1 Microfinance Bank

Microfinance bank (MFB) is any firm with a license from the Central Bank of Nigeria (CBN) to

operate as a provider of financial services to consumers, such as loans, savings and deposit

accounts, domestic funds transfers, and non-financial services. They are not allowed to

participate in the bank clearing system or transact on the foreign currency market. Several

community banks form correspondent links with commercial banks in order to get around this

restriction. By fostering rural savings and supporting local investment, mortgage banks actively

contribute to rural development (Bamisile, 2020).

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2.1.1.2 Financial Firms

Financial firm means any firm or fund that makes venture capital or other investments, or that

engages in investment banking, the mutual fund business, or the securities business. Finance

firms specialize in leasing, hire purchase, LPO financing, export finance, electronic funds

transfers, and the issuance of token stamps, credit cards, and vouchers. Finance firms depend on

owners' equity and borrowings to carry out their intermediation activity instead of mobilizing

public deposits as they are not permitted to do so. They are recognized for actively participating

in the financing of small and medium-sized businesses.

2.1.1.3 Insurance Company

Insurance company is a financial institution that provides a range of insurance policies to protect

individuals and businesses against the risk of financial losses in return for regular payments of

premiums. An insurance company operates by pooling risks amongst a large number of

policyholders. Insurance tends to be a reliable source of long-term development funds, playing a

significant role in both capital generation and development. (Dorfman 2019).

2.1.1.4 Primary Mortgage Institutions

Primary Mortgage Institutions is the market where borrowers can receive a mortgage loan from a

primary lender. PMIs offer long-term capital for the construction of housing (Onoh 2020). The

PMIs not only raise money on their own, but they also act as a channel for recipients of the

National Housing Policy to receive loans under the program.

2.1.1.5 Bureaux De Change.

The government's effort to tackle the problems found in the activities of black marketers resulted

in the formation of bureaux de change. The government placed them under the Central Bank of

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Nigeria's supervision in an effort to keep track on their activities (CBN). By providing prices that

are lower than the official rate and providing a means for Nigerians living abroad to send money

home, bureaux de change work to draw hard currency into the nation. By taking this route, they

increase the nation's foreign exchange reserves and ultimately strengthen the economy.

2.1.2 Economic Growth

Economic growth is the process by which a nation’s wealth increases over time. Economic

growth is the most powerful instrument for reducing poverty and improving the quality of life in

developing countries. Essentially the benefit of economic growth is higher living standards and

higher real incomes. According to CFI (2022), economic growth is a broad term that describes

the process of increasing a country’s real Gross Domestic Product (GDP). It involves the

analysis of variables that lead to sustained expansion of production capacity. The growth can be

measured as an expansion of real GDP or gross national product (GNP) over a given period.

GDP is the most popular measure of the output of a country as it indicates the market value of all

officially recognized final goods and services produced within a nation at a specified time

period. The relevance of GDP in every economy cannot be overemphasized because it is the

major indicator of a country economic growth and the living standard of its citizens.

2.1.3 NBFI and Economic Growth

Nigeria, in her pursuit for economic growth and development cannot do away with the

growth potentials that are inherent in NBFIs. NBFIs have contributed vitally in the reduction of

money stock outside the banking system. The rural sector is severely under banked, making the

CBN's monetary policy initiatives ineffective (Akpan 2019). The emergence of mortgage banks

and their emphasis on rural areas have greatly helped to correct this imbalance. They have been

able to gather sizable rural deposits—funds that, until recently, were not subject to monetary

22
authorities' scrutiny since they were not part of the banking system. These financial institutions

have increased the efficiency of monetary policy, which focuses on adjusting the money supply

to reduce inflation and foster quick economic growth.

NBFIs provide a range of portfolio options for savers with surplus funds. They are able to

augment their capacity to finance businesses and contribute positively to the economy in general

through the process. Besides pooling the resources of small savers and efficiently allocating

same to deficit economic units for productive investments, NBFIs provide safekeeping

modalities for real money balance in deposit accounts and facilitate transaction, exchange and

specialization. They provide liquidity and operate the payments system of nations. NBFIs are

incredibly helpful in the operation of the financial markets, in carrying out the monetary and

credit policies of the central bank, and consequently in fostering the expansion of an economy,

by the distribution of funds from surplus to deficit units. NBFIs generate significant financial

liabilities and assets. They provide the economy with money supply and with near money assets.

As a result, they contribute to how the financial markets function. Since financial markets control

how the economy operates, the central bank periodically modifies its monetary and credit

policies to ensure that they support the country's financial markets. NBFIs aid in the transmission

of money from ultimate lenders to ultimate borrowers for useful purposes and give financial

assets liquidity and security. They encourage capital formation, which stimulates the economy.

2.1.4 Financial Intermediaries

Financial intermediary is a special financial entity, which performs the role of efficient

allocation of funds, in situations where it is impossible for lenders or investors of funds to

engage directly with fund borrowers in financial markets. They are financial institutions

specialized in the activity of buying and selling assets and financial contracts. They mediate

23
between the providers and users of financial capital. Financial intermediation is the root

institution in the saving-investment process, and ignoring it would seem to be done at the risk of

irrelevance. Financial intermediation is very critical as most of the financing that takes place in

the economy is consequent to intermediary functions of both bank and non-bank financial

institutions. Financial intermediation functions of finance companies have prominent role in

determining the performance of the Nigeria economy.

The economic role of financial intermediaries in acting as conduit for the conversion of

deposit liabilities mobilized at low interest rates into monetary assets for financing productive

investments obtained at relatively high rates of interest is crucial for economic growth,

particularly that it creates a wide profit margin that allows for the sustenance of non-banking

business and serve as a source of funding for businesses. According to Nieh et at (2019),

financial intermediation drives economic growth. Rateiwa R, Aziakpono MJ. (2017) argued that

financial development can foster economic growth by raising savings, efficiently improving the

allocation of loan-able funds and promoting capital accumulation.

The intermediation process is the principal method through which NBFIs encourage

economic expansion. The money is then made available for investment after being raised

utilizing a number of instruments at their disposal. In addition to their role in supporting

economic growth by providing investment finance, NBFIs like bureaux de change also increase

capital inflow by offering rates of exchange that are p~higher than the official rate. The country's

Gross National Product increases as a result, as does its general economic well-being. This

causes a greater inflow of foreign currency.

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2.2 Theoretical Review

2.2.1 Agency Theory

This theory was first proposed by Jensen and Meckling in 1976. Agency theory is a

concept used to explain the important relationships between principals and their relative agent. A

principle is essentially someone who strongly relies on an agent to carry out certain financial

decisions and transactions that may have a range of outcomes. Business-wise, the principal is

seen as a shareholder, but the agent is regarded as a corporate executive. Shareholders and firm

executives are closely tied, despite the appearance to the contrary. Their positions are

significantly impacted by one another's actions. Agency Theory has been utilized to study risk

trade-off between principal and agent to determine the tolerance that corporations will accept

with risk (Wiseman, 1997). Agency theory has also been used in finance to describe the cost

impact that risk has on firms (Eisenhardt, 1989).

The agency problem arises because of a conflict of interest between the principal and the

agent, because the maximum utility does not meet between them. The agency hypothesis

investigates the special bond that exists between a principal and their agent. The agent acts and

makes choices on behalf of the principal on a number of occasions throughout the partnership.

Disagreements and conflict between the two parties are brought on by the same acts and

judgments. There are specific guidelines and rules that both the principal and the agent can

adhere to in order to lessen the chance of conflict. It is essential for the principal and the agent to

communicate openly and honestly with one another in order to minimize the likelihood of

agency issues arising.

The decisions and transactions to be carried out shall be agreed upon by the Parties and

shall be reasonably fair. Transparency helps to lessen conflict since it makes decision-making

25
simpler and less likely that one party is working against the other. A good strategy to

considerably lessen the impact of agency loss is to impose constraints or eliminate negative

restrictions. The principal can feel more trust in their relative agent by imposing particular

constraints on elements like agency power. On the other hand, removing negative constraints is

advantageous since it fosters the agent's confidence and gives them the freedom to act on the

principal's behalf.

Agency cost is an economic concept regarding the cost of the principal whether an

organization, an individual or a group of people, when the principal selects or hires an "agent" to

act on his behalf. The two parties have different interests and the agent has more information so

the owner (principal) cannot directly ensure that the agent always acts in the best interest of the

owner (principal). Agency costs in NBFI can be: (i) Costs incurred by the principal to reduce

agency problems which include costs for credit monitoring control such as in the form of credit

staff fees, administrative costs, and operational costs. (ii) Costs as a result of agency problems,

which are in the form of bad credit and inefficient company performance.

The NBFI act as agents for the fund providers while conducting their quantitative asset

transformation, they are responsible for preserving the stakeholders' profitability and liquidity

through monitoring, risk management, insuring, producing liquidity, and adjusting durations.

Diamond (2012) shows that these NBFIs serve as authorized agents for those who save up and

that they can achieve scale economies.

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2.2.2 Sustainability Theory

Sustainability refers to a type of economy and society that may exist on a global scale and

is long-lasting. Sustainability is not only a generic generalization that calls for a sensible balance

between social, economic, and environmental policy, regardless of any temporal or spatial

relationships. Most nations, especially those in developing regions, have recently prioritized

economic growth while downplaying ecological advancement. The recent global agreement on

environmental preservation, awareness of climate change, and support for the SDGs by the year

2030 (Akter 2018) by the United Nations have all increased interest in green finance. For

underdeveloped countries to achieve economic growth and sustainability, a successful green

economy must be implemented through green finance (Liu 2020). Therefore, it is important to

raise awareness of environmental issues among academics, bankers, investors, administrators,

legislators, advocacy groups, corporations, and communities in order to promote sustainable and

consistent development (Zhixia AND Hossen 2018). Unfortunately, it is still unknown to what

extent environmental sustainability has been successful among the many stakeholders.

Most developed and developing nations are addressing the important subject of the

effects of climate change on the environment at the moment (Ngwenya 2020). Nigeria, a

developing nation, has struggled economically due to its extreme susceptibility to weather

variations. The prevention of environmental degradation and the implementation of sustainable

development through formal and coordinated green expenditures are just two of the measures

that have been used to lessen the dangers and harmful effects of climate change on the

environment. In this regard, banking organizations can make a significant contribution by

funding a range of green initiatives, including waste management, the growth of green industries,

27
renewable energy, and clean energy, among others, all of which directly promote the long-term

economic growth of the country.

In Nigeria, both banks and non-bank financial institutions are in charge of the significant

number of the country's financial sector. The banking sector meets the country's needs for both

long- and short-term funding, unlike industrialized nations and advanced markets. Given the

significance of (NBFIs) in creating Nigeria's green economy, it would be absurd to neglect the

financial sector as the economic model evolves to take environmental issues into consideration.

In this regard, Nigeria's banking industry significantly contributes to the achievement of the

nation's sustainable economic development through its investments in a number of green projects

meant to minimize the harmful effects of climate change. Additionally, a lot of industrial projects

that may have severe adverse social or environmental effects heavily rely on banking.

Green banking can be a useful strategy for promoting ethical corporate practices because

NBFI, as financiers, have a significant impact on industrial projects. Any country could consider

green finance to be a significant financial component in sustaining long-term economic success.

Therefore, it is important to underline the role that NBFIs have played in the nation's efforts to

implement the SDGs and avoid environmental harm through the use of green financing. The

current conflict between sustainability and economic growth must therefore be resolved in order

to achieve economic sustainability, and the expansion of green finance.

2.2.3 Endogenous Growth Theory

The endogenous growth theory was first created due to inadequacies and discontent with

the notion that exogenous factors controlled long-term economic growth. The neoclassical

exogenous growth models, which predicted economic development without accounting for

28
technological change, were specifically challenged by the theory. It challenged the notion of

neoclassical economics by arguing that internal factors, such as human capital, innovation, and

investment capital, have a greater impact on a country's level of wealth than do outside,

uncontrollable causes. The endogenous growth theory is the concept that economic growth is due

to factors that are internal to the economy and not because of external ones. The theory is built

on the idea that improvements in innovation, knowledge, and human capital lead to increased

productivity, positively affecting the economic outlook. The theory places importance on the role

of technological advancements, since long-term economic growth is derived from the growth

rate of economic output per person, it would depend on productivity levels. In turn, productivity

would depend on the progress of technological change, which relies on innovation and human

capital; these factors are considered internal to an economy, not external.

2.3 Empirical Review

Bala and Abatcha (2020) investigated the determinants of capital structure in listed insurance

companies in Nigeria for the period of thirteen years, from 2006-2018. Ex-post facto research

design was adopted for this study. The 28 insurance firms that are currently listed on the floor of

the Nigerian Stock Exchange (NSE) make up the study's population. The study used panel

regression in conjunction with the Hausman specification test to decide whether to adopt a fixed

effect model or a random effect model. According to the results of the random effect regression,

the capital structure (CST) of listed insurance companies in Nigeria is not significantly positively

impacted by company size.

Ekwueme and Atu (2018) examined the capital structure and firms performance in Nigeria

Quoted Insurance companies using a sample of (22) insurance firms Quoted in the insurance sub

sector of the financial sector of the economy during (14) years period (2002-2016) are used as

29
observation in this study. From the analysis it was discovered that ;there is a weak relationship

between return on equity and the insurance firms capital structure whether in relation to assets or

in relation to equity, also the firm’s capital structure components are significant in determining

variation are significant in the firms variation in the firms return on equity value. It is

recommended that Quoted insurance companies should try to improve their return on equity,

because any change in their gearing ratio may cause change in their return on equity either

positively or negatively.

Acha (2018) evaluated the effect of NBFIs on the economy, using information from the CBN

Statistical Bulletin and the National Insurance Commission's Statistical Directory. Data analysis

and hypothesis testing were conducted using trend analysis and Pearson's correlation technique.

The results show a significant relationship between NBFI credit to the GDP of the manufacturing

and agricultural sectors.

Rateiwa and Aziakpono (2017) applied Johansen co-integration and the vector error correction

model to empirically test the existence of a long-run equilibrium relationship between economic

growth and non-bank financial institutions and the causality thereof. The empirical assessment

was based on evidence from selected African countries over the period of 1971-2013. The result

showed that a strong long-run relationship between NBFIs and economic growth exists in Egypt

and South Africa. Evidence in respect of Nigeria is weak. Thus, the study revealed that in

countries with more developed financial systems, the role and importance of NBFIs to the

economic growth process is more pronounced.

Igbanibo and Iwedi (2015) looked at the linkage between finance companies intermediation

functions and economic growth in Nigeria, using an annual time series data spanning the period

30
of 1992-2014 with the application of the estimation techniques of ordinary least square, co

integration test, alongside granger causality test. The Global statistic result indicates that about

80% of the variations in GDP for the estimation period were captured by the explanatory

variables, financial intermediations functions of finance companies has a prominent role in

determining the performance of the Nigeria economy.

Kabia (2015) determined the role played by the National Cooperative Development Bank as a

Non-Bank Financial Microfinance Institution in providing financial services to class of

economically poor people in the Western Area in Seirra Lone, not until now, the formal sector

has ignored them. 150 responders were carefully examined from 2001 to 2005 in a sample of 30

Barrays, each with 5 members. The data were analyzed using a Probit Regression model and the

OLS econometric estimation approach. The Probit regression model's findings showed that the

likelihood of obtaining credit is higher if a person is a trader, self-employed, widow, and when

the first deposit amount which served as a stand-in for cash collateral increases. Yet, if a person

has just received elementary school, their chances of accessing financing are reduced.

Ndugbu and Okere (2015), studied the impact of bank and NBFIs on economic growth in

Nigeria from 1992-2012. They used OLS regression analysis to show that financial institutions

play a vital role in the growth of the Nigerian economy and therefore recommended that the

ongoing financial reforms be sustained. A sample size of 20 years is insufficient for analysis

because it would lead to degree of freedom problem.

Osuala and Odunze (2014) studied the impact of NBFIs loans and advances on economic growth

in Nigeria for the period 1996-2010 using the Bounds test approach to co-integration. Their

result showed a long run relationship between economic growth and loans and advances of

31
insurance companies. They recommended investment friendly policies (which they failed to spell

out) from concerned authorities to promote the insurance industry.

Ogiriki and Andabai (2014), examined the relationship between financial intermediation and

economic growth in Nigeria from 1988-2013. They employed VECM in their analysis but failed

to take a position in their conclusion regarding the relationship that exist between financial

intermediation and economic growth in Nigeria. They only emphasized on the speed of

adjustment of their model, the existence of co-integrating equations and the coefficient of

determination value. The study may also be faced with degree of freedom problem given their

sample size and the number of variables in their model. Thus, the validity of their findings is in

doubt.

Gupta and Yesmin (2013) ascertained growth of NBFIs over time and contribution to

Bangladesh economy by adopting growth measures based on asset, loans, income and

expenditures figures with a sample period 2000-2010. The study revealed a positive growth of

NBFIs over the years in advances, income, assets and other financial aspect and a good

contribution in the GDP growth of Bangladesh.

Aurangzeb (2012) in his own study tried to find out the impact of deposit money banks on the

economic growth of Pakistan. Secondary data were sourced from the state bank of Pakistan and

other official publication. The period under review was from 2001 to 2010. The variables for the

survey were six namely: Gross Domestic Product, Deposits, Investments, Advances, Profitability

and Interest Earning.

Kayode (2010) in their contribution wanted to know the effort of bank lending and economic

growth on the manufacturing output in Nigeria. Time series data for a period of 36 years (1973 to

32
2009) were used and the techniques used for the analysis were the co-integration and vector error

correction model (VECM). It was discovered that the bank rate of lending loan significantly

affect manufacturing output in Nigeria. .

Dele (2007) investigated the banking reform in Nigeria by using the data of 40 commercial and

merchant banks. The variables used were lending, interest rate, and foreign exchange policy. The

study used the descriptive statistics to test the hypothesis. The result indicated that

recapitalization has shown significance to reform the banking services and to the overall growth

of the Nigerian economy.

Adeoye (2006) and Nnanna (2004) developed a model showing the relationship between

financial sector development and economic growth in Nigeria. The chosen economic growth

indicator is the Real Gross Domestic Product (RGDP) specified to depend on the financial

indicators such as the ratio of M2 to GDP (M2GDP), real interest rate (INTR) changes and the

ratio of credit to private to GDP (CPGDP). Calderon and Liu (2003) noted that a higher M2 GDP

ratio implies a larger financial sector and greater financial intermediary development.

Islam and Osman (2005) examined the effect of non-bank financial intermediaries on economic

growth in Malaysia. He employed bounds testing approach to co integration and error correction

mechanism to investigate the existence of a long run equilibrium relationship between NBFIs

and economic growth. The study found evidence of a long run co-integrating relationship

between NBFIs and real per capita income. The empirical result indicates that the development

of NBFIs positively and significantly influences per capita income in Malaysia.

Shandre and Ang (2004) carried out a time series study on the causal relationship between

financial markets and economic growth in Australia using Ordinary Least Square (OLS)

33
technique. They found evidences that economic growth cause financial intermediation in

Australia.

Fadare (2004) empirically identified the effects of banking sector reforms on economic growth in

Nigeria by using the data 1999-2009. Variables used for the study are interest rate margins,

parallel market premiums, total banking sector credit to the private sector, inflation rate, inflation

rate lagged by one year, size of banking sector capital and cash reserve ratios. Results indicate

that the relationship between economic growth and other exogenous variables of interest rate

margin, parallel market premiums, and total banking sector credit to the private sector, inflation

rate and cash reserve ratio was negative and insignificant.

Koivu (2002) investigated the relationship between financial sector and economic growth by

using empirical methods and data variables. He concluded that these variables had positive

relationship with the growth of the Ghanaian economy.

Khatib (1999) had to investigate the relationship between commercial banking performance and

economic growth in Qatar. Variables such as bank profit, GDP, government revenues,

government expenditures, foreign interest rate were used and also the regression analysis model

and (OLS) techniques were employed. The data used were for the period 1986 to 1997. The

result showed that the variables are highly effective and responsible for economic growth.

2.4 Gap in Literature

Non-bank financial institutions capacity to satisfy people's financial needs of various

economic units has led to their recent rapid expansion and reputation-building. The growth of

non-bank financial organizations is essential for the expansion of the Nigerian stock exchange.

34
According to empirical evidence (Vittas D 2019), non-bank financial institutions aid in boosting

stock market activity by increasing demand for traded securities and the standard of professional

fund management, which in turn leads to higher market capitalization and a higher value of stock

traded ratio relative to gross domestic product. Despite the significant functions of non-bank

financial institution in growth of the economy, its prominence effect on economic growth in

Nigeria is hardly noticed and established. Thus, it is vital to carry out a study of this nature to

determine the financial effect of these institutions to economic growth in Nigeria.

Most of the discussions in the finance-growth literature are bordered around the banking

sub sector of the Nigerian financial system. Also, their works are disaggregated studies, looking

at one or at most two NBFIs, therefore making generalization to cover the entire sector. The

works Osuala and Odunze (2014) suffer from degree of freedom problem and they also failed to

give well spelt out conclusions/recommendation. Acha IA (2018) and (Igbanibo DS, Iwedi M.

(2015), were essentially on the role of non-bank financial institutions on economic growth of

Nigeria. This study will carefully and unambiguously determine the financial effect of non-bank

financial institutions to economic growth in Nigeria for period 2012 to 2021. To this effect, the

directional hypothesis is that, Non-bank financial Institutions have no significant effect on the

financial effect on economic growth.

35
 CHAPTER THREE

METHODOLOGY

This chapter presents the research design, source of data, population of the study, sample size

and sampling technique, model specification, measurement of variables as well as the data

analysis technique.

3.1 Research Design

This study adopted the ex-post facto research design. The choice of this research design is based

on the premise that the study involved the use of already available data that cannot be

manipulated from the period between 2012 to 2021. The study collected data from published

annual reports from CBN Statistical Bulletin.

3.2 Source of Data

Data were collected through secondary sources. The data were sourced from the CBN Statistical

Bulletin, 2021, annual report, and Statistical Directory by National Insurance Commission (2015

– 2020 figures). This source was used in order to obtain quantitative information on the variables

that exist in the model developed in this study.

3.3 Population of the Study

The population of this study comprises of 23 Non-bank Financial Institutions listed on the

Nigeria Exchange Group as at 31st December, 2021.

3.4 Sample size and Sampling Technique

A sample size of ten (10) listed non-bank financial institutions was selected using purposive

sampling technique. These ten (10) listed non-bank financial institutions selected are based on

the highest rated non-bank financial institutions in Nigeria as at 31st, December 2021.

36
3.5 Model Specification

This research seeks to examine the non-financial impact of non-bank financial institutions on

economic growth, as well as its trends of advancement in Nigeria. It also examines the financial

effect of non-bank financial institutions on economic growth. The econometric model used in the

study was adapted from the study of Samuel and Akarara (2016) who investigate the impact of

NBFIs on the growth of the Nigerian economy. The existing model stated thus;

GDP = β0 + β1NBFI_trend + β2NBFI_financial + β3NBFI_nonfinancial + ε

Where:

GDP = Gross Domestic Product of Nigeria

NBFI_trend = Variable representing the trend in the growth of NBFIs in Nigeria

NBFI_financial = Variable representing the financial impact of NBFIs on economic growth in

Nigeria

NBFI_non-financial = Variable representing the non-financial impact of NBFIs on economic

growth in Nigeria

β0, β1, β2, and β3 = Co-efficient representing the impact of each variable on GDP

ε = Error term

Model 1:

GDP = f (TREND, FIN, NFIN)

Transforming this model into a multivariate regression model, it becomes:

GDP = β0+ β1TREND+ β2FIN+ β3 NFIN+ ε

37
Where:

GDP = Gross Domestic Product of Nigeria

TREND = Trend

FIN = Financial effect

NFIN = Non-Financial effect

β0 = Intercept of the model

β1 = coefficient of Trends

β2 = coefficient of Financial

β3 = coefficient of Non-financial

ε = Error term

3.6 Measurement of Variables

S/N Variables Description Measurement Source

Dependable
Variable:
1 Economic This indicates the increase or This is measured using Samuel &
Growth improvement in the country's gross domestic product Akarara
wealth overtime growth rate. (2016)
Independent
Variable:

2 Trends It indicates the assets owned by This is measured using Samuel &
the management of NBFIs over the total asset of the Akarara
time management in NBFIs (2016)
in Nigeria over time
3 Financial This is a complete evaluation of This is measured using Olalekan
how well NBFIs is, based on Return on Equity (2019)
their profitability, assets, (ROE), of NBFIs in
liabilities, revenue, expenses Nigeria over time
and equity.
4 Non-Financial This focus on long term success This is measured using Olalekan
of NBFIs with factor such as, employment generated (2019)
customer satisfaction, by NBFIs in Nigeria
innovation, customer retention over time
and employee satisfaction. .
38
3.7 Data Analysis Technique

To examine the data gathered for the study, descriptive statistics and inferential statistics will be

used. For the inferential statistics, panel data analysis was employed to estimate the causal-effect

relationship between the dependent and independent variable. Descriptive statistics like mean,

standard deviation, minimum and maximum value, skewness and kurtosis and panel regression

analysis will be used.

39
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

This chapter contains the presentation, analysis and interpretation of the data collected for this

study which focused on how economic development is related to non-bank financial institutions.

The data were analyzed using descriptive statistics and inferential statistics. The chapter also

discussed the implication of the findings on the study.

4.1 Descriptive statistics

Descriptive statistics where the interaction of the data is described is presented in table

4.1. It shows the mean, standard deviation, coefficient of variation, minimum and maximum

values, skeweness, kurtosis, jarqueberra statistics for both outcome and explanatory variables.

From table 4.1 gross domestic products (GDP) have an average value of 7.850041 with standard

deviation of .0095199, implying a moderate spread as the coefficient of variation stood at 0.12

percent. The minimum GDP is 7.835to a maximum of 7.8626. The skewedness and kurtosis

value for .gross domestic product is -.2418607 and 1.798669, the results for the normal

distribution was further validated with the jarque berra statistics with the null hypothesis that the

data is normally distributed having statistics of 3.5204 and probability value of 0.1720.

For total assets (TA), the average value is 7.2614 ranging between a minimum of 6.54 to

a maximum of 8.27having a standard deviation of .3961344 signifying that total assets of the

non-bank financial institution varies moderately. Total assets for the firms have a skewedness

of .5865314 and Kurtosis value of 3.495891indicating that the data is normally distributed and

this is validated by the jarque berra statistics showing 4.01075 with P-value of 0.13460.

Furthermore, from table 4.1 returns on equity (ROE) have an average value of 7.0172 with

standard deviation of 10.71885, implying a high spread as the coefficient of variation stood at

152 percent. The minimum ROE is negative showing -10.75 to a maximum of 27.62. The
40
skewedness and kurtosis value for ROE is .10791 and 2.460978, the results for the abnormal

distribution was further validated with the jarque berra statistics with the null hypothesis that the

data is normally distributed having statistics of 38.9165 and probability value of 0.0000

Lastly from table 4.1., non-financial indicators (NFE) have an average value of 0.12 with

standard deviation of .3282607, implying a high spread as the coefficient of variation stood at

273 percent. The minimum NFE is 0 to a maximum of 1. The skewedness and kurtosis value for

NFE is 2.3387 and 6.469697, the results for the abnormal distribution was further validated with

the jarque berra statistics with the null hypothesis that the data is normally distributed having

statistics of 81.3663 and probability value of 0.0000

Table 4.1: Descriptive Statistics

Statistics OBS GDP TA ROE NFE

Mean 50 7.850041 7.2614 7.0172 .12

Standard Dev. 50 .0095199 .3961344 10.71885 .3282607

Coeff. Variation 50 .0012127 .0545535 1.52751 2.735506

Minimum 50 7.835633 6.54 -10.75 0

Maximum 50 7.862628 8.27 27.62 1

Skewness 50 -.2418607 .5865314 .1079159 2.338738

Kurtosis 50 1.798669 3.495891 2.460978 6.469697

Jarque Berra 50 3.5204 4.01075 38.9165 81.3663

P.Value 50 0.1720 0.13460 0.0000 0.00000

Researcher’s Computation (2023)

41
4.2 Test of Variables

4.2.1 Correlation Matrix of Dependent and Independent Variables

The correlation co-efficient represents the linear association or relationship between the

dependent and explanatory variables. The results in table 4.2 showing the relationship between

gross domestic product (GDP) and total assets (TA) shows that an increase in total assets will

lead to an increase in gross domestic product by 16.70 percent and this implies that the greater

the performance of these non-bank financial institutions the higher the gross domestic product,

however the relationship is not significant having P-value of 0.2464. Also from table 4.2 the

relationship between returns on equity (ROE) and gross domestic product (GDP) is positive as an

increase in the returns on equity will improve GDP by 3.98 percent, however the relationship is

insignificant having P-value of 0.7840. Likewise, the relationship between NFE and GDP is

negative and one time increase in the number of non-financial effects created by the non-bank

financial institutions will cause a decrease 27.04 percent. Note that the relationship is not

significant showing P-value of 0.0576.

Furthermore, the relationship between the total assets and returns on equity is positive

implying that they both move in the same direction when there is an increase ROE, total assets

will increase by 59.43 percent. Also, non-financial effect (NFE) of non-bank financial

institutions and total assets (TA) has a positive relationship as they move in the same direction

showing a coefficient of 0.1399. Table 4.2 also shows that the relationship between NFE and

ROE have a coefficient value of 0.0051 implying that an increase in NFE will lead to increase in

returns on equity.

42
Table 4.2: Correlation Analysis of Study Variables

OBS GDP TA ROE NFE

GDP 50 1.0000
TA 50 0.1670 1.0000
0.2464
ROE 50 0.0398 0.5943 1.0000
0.7840 0.0000
NFE 50 -0.2704 0.1399 0.0051 1.0000
0.0576 0.3324 0.9717
Source: Researcher’s Computation (2023)

4.2.2 Normality Test

The normality of data distribution is an assumption of running a linear model which assures that

the p-values for the t-test and F-test will be valid. The assumption merely requires that the

residuals be identically and independently distributed. However, from the descriptive statistics

the data across some of the variables shows that most of the data obtained for this study are

normally distributed and as such, the normality of residuals will be conducted using Shapiro

Wilks test of normality and the result is presented in table 4.3. From table 4.3, the result indicate

that for the variables explaining financial and non-financial effect of non-bank financial

institutions are abnormally distributed with a p-value of 0.73727which is higher the threshold of

null hypothesis that the data is normally distributed.

Table 4.3 Shapiro-Wilk W test for Normal Data

Variable Obs W V z Prob>z

Residuals 50 0.98421 0.742 -0.635 0.73727

Source: Researcher’s Computation (2023)

43
4.2.3 Multicollinearity Test

Multicollinearity test are part of post estimation test to confirm the validity of the assumption of

the regression model. In a situation where two or more explanatory variable are highly

correlated, meaning that one can linearly predict the other variable with a certain degree of

accuracy, then there is problem of multicollinearity. The Variance Inflation Factor (VIF) value is

used to investigate the relationship between the variables themselves to determine their

independence. Based on the evidence presented in table 4.4, it can be concluded that there is no

multi-collinearity problem. This is because the VIF values for all the variables are less than 10

and the tolerance values for all the variables are greater than 0.10 (rule of thumb). Therefore, the

study can rely on regression co-efficient to predict the level of impact of independent variables

on dependent variables and the outcome of the findings can be considered valid.

Table 4.4: Tolerance and VIF Value

Variable VIF 1/VIF

EFFECT OF NBFIs

Financial effect 1.00 0.999067

Non-Financial effect 1.00 0.999067

Mean VIF 1.00

Source: Researchers’ Computation (2023)

4.2.4 Test for Heteroscedasticity and Auto-Correlation

The heteroscedasticity test was conducted to check the validity of homoscedasticity

assumption that variance in the residuals are constant as the absence of homoscedasticity violate

the assumption and may lead to wrong inference. Heteroscedasticity test was conducted using

44
Breusch-Pagan/Cook-Weisberg test and data for the study revealed the absence of

heteroskedascity given the probability value of 0.3415which is higher than 0.05. Data for the

study was also tested for auto-correlation using Wooldridge test for autocorrelation in panel data;

the result shows the probability of 0.0000 which is significant indicating that there is problem of

Auto-correlation. The problem is corrected using panel error corrected regression.

Table 4.5: Summary of Post Estimation Test Results

Breusch-Pagan Cook-Weisberg test for Heteroscedasticity

Null Hypothesis Statistics Probability
Constant variance across the variables residuals (P>0.05) 0.90 0.3415
Worldridge test for autocorrelation
Null Hypothesis Statistics Probability
No first-order autocorrelation (P>0.05) 266.599 0.0000
Hausman Test
Null Hypothesis
Difference in coefficients not systematic (P≤0.05) 3.43 0.1802
Researcher’s Computation (2023)

4.2.5 Panel Unit Root Test of the Variables

Panel variables have the tendency of been non-stationary at level which may likely affect

the parameter stability and consistency of the model. However, in order to identify the stationary

conditions of the variables, the study uses Levin, Lin & Chu t* and Harris-Tzavalisunit-root test.

The null hypothesis assumption of the unit root test is that all panels contain unit roots while the

alternate hypothesis implies that some panels are stationary. The results of unit root tests were

displayed in table 4.6. It shows that all the variables are integrated of order zero that is 1(0).

Therefore, it is not necessary to conduct the co-integration test in order to determine the long run

45
relationship among the variables. The panel least square is capable of estimating an efficient

model and that is less spurious.

Table 4.6: Panel Unit Root Test

Variable Levin, Lin & Chu t* Harris-Tzavalisunit-root test

test-statistics P-value Statistics P-value

Gross Domestic Product -6.2791 0.0000 -3.2444 0.0006

Returns on Equity -2.2876 0.0111 -3.3266 0.0004

Non-financial effect -7.3317 0.0000 -5.2174 0.0000

Source: Researchers’ Computations (2023

4.3. Trend of Non-Bank Financial Institution Evolvement in Nigeria

In order specific objective one of the study which is the assessment of trend of non-bank

financial institution evolvement in Nigeria, non-parametric trend test was employed and the

results is presented in table 4.7. The results shows that over the period of the study (2017-2022)

the total assets for the Non-bank financial institutions experience positive increase this is evident

by the steady increase in sum of the ranks which results to positive z-score of 1.77. However, the

trend is insignificant showing the probability value of 0.077.

Table 4.7: Trend of Non-Bank Financial Institution total assets Evolvement

YEARS Score Obs Sum of Ranks
2017 2017 10 200
2018 2018 10 236
2019 2019 10 253.5
2020 2020 10 284.5
2021 2021 10 301
z = 1.77 Prob > |z| = 0.076
Source: Researchers’ Computation (2023)
46
The trend was further given a graphical representation in figure 4.1 to showcase the linear

function that could produce a significant trend over the study period. The trend shows that there

is keen close performance among NBFIs as the trend line slope is not too evident.

Source: Researchers’ Computation (2023)

4.4. Effect of Non-Bank Financial Institution to Economic Growth in Nigeria

The regressed result showing how financial effect measured using ROE and non-financial

effect measured through the evolvement of employees affect the gross domestic product of the

country after meeting the basis for a Best Linear Un-bias Estimate (BLUE) is shown in table 4.8.

The Hausman specification test conducted produced p-value of 0.1802, which is insignificant at

5%. This implies that the variation across entities is assumed to be systematic with the

independent variables included in the model hence the fixed effect model is the most suitable for

interpretation. However, the presence of autocorrelation problem as indicated in table 4.5 made

the regression results to be subjected to a further test as presented in table 4.8 where panel

47
corrected standard error regression was run in order to take care of the problem which made the

results of the regression suitable for analysis purpose and interpretation void of bias.

The panels corrected standard error regression estimates where autocorrelation

disturbances are corrected is presented in table 4.8and the result obtained shows that the model is

significant and different from zero indicating Wald chi2of 7.40and probability of the model to be

0.0248which shows that the model is statistically significant at 5%.The R-Square indicates s that

the independent variables in the model jointly explains 12.89 percent of the variation in the

dependent variable with other variables captured by the error term. The implication is that the

combination of both financial and non-financial effect is significant however since the R-square

is low it implies that there are other important effect created by the non-bank financial

institutions that could explain better economic development of the country

The individual results for the variables as shown in table 4.8 showed that the financial

effect as measure by returns on equity (ROE) has a negative but insignificant effect on GDP in

Nigeria. The results indicate z score of -0.61 and probability value of 0.541. The implication is

that the returns on equity that accrues to the shareholders are mostly spent on consumption and

not diverted toward production and this could have explained the negative effect. Likewise from

table 4.8, the non-financial effect (NFE) have a z-score of -2.67 and p-value indicating 0.008. It

then means that employee evolvement of the non-bank financial institutions are of significant

effect on gross domestic product (GDP). The implication is that the employees engage is minute

to the teeming unemployed populace and their continual dependency on meager production has

negatively affect the economic growth of the country.

Samuel and Akarara (2016) investigated the impact of NBFIs on the growth of the

Nigerian economy. Their findings revealed that there exist a positive relationship between non-

48
bank financial institutions and economic growth in Nigeria but the relationship is relatively

insignificant. This agrees with our study the total assets for the Non-bank financial institutions

experience positive increase, however the trend is insignificant.

Abolade and Adeboye (2022) examined the contribution of NBFIs to the economy. Their

findings revealed that non-bank financial institutions investment in financial assets and treasury

bills significantly impact on Nigeria’s gross domestic product (GDP). This analysis gives a

positive relationship as against this study which positions a negative effect on GDP in Nigeria.

Table 4.8 Panel Corrected Standard Error Regression

Indep-corrected

GDP Coef. Std. Err. Z P>|z|

Financial Effect (ROE) -.0000634 .0001037 -0.61 0.541

Non-Financial Effect -.0102154 .0038298 -2.67 0.008

_Cons 7.882376 .0120604 653.58 0.000

Number of obs = 50

Number of groups = 10

Time periods = 5

Wald chi2(2) = 7.40 Prob > chi2 = 0.0248

Hausman test: chi2(2) = 3.43 Prob>chi2 = 0.1802

Researcher’s Computation (2023)

49
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

This chapter represents the summary of major findings on effect of Non-Bank Financial

Institution to Economic Growth in Nigeria: prospects and perspective, conclusions and

recommendations from the study were also presented.

5.1 Summary

The study was carried out to assess the trend of non-bank financial institution evolvement

in Nigeria; determine the financial effect of non-bank financial institution to economic growth in

Nigeria; and to examine the non-financial effect of non-bank financial institution to economic

growth in Nigeria. In order to achieve the stated objectives,

Chapter one provides background to the study which explains the global stands, the

current state of the topic in Nigeria, the drift, divergent opinion and recent issues surrounding

effect of non-bank financial institution to economic growth by different scholars and authors. It

also explains statement of problems which arises as a result of diverse opinions of scholars

relating to the study and the specific problems which the study wants to solve. The research

questions and objectives were also formulated.

The study explains relevant concept in chapter two. The concepts include non-bank

financial institutions and economic growth. Economic growth in this context is proxy by Trends,

financial effect and non-financial effects. Related empirical studies was reviewed on research

that have been conducted both in Nigeria and other countries in the world in the area of this

study in order to reveal the gaps to be filled by this study. Different theories that supported this

study were also explored and this study hinged on these theories which were used to develop a

theoretical review for this study.

50
 Secondary data was used to achieve the objective of the study. The population of the

study comprises of all the 23 non-bank financial institutions listed on the Nigeria Exchange

Group as at 31st December 2021. A sample size of 10 was selected using Purposive sampling

technique. Data was collected for the period 2012-2021. These were obtained from published

annual reports from CBN statistical bulletin. The collected data were analyzed using descriptive

and inferential statistics which include; statistics summaries, and regression analysis. The

summary of the findings are;

i. The total assets for the Non-bank financial institutions experience positive increase this is

evident by the steady increase in sum of the ranks.

ii. In reference to the second objective, it was revealed that there's a negative and

insignificant effect of financial impacts on GDP in Nigeria.

iii. Employee evolvement is of significant effect on gross domestic product (GDP).

5.2 Conclusion

It can be concluded based on the analysis and findings of this study that there are more

prospect and potentials of the effect of Non-Bank Financial Institution to Economic Growth in

Nigeria. Findings from the study revealed that non-bank financial institutions has an impact in

the financial and non-financial performance, having a positive and significant effect on Nigeria’s

gross domestic product (GDP).

5.3 Recommendations

Based on the findings, the study makes the following recommendation:

i. Since there's a positive increase in the total asset of NBFIs, there should be a supportive

atmosphere that will encourage the fast growth of the industry. This would help boost the

industry's asset base and draw more investors to the sector.

51
 ii. As the result showed a negative effect on the financial effect of NBFIs, CBN should set

up a clearance system that will enable NBFIs participate more actively in the money

market which will in turn, reduce their dependence on their correspondent commercial

banks, in order to increase their own profitability which will give room for a positive and

significant effect.

iii. Non-bank financial institutions should make an effort to create room for more

employment opportunities. This will help increase the standard of living of citizens in the

country and as a result, boost the country's GDP.

52
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 APPENDIX

YEARS COMPANIES EXCHANGE SECTOR PRIMARY BUSINESS FINANCIAL- TRENDS-LOG

ROE OF TOTAL
ASSET
2017 Custodian Investment Financial Property & 20.16 7.95
Services Casualty Insurance
2018 Custodian Investment Financial Property & 17.14 7.99
Services Casualty Insurance
2019 Custodian Investment Financial Property & 13.44 8.07
Services Casualty Insurance
2020 Custodian Investment Financial Property & 22.24 8.25
Services Casualty Insurance
2021 Custodian Investment Financial Property & 15.83 8.27
Services Casualty Insurance
2017 Veritas Kapital Assurance Financial Property & -8.88 7.01
Services Casualty Insurance
2018 Veritas Kapital Assurance Financial Property & -8.32 7.08
Services Casualty Insurance
2019 Veritas Kapital Assurance Financial Property & 1.93 7.08
Services Casualty Insurance
2020 Veritas Kapital Assurance Financial Property & 9.9 7.15
Services Casualty Insurance
2021 Veritas Kapital Assurance Financial Property & 5.28 7.22
Services Casualty Insurance
2017 Sunu Assurance Financial Property & 0.13 7.05
Services Casualty Insurance
2018 Sunu Assurance Financial Property & -0.98 7.09
Services Casualty Insurance
2019 Sunu Assurance Financial Property & -5.64 7.05
Services Casualty Insurance
2020 Sunu Assurance Financial Property & -10.3 7.01
Services Casualty Insurance
2021 Sunu Assurance Financial Property & 3.19 7.08
Services Casualty Insurance
2017 Sovereign Trust Financial Property & 2.78 7.03
Services Casualty Insurance
2018 Sovereign Trust Financial Property & 5.91 7.05
Services Casualty Insurance
2019 Sovereign Trust Financial Property & 6.46 7.13
Services Casualty Insurance
2020 Sovereign Trust Financial Property & 7.97 7.17
Services Casualty Insurance
2021 Sovereign Trust Financial Property & 10.14 7.21
Services Casualty Insurance
2017 Regency Aliance Ins Financial Property & 5.25 6.97
Services Casualty Insurance
2018 Regency Aliance Ins Financial Property & 5.16 6.99
Services Casualty Insurance
2019 Regency Aliance Ins Financial Property & 12.43 7.02
Services Casualty Insurance
2020 Regency Aliance Ins Financial Property & 8.4 7.11
Services Casualty Insurance

56
2021 Regency Aliance Ins Financial Property & 4.81 7.07
Services Casualty Insurance
2017 Prestige Assurance Financial Property & 7.08 7.07
Services Casualty Insurance
2018 Prestige Assurance Financial Property & 5.23 7.11
Services Casualty Insurance
2019 Prestige Assurance Financial Property & 5.11 7.12
Services Casualty Insurance
2020 Prestige Assurance Financial Property & 5.47 7.27
Services Casualty Insurance
2021 Prestige Assurance Financial Property & 5.3 7.33
Services Casualty Insurance
2017 Nem Insurance Financial Property & 28.5 7.24
Services Casualty Insurance
2018 Nem Insurance Financial Property & 16.38 7.39
Services Casualty Insurance
2019 Nem Insurance Financial Property & 16.99 7.41
Services Casualty Insurance
2020 Nem Insurance Financial Property & 27.69 7.49
Services Casualty Insurance
2021 Nem Insurance Financial Property & 19.35 7.58
Services Casualty Insurance
2017 Linkage Assurance Financial Property & 14.49 7.37
Services Casualty Insurance
2018 Linkage Assurance Financial Property & -1.62 7.36
Services Casualty Insurance
2019 Linkage Assurance Financial Property & 6.3 7.46
Services Casualty Insurance
2020 Linkage Assurance Financial Property & 9.08 7.53
Services Casualty Insurance
2021 Linkage Assurance Financial Property & -15.9 7.59
Services Casualty Insurance
2017 Guinea Insurance Financial Property & 7.37 6.64
Services Casualty Insurance
2018 Guinea Insurance Financial Property & -6.12 6.65
Services Casualty Insurance
2019 Guinea Insurance Financial Property & -34.95 6.56
Services Casualty Insurance
2020 Guinea Insurance Financial Property & -10.75 6.54
Services Casualty Insurance
2021 Guinea Insurance Financial Property & -1.11 6.54
Services Casualty Insurance
2017 Cornerstone Insurance Financial Multline Insurance -45.65 7.38
Services
2018 Cornerstone Insurance Financial Multline Insurance 28.98 7.46
Services
2019 Cornerstone Insurance Financial Multline Insurance 27.62 7.55
Services
2020 Cornerstone Insurance Financial Multline Insurance 12.38 7.64
Services
2021 Cornerstone Insurance Financial Multline Insurance 17.27 7.69
Services

57