NILE UNIVERSITY OF NIGERIA

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ECONOMICS
ECON 317 (MONETARY ECONOMICS)
LECTURE NOTES

NATURE AND SCOPE OF MONETARY ECONOMICS

Monetary economics is a branch of economics centred on money and monetary relationships
in the economy. It concentrates on the links between money and prices, output, and
employment and so is a development of macroeconomics. Monetary economists have been
particularly concerned with the relationship between the rate of growth of the money supply
and the rate of inflation, although monetary economics is a much wider area of study than
this implies. Monetary relationships have been studied for several centuries and so the
subject contains a great deal of theory. However, we should always recall that the goal of
monetary economics lies in a better understanding of monetary policy: what, if anything,
governments and/or central banks can do to improve the way in which economies perform
through the use of the instruments of monetary policy or, at least, to avoid damaging the
performance of the real economy.

Plainly, monetary policy is now regarded as central to the welfare of households and the
profitability of firms. The regular decisions of central banks on interest rates are major news
items. Changes in exchange rates are part of everyday journalism. The question of whether
the UK should give up its present currency to join a monetary union is one of the principal
political decisions of our day. Monetary policy has become so sensitive that over the past
dozen years many countries have made major constitutional decisions regarding the
operation of monetary policy. Despite this, the study of monetary economics is generally
regarded as esoteric — a specialist area tackled by a relatively small proportion of
undergraduate economics students. An important reason for this can be found in the
controversial nature of the material. The subject is full of disagreements and conflict. The
standard throwaway line, that on any subject two economists will have three opinions, seems
to apply to monetary economics par excellence. There are few topics within monetary
economics in which a set of ideas can be learnt as ‘true’. Thus, students find it difficult to
understand, and seek to avoid it.
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The reason for this controversy and difficulty can be found in the nature of ‘money’ itself.
Money has been a source of fascination in many fields of learning and has been written about
by anthropologists, philosophers, and social historians as well as economists. Economists
themselves have considered various aspects of money such as the reasons for its existence,
changes in its form, and its role in economic growth and development. However, people
writing about ‘money’ are not always dealing with the same thing. Further, the word ‘money’
is used in everyday speech in a number of ways, generally in different senses from its meaning
within monetary economics. The Oxford Dictionary of Quotations contains 48 quotations
using the word ‘money’, ranging from the biblical to the music hall - from ‘the love of money
is the root of all evil’. In many of these quotations, ‘money’ means ‘income’ or ‘wealth’. This
is not new. Adam Smith noted in 1776 that ‘wealth and money … are, in common language,
considered as in every respect synonymous’ (Smith, 1776, IV, I).

Nonetheless, this is not at all what modern monetary economists mean by ‘money’. In modern
economics, as in Adam Smith, ‘wealth’ is produced in the real economy through the
production and exchange of goods and services. Money has two clear and separate roles here
- in facilitating the act of exchange and in expressing in a common unit the value of the many
different goods and services produced. This latter use accounts for the distinction made in
economics between ‘real’ values and ‘money’ or ‘nominal’ values. Thus, wealth can be
expressed in money terms but ‘money’ and ‘wealth’ are certainly not synonymous. However,
if ‘money’ is not the same thing as wealth, what precisely is it? Even within economics ‘money’
can be viewed in a variety of ways and different definitions of money often stem from
differing ideas concerning the way in which economies function. One of the great historical
debates within monetary economics has been over the question of the ‘neutrality’ of money
— whether changes in the quantity of money in an economy have an impact on the ‘real’
values of output and employment or whether they influence only the general level of prices.
There can be little doubt that definitions of ‘money’ are not neutral in relation to economic
analysis. Under these circumstances, we must begin by examining carefully the meaning of
‘money’.

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BARTER EXCHANGE: MEANING AND PROBLEMS OF BARTER EXCHANGE

Meaning of Barter:
‘Direct exchange of goods against goods without use of money is called barter exchange.’
Alternatively, economic exchanges without the medium of money are referred to as barter
exchanges. An economy based on barter exchange (i.e., exchange of goods for goods) is
called C.C. Economy, i.e., commodity for commodity exchange economy. In such an economy,
a person gives his surplus good and gets in return the good he needs. For example, when a
weaver gives cloth to the farmer in return for getting wheat from the farmer, this is called
barter exchange. Similarly, the farmer can get other goods of his requirement like shoes, cow,
plough, spade, etc. by giving his surplus wheat (or rice or maize). Thus, the system of barter
exchange fulfills to some extent the requirements of both the parties involved in exchange.

However, as the transactions increased, inconveniences and difficulties of barter exchange

also increased involving rising trading costs. Trading costs are costs of engaging in trade. Its
two components are search cost and disutility of waiting. Remember, search cost is the high
cost of searching suitable persons to exchange goods and disutility of waiting refers to time
period spent on searching the required person. This ultimately led to evolution of money as
medium of exchange. Following are some of the drawbacks or inconveniences of barter.

Inconveniences (Problems) that led to Collapse of Barter Exchange:

i. Lack of double coincidence of wants. Double coincidence of wants means what
one person wants to sell and buy must coincide with what some other person
wants to buy and sell. ‘Simultaneous fulfillment of mutual wants by buyers and
sellers’ is known as double coincidence of wants. There is lack of double
coincidence in the wants of buyers and sellers in barter exchange. The producer of
jute may want shoes in exchange for his jute. But he may find it difficult to get a
shoe-maker who is also willing to exchange his shoes for Jute. Thus, a seller has to
find out a person who wants to buy seller’s good and at the same time who must
have what the seller wants. This is called double coincidence of wants which is the
main drawback of the barter exchange.

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 ii. Lack of common measure of value. In barter, there is no common measure (unit)
of value. Even if buyer and seller of each other commodity happen to meet, the
problem arises in what proportion the two goods are to be exchanged. Each article
must have as many different values as there are other articles for which it is to be
exchanged. When thousands of articles are produced and exchanged, there will be
unlimited number of exchange ratios. Absence of a common denominator in order
to express exchange ratios creates many difficulties. Money obviates these
difficulties and acts as a convenient unit of value and account.
iii. Lack of standard of deferred payment. There is problem of borrowing and lending.
It is difficult to engage in contracts which involve future payments due to lack of
any satisfactory unit. As a result, future payments are to be stated in term of
specific goods or services. But there could be disagreement about the quality of
the good, specific type of the good and change in the value of the good.
iv. Difficulty in storing wealth (or generalised purchasing power). It is difficult for the
people to store wealth or generalised purchasing power for future use in the form
of goods like cattle, wheat, potatoes, etc. Holding of stocks of such goods involves
costly storage and deterioration.
v. Indivisibility of goods. How to exchange goods of unequal value? If a household
wants to sell his cow and get in exchange cloth equal to the value of half of his cow,
he cannot do so without killing his cow. Thus, lack of divisibility of goods makes
barter exchange impossible.
Note: In order to overcome the above disadvantages of the barter system, money was invented

by the society.

ORIGIN AND EVOLUTION OF MONEY

Money, as we know it today, is the result of a long process. Money developed and evolved
through different stages. These stages are discussed below:
Commodity Money
Some commodities, for their utility, came to be more sought than others are. Accepted by all,
they assumed the role of currency, circulating as an element of exchange for other products
and used to assess their value. This was the commodity money. Cattle, mainly bovine, was one

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of the mostly used, and had the advantages of moving for itself, reproducing and rendering
services, although there was the risk of diseases and death. Salt was another commodity
money, difficult to obtain, mainly in the interior part of continents, also used as a preservative
for food. Both cattle and salt left the marks in the Portuguese language of their function as
an exchange instrument, as we keep using words such as pecunia (money)
and pecúlio (accumulated money) derived from the Latin work pecus (cattle). The
word capital (asset) comes from the Latin capita (head). Similarly, the work salário (salary,
compensation, normally in money, due by the employer for the services of an employee)
originates from the use of sal [salt], in Rome, for payment of services rendered. Brazil used,
among other commodity moneys, cowry – brought by Africans –, Brazil wood, sugar, cocoa,
tobacco and cloth, exchanged in Maranhão in the 17th Century due to the almost complete
lack of money, traded in the form of yarn balls, skeins and fabrics. Later, commodities became
inconvenient for commercial trades, due to changes in their values, the fact of being
indivisible and easily perishable, therefore checking the accumulation of wealth

Metals

As soon as man discovered metal, it was used to make utensils and weapons previously made
of stone. For its advantages, as the possibility of treasuring, divisibility, easy of transportation
and beauty, metal became the main standard of value. It was exchanged under different
forms. At the beginning, metal was used in its natural state, and later under the form of ingots
and, still, transformed into objects, from rings to bracelets. The metal so traded required
weight assessment and assaying of its purity at each transaction. Later, metal money gained
definite form and weight, receiving a mark indicating its value, indicating also the person
responsible for its issue. This measure made transactions faster, as it saved the trouble of
weighing it and enabled prompt identification of the quantity of metal offered for trade.

Money in the Form of Objects

Metal items came to be very valued commodities. As its production required, in addition to
knowledge of melting, knowing where the metal could be found in nature, the task was not
at the reach of everyone. The increased value of these objects led to its use as money and the
circulation as money of small-scale replicas of metal objects. This is the case of the knife and

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key coins found in the East and the talent, a copper or bronze coin with the form of an animal
skin that circulated in Greece and Cyprus. Coins reflect the mentality of a people and their
time. One may find political, economic, technological and cultural aspects in coins. Through
the impressions found in coins, we are able to know the effigy of personalities who lived
centuries ago. Probably, the first historic character to have his effigy registered in a coin was
Alexander the Great, of Macedonia, around the year 330 B.C.

Ancient Coins

In the 7th century B.C. the first coins resembling current ones appeared: they were small metal
pieces, with fixed weight and value, and bearing an official seal that is the mark of who has
minted them and also a guaranty of their value. Gold and silver coins are minted in Greece,
and small oval ingots are used in Lydia, made of a gold and silver alloy called electrum. At the
beginning, coin pieces were made by hand in a very coarse way, had irregular edges, and were
not absolutely equal to one another as today’s ones.

Gold, Silver and Copper

The first metals used in coinage were gold and silver. Employment of these metals happened
for their rarity, beauty, immunity to corrosion, economic value, and for old religious habits. In
primeval civilizations, Babylonian priests, knowledgeable about astronomy, taught to people
the close relationship between gold and the sun, silver and the moon. This led to a belief in
the magic power of such metals and of objects made with them. Minting of gold and silver
coins was common for many centuries, and pieces were guaranteed by their intrinsic value,
that is to say, by the trade value of the metal used in their production. Then, a coin made with
twenty grams of gold was exchanged for goods of even value. For many centuries, countries
minted their most highly valued coins in gold, using silver and copper for lesser value coins.
This system was kept up to the end of the last century, when cupronickel, and later other
metallic alloys, became used, and coins came to circulate for their extrinsic value, that is to
say, for their face value, which is independent from their metal content. With the appearance
of paper money, minting of metal coins was restricted to lower values, necessary as change.
In this new role, durability became the most requested quality for coins. Large quantities of
modern alloys appeared, produced to support the high circulation of change money.

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Paper Money

In the Middle Ages, the keeping of values with goldsmiths, persons trading with gold and
silver items, was common. The goldsmith, as a guaranty, delivered a receipt. With time, these
receipts came to be used to make payments, circulating from hand to hand, giving origin to
paper money. In Brazil, the first bank notes, precursors of the current notes, were issued by
Banco do Brasil in 1810. They had its value written by hand, as we today do with our checks.
With time, in the same form it happened with coins, the government came to conduct the
issue of notes, controlling counterfeits and securing the power to pay. Currently, all countries
have their central banks in charge of issuing coins and notes. Paper money experienced an
evolution regarding the technique used in their printing. Today, the printing of notes uses
especially prepared paper and several printing processes, which are complementary to each
other, assuring to the final product a great margin of security and durability conditions.

Different Shapes

Money has greatly changed its physical aspect along the centuries. Coins had already very
small sizes, as the stater, which circulated in Aradus, Phenicia, and some reached large sizes,
such as the thaler, a 17th century Swedish copper piece. Although today the circular form is
used in almost the whole world, there had been oval, square, polygonal and other shapes for
coins. They were also minted in different non-metallic materials, such as wood, leather and
even porcelain. Porcelain coins circulated, in this century, in Germany, when the country was
under the economic hardships caused by the war. Bank notes were generally of rectangular
lengthwise format, although with great variety of sizes. There are, still, square notes and
those with inscriptions written in the vertical. Bank notes depict the culture of the issuing
country, and we may see in them characteristic and interesting motifs as landscapes, human
types, fauna and flora, monuments of ancient and contemporary architecture, political
leaders, historical scenes, etc.

Bank notes bear, in addition, inscriptions, generally in the country’s official language, although
several also bear the same inscriptions in other idioms. The inscriptions, frequently in English,
aim at permitting the piece to be read by a larger number of people. Bank notes were
generally of rectangular lengthwise format, although with great variety of sizes. There are,

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still, square notes and those with inscriptions written in the vertical. Bank notes depict the
culture of the issuing country, and we may see in them characteristic and interesting motifs
as landscapes, human types, fauna and flora, monuments of ancient and contemporary
architecture, political leaders, historical scenes, etc.

The important role played today in the economy by this form of payment is due to the
innumerable advantages offered by it, speeding transactions with large sums, avoiding
hoarding and diminishing the need of change by being a document completed by hand in
the necessary amount. Money, whatever the form it has, is not valuable for itself, but for the
goods and services it may purchase. It is a sort of security giving its bearer the faculty of being
creditor of society and take advantage, through his or her purchasing power, of all conquests
of modern man. Money was not, hence, invented by a stroke of genius, but stemmed from a
need, and its evolution reflects, at each time, the willingness of man to harmonize its monetary
instrument to the reality of its economy.

Monetary System and Modern Forms of Money:

The set of coins and bank notes used by a country form its monetary system. The system is
regulated by appropriate legislation and organized from a monetary unit, its base value.
Currently almost all countries use a monetary system of centesimal basis, in which the coinage
dividing the unit represents one hundredth of its value. Normally, higher values are expressed
in notes while smaller values are represented by coins. The current world trend is that daily
expenses be paid with coins. Modern metallic alloys enable coins to be more durable than
notes, making them more appropriate to the intense use of money as change. The countries,

through their central banks, control and guarantee the issue of money. The set of notes and
coins in circulation, the so called monetary mass, is constantly renewed through the process
of sanitation, substitution of worn out and torn notes. The currency is a country’s unit of exchange
issued by their government or central bank whose value is the basis for trade. Currency includes both
metallic money (coins) and paper money that is in public circulation.

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i. Metallic Money. Metallic money refers to the coins which are used for small
transactions. Coins are most often issued by the government. Examples of coins in
Nigeria are 50 kobo N 1 and N2.
ii. Paper Money. These are paper notes and used for large transactions. Examples of
currency notes in Nigeria are N5, N10, N20, N50, N100, N200, N500 and N1000.
iii. Deposit Money or Bank Money. It refers to money deposited by people in the bank
on the basis of which cheques can be drawn. Customers of the bank deposit coins
and currency notes in the bank for safe-keeping, money transferring and also to
get interest on the deposited money. This money is recorded as credit to the
account of the bank’s customer which can be withdrawn by him on his/her wish by
cheques. Cheques are widely accepted these days because transfer of money
through cheques is convenient.
iv. Legal Tender Money (Force Tender). Legal tender money is the currency which has
got legal sanction or approval by the government. It means that the individual is
bound to accept it in exchange for goods and services; it cannot be refused in
settlement of payments of any kind. Both coins and currency notes are legal
tender. They have the backing of government. They serve as money on the fiat
(order) of the government. But a person can legally refuse to accept payment
through cheques because there is no guarantee that a cheque will be honored by
the bank in case of insufficient deposits with it. Currency is the most common form
of legal tender. It is anything which when offered in payment extinguishes the
debt. Thus, personal cheques, credit cards, debit cards and similar non-cash
methods of payment are not usually legal tenders.
v. Near Money. It is a term used for those which are not cash but highly liquid assets
and can easily be converted into cash on short notice such as bank deposits and
treasury bills. It does not function as a medium of exchange in everyday purchases
of goods and services.
vi. Electronic Money. Electronic money (also known as e-money, electronic cash,
electronic currency, digital money, digital cash or digital currency) involves
computer networks to perform financial transactions electronically. Electronic
Funds Transfer (EFT) and direct deposit are examples of electronic money. The
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 financial institutions transfer the money from one bank account to another by
means of computers and communication links. A country wide computer network
would monitor the credits and debits of all individuals, firms, and government as
transactions take place in the economy. It exchange funds every day without the
physical movement of any paper money. This would eliminate the use of cheques
and reduce the need for currency.
vii. Fiat Money. Fiat money is any money whose value is determined by legal means.
The term fiat currency and fiat money relate to types of currency or money whose
usefulness results not from any intrinsic value or guarantee that it can be converted
into gold or another currency but from a government’s order (fiat) that it must be
accepted as a means of payment. A distinction between money and currency may
be made here. The term ‘currency’ includes only metallic coins and paper notes
which are legal tender and are in actual circulation in the country. The term ‘money’
however includes not only currency in circulation but also credit instruments. In
other words, we may say that all currency is money but all money is not currency.
viii. Checks. As coins and notes ceased to be convertible into precious metal, money

became more dematerialized and assumed abstract forms. One of these forms is
the check that, for simplicity of use and security offered, is being adopted by an
increasing number of people in their day-by-day activities. This document, by
which one orders payment of a certain amount to its bearer or to a person
mentioned in it, aims mainly at transactions with bank deposits.

NATURE, DEFINITIONS AND FUNCTIONS OF MONEY

There has been lot of controversy and confusion over the meaning and nature of money. As
pointed out by Scitovsky, “Money is a difficult concept to define, partly because it fulfills not
one but three functions, each of them providing a criterion of moneyness … those of a unit
of account, a medium of exchange, and a store of value.” Though Scitovsky points toward the
difficulty of defining money due to moneyness, yet he gives a wide definition of money.
Professor Coulborn defines money as “the means of valuation and of payment; as both the
unit of account and the generally acceptable medium of exchange.” Coulborn’s definition is
very wide. He includes in it the ‘concrete’ money such as gold, cheques, coins, currency notes,
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bank draft, etc. and also abstract money which “is the vehicle of our thoughts of value, price
and worth.”

Such wide definitions have led Sir John Hicks to say that “money is defined by its functions:
anything is money which is used as money: ‘money is what money does.” These are the
functional definitions of money because they define money in terms of the functions it
performs. Some economists define money in legal terms saying that “anything which the
state declares as money is money.” Such money possesses general acceptability and has the
legal power to discharge debts. But people may not accept legal money by refusing to sell
goods and services against the payment of legal tender money. On the other hand, they may
accept some other things as money winch are not legally defined as money in discharge of
debts which may circulate freely. Such things are cheques and notes issued by commercial
banks. Thus besides legality, there are other determinants which go to make a thing to serve
as money.

Theoretical and Empirical Definitions of Money:

There being no unanimity over the definition of money. Prof. Johnson distinguishes four main
schools of thought in this regard which are discussed below along-with the views of Pesek
and Saving.
1. The Traditional Definition of Money
According to the traditional view, also known as the view of the Currency School, money is
defined as currency and demand deposits, and it’s most important function is to act as a
medium of exchange. Keynes in his General Theory followed the traditional view and defined
money as currency and demand deposits. Hicks in his Critical Essays in Monetary Theory points
towards a threefold traditional classification of the nature of money: “to act as a unit of
account (or measure of value as Wick-sell put it), as a means of payment, and as a store of
value.” The Banking School criticised the traditional definition of money as arbitrary. This view
about the meaning of money is very narrow because there are other assets which are equally
acceptable as media of exchange. These include time deposits of commercial banks,
commercial bills of exchange, etc. By ignoring these assets the traditional view is not in a
position to analyse their influence in increasing their velocity. Further, by excluding them from
the definition of money, the Keynesians place greater emphasis on the interest elasticity of
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the demand function for money. Empirically, they forged a link between the stock of money
and output via the rate of interest.

2. Friedman’s Definition of Money

The monetarist (or Chicago) view is associated with Prof. Friedman and his followers at the
University of Chicago. By money Friedman means “literally the number of dollars people are
carrying around in their pockets, the number of dollars they have to their credit at banks in
the form of demand deposits and commercial bank time deposits”. Thus he defines money as
“the sum of currency plus all adjusted deposits in commercial banks”. This is the “working
definition” of money which Friedman and Schwartz use for the empirical study of the
monetary trends of the US for selected year 1929, 1935, 1950, 1955 and 1960. This was a
narrower definition of money and the adjustment in both demand and time deposits of
commercial banks was devised to take into account the increasing financial sophistication of
the commercial banks and the community. But he could not establish a single index of this
sophistication. Even with this adjustment, cash and deposit monies were not strictly
comparable over long periods. However, the correlation evidence for 1950, 1955 and 1960
suggested a broader definition of money as “any asset capable of serving as a temporary
abode of purchasing power”. So Friedman gives two types of definitions of money. One on
theoretical basis and the other on empirical basis. This led to a lot of controversy which
Friedman tried to solve on the basis of methodological issues. According to Friedman, “The
definition of money is to be sought for not on grounds of principle but on grounds of
usefulness in organising our knowledge of economic relationships.”

Thus the definition used for empirical purposes is unimportant because different definitions
will give different results. The empirical results will ultimately depend upon the nature of
assets included in the definition of money as a temporary abode of purchasing power. Thus,
concludes Friedman, “The selection of a specific empirical counterpart to the term money
seems to us a matter of convenience for a particular purpose, not a matter of principle.” He
is, therefore, not rigid in his definition of money and takes a broader view which includes bank
deposits, non-bank deposits and any other type of assets through which the monetary
authority influences the future level of income, prices, employment or any other important
macro variable.
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3. The Radcliffe Definition
The Radcliffe Committee defined money as “note plus bank deposits”. It includes as money
only those assets which are commonly used as media of exchange. Assets refer to liquid assets
by which it means the monetary quantity influencing total effective demand for goods and
services. This is interpreted widely to include credit. Thus, the whole liquidity position is
relevant to spending decisions. Spending is not limited to cash or money in the bank but to
the amount of money people think they can get hold of either by selling an asset or by
borrowing or by receipts of income from, say, sales. The Committee did not make use of the
concept of velocity of circulation because as a numerical constant, it is devoid of any
behavioural content. On the basis of crude empirical tests, the Committee did not find either
direct or indirect link between money and economic activity via the interest rate. But it gave
a new transmission mechanism based on liquidity. It explained that a movement of interest
rates implies significant changes in the capital value of many assets held by financial
institutions. A rise in the interest rates makes some less willing to lend because capital values
have fallen, and others because their own interest rate structure is sticky. A fall in interest
rates, on the other hand, strengthens balance sheets and encourages lenders to seek new
business.
4. The Gurley-Shaw Definition
Gurley and Shaw regard a substantial volume of liquid assets held by financial intermediaries
and the liabilities of non-bank intermediaries as close substitutes for money. Intermediaries
provide substitutes for money as a store of value. Money proper which is defined as equal to
currency plus demand deposits is only one liquid asset. They have thus formulated a wider
definition of money based upon liquidity which includes bonds, insurance reserves, pension
funds, savings and loan shares. They believe in the velocity of the money stock which is
influenced by non-bank intermediaries. Their views on the definition of money are based on
their own and Goldsmith’s empirical findings.
Functions of Money:
Money performs a number of primary, secondary, contingent and other functions which not
only remove the difficulties of barter but also oils the wheels of trade and industry in the
present day world.

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Primary Functions:
The two primary functions of money are to act as a medium of exchange and as a unit of value.
i. Money as a Medium of Exchange. This is the primary function of money because it is
out of this function that its other functions developed. By serving as a medium of
exchange, money removes the need for double coincidence of wants and the
inconveniences and difficulties associated with barter. The introduction of money as
a medium of exchange decomposes the single transaction of barter into separate
transactions of sale and purchase thereby eliminating the double coincidence of
wants. This function of money also separates the transactions in time and place
because the sellers and buyers of a commodity are not required to perform the
transactions at the same time and place. This is because the seller of a commodity
buys some money and money, in turn, buys the commodity over time and place. When
money acts as a medium of exchange, it means that it is generally acceptable. It,
therefore, affords the freedom of choice. With money, we can buy an assorted bundle
of goods and services. At the same time, we can purchase the best and also bargain
in the market. Thus money gives us a good deal of economic independence and also
perfects the market mechanism by increasing competition and widening the market.
ii. Money as Unit of Value. The second primary function of money is to act as a unit of
value. Under barter one would have to resort to some standard of measurement, such
as a length of string or a piece of wood. Since one would have to use a standard to
measure the length or height of any object, it is only sensible that one particular
standard should be accepted as the standard. Money is the standard for measuring
value just as the yard or metre is the standard for measuring length. The monetary
unit measures and expresses the values of all goods and services. In fact, the
monetary unit expresses the value of each good or service in terms of price. Money is
the common denominator which determines the rate of exchange between goods
and services which are priced in terms of the monetary unit. There can be no pricing
process without a measure of value. The use of money as a standard of value
eliminates the necessity of quoting the price of apples in terms of oranges, the price
of oranges in terms of nuts and so on. Unlike barter, the prices of such commodities
are expressed in terms of so many units of dollars, rupees, francs, pounds, etc.,
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 depending on the nature of the monetary unit in a country. Money as a unit of value
also facilitates accounting. “Assets of all kinds, liabilities of all kinds, income of all
kinds, and expenses of all kinds can be stated in terms of common monetary units to
be added or subtracted.” Further, money as a unit of account helps in calculations of
economic importance such as the estimation of the costs, and revenues of business
firms, the relative costs and profitability of various public enterprises and projects
under a planned economy, and the gross national product.

Secondary Functions
Money performs three secondary functions: as a standard of deferred payments, as a store of
value, and as a transfer of value. They are discussed below.
i. Money as a Standard of Deferred Payments. The third function of money is that it
acts as a standard of deferred or postponed payments. All debts are taken in
money. It was easy under barter to take loans in goats or grains but difficult to
make repayments in such perishable articles in the future. Money has simplified
both the taking and repayment of loans because the unit of account is durable.
Money links the present values with those of the future. It simplifies credit
transactions. It makes possible contracts for the supply of goods in the future for
an agreed payment of money. It simplifies borrowing by consumers on hire-
purchase and from house-building and cooperative societies. Money facilitates
borrowing by firms and businessmen from banks and other non-bank financial
institutions. The buying and selling of shares, debentures and securities is made
possible by money. By acting as a standard of deferred payments, money helps in
capital formation both by the government and business enterprises. In fine, this
function of money develops financial and capital markets and helps in the growth
of the economy. But there is the danger of changes in the value of money over time
which harms or benefits the creditors and debtors. If the value of money increases
over time, the creditors gain and debtors lose. On the other hand, a fall in the value
of money over time brings losses to creditors and windfalls to debtors. To
overcome this difficulty, some of the countries have fixed debt contracts in terms
of a price index which measures changes in the value of money. Such a contract

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 over time guarantees the future payment of debt by compensating the loser by the
same amount of purchasing power when the contract was entered into.
ii. Money as a Store of Value. Another important function of money is that it acts as
a store of value. “The good chosen as money is always something which can be
kept for long periods without deterioration or wastage. It is a form in which wealth
can be kept intact from one year to the next. Money is a bridge from the present
to the future. It is therefore essential that the money commodity should always be
one which can be easily and safely stored.” Money as a store of value is meant to
meet unforeseen emergencies and to pay debts. Newlyn calls this the asset
function of money. “Money is not, of course, the only store of value. This function
can be served by any valuable asset. One can store value for the future by holding
short-term promissory notes, bonds, mortgages, preferred stocks, household
furniture, houses, land, or any other kind of valuable goods. The principal
advantages of these other assets as a store of value are that they, unlike money,
ordinarily yield an income in the form of interest, profits, rent or usefulness…,and
they sometimes rise in value in terms of money. On the other hand, they have
certain disadvantages as a store of value, among which are the following: (1) They
sometimes involve storage costs; (2) they may depreciate in terms of money; and
(3) they are “illiquid” in varying degrees, for they are not generally acceptable as
money and it may be possible to convert them into money quickly only by suffering
a loss of value.” Keynes placed much emphasis on this function of money.
According to him, to hold money is to keep it as a reserve of liquid assets which can
be converted into real goods. It is a matter of comparative indifference whether
wealth is in money, money claims, or goods. In fact, money and money claims have
certain advantages of security, convenience and adaptability over real goods. But
the store of value function of money also suffers from changes in the value of
money. This introduces considerable hazard in using money or assets as a store of
value.
iii. Money as a Transfer of Value. Since money is a generally acceptable means of
payment and acts as a store of value, it keeps on transferring values from person
to person and place to place. A person who holds money in cash or assets can
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 transfer that to any other person. Moreover, he can sell his assets at Delhi and
purchase fresh assets at Bangalore. Thus money facilitates transfer of value
between persons and places.
Contingent Functions:
Money also performs certain contingent or incidental functions, according to Prof. David
Kinley. They are:
i. Money as the Most Liquid of all Liquid Assets. Money is the most liquid of all liquid
assets in which wealth is held. Individuals and firms may hold wealth in infinitely
varied forms. “They may, for example, choose between holding wealth in currency,
demand deposits, time deposits, savings, bonds, Treasury Bills, short-term
government securities, long-term government securities, debentures, preference
shares, ordinary shares, stocks of consumer goods, and productive equipment.” All
these are liquid forms of wealth which can be converted into money, and vice-
versa.
ii. Basis of the Credit System. Money is the basis of the credit system. Business
transactions are either in cash or on credit. Credit economises the use of money.
But money is at the back of all credit. A commercial bank cannot create credit
without having sufficient money in reserve. The credit instruments drawn by
businessmen have always cash guarantee supported by their bankers.
iii. Equaliser of Marginal Utilities and Productivities. Money acts as an equaliser of
marginal utilities for the consumer. The main aim of a consumer is to maximise his
satisfaction by spending a given sum of money on various goods which he wants
to purchase. Since prices of goods indicate their marginal utilities and are
expressed in money, money helps in equalising the marginal utilities of various
goods. This happens when the ratios of the marginal utilities and prices of the
various goods are equal. Similarly, money helps in equalising the marginal
productivities of the various factors. The main aim of the producer is to maximise
his profits. For this, he equalises the marginal productivity of each factor with its
price. The price of each factor is nothing but the money he receives for his work.
iv. Measurement of National Income. It was not possible to measure the national
income under the barter system. Money helps in measuring national income. This
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 is done when the various goods and services produced in a country are assessed in
money terms.
v. Distribution of National Income. Money also helps in the distribution of national
income. Rewards of factors of production in the form of wages, rent, interest and
profit are determined and paid in terms of money.
Other Functions:
Money also performs such functions which affect the decisions of consumers and
governments.
i. Helpful in making decisions. Money is a means of store of value and the consumer
meets his daily requirements on the basis of money held by him. If the consumer
has a scooter and in the near future he needs a car, he can buy a car by selling his
scooter and money accumulated by him. In this way, money helps in taking
decisions.
ii. Money as a Basis of Adjustment. To carry on trade in a proper manner, the
adjustment between money market and capital market is done through money.
Similarly, adjustments in foreign exchange are also made through money. Further,
international payments of various types are also adjusted and made through
money. It is on the basis of these functions that money guarantees the solvency of
the payer and provides options to the holder of money to use it any way, he likes.

Role and Uses of Money in the Modern Economy

The modern economy is a monetary economy. Money occupies an important place in all the
branches of economies such as consumption, production, exchange, distribution, and public
finance. In the words of Marshall, “Money is the pivot around which the economic science
clusters”. The fact is that all the branches of economic activities are highly influenced by
money. The modern economy cannot function without money. The following are some of the
usefulness of money in modern economy.
i. The advantage to the consumer. Consumers are highly benefitted from the
invention of money. In a barter economy, consumers were facing a lot of trouble
with regard to the consumption of various commodities, exchange, and
comparison of values among different commodities. But with the inventión of

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 money, these difficulties have been eliminated. With the help of money, consumers
can purchase any commodity at any time. They can also postpone the consumption
of commodities for the time being if they find that the price of a commodity is very
high. Thus, the purchasing power implicit in money can be utilized by the consumer
at his option. It is not necessary for the consumer to spend money as soon as he
gets it. Due to its general acceptability and comparative stability of money, the
consumer can utilize it as and when it suits him. Besides, money helps the
consumer to equalize the marginal utilities of different commodities and to get
maximum satisfaction.
ii. The advantage to producers. As consumers, producers are also highly benefitted
from money. With the help of money, they are able to purchase different factors
of production required for producing various goods. Without money, these
productive services cannot be obtained.’ Not only this, money helps the producer
in making calculations regarding production. Every producer has to make a variety
of calculations such as cost, revenue, etc. It is true that without money these
calculations cannot be made by the producers. Besides, money helps to determine
the quantity and quality of production in a modern economy through a price-
mechanism. This price mechanism helps the economy to discover what consumers
want and how much they want from a particular good.
iii. Money has made specialization and division of labour possible. Division of labour
and specialization plays an important role in the modern production system. But
this division of labour and specialization cannot be possible without the USC of
money. Under the division of labour, every productive task is divided into a number
of processes and sub-processes. Every process and sub-process is performed by a
separate group of labour. Since the workers, engaged in different processes and
sub-processes are paid their rewards in money, they continue to work separately
in different groups. Without money, division of labour may not be possible.
iv. Money eradicates the drawbacks of the Barter System. The advent of money
eliminates the difficulties of the barter system. In a barter system, there was a
direct exchange between goods and goods. The most important condition for the
success of the barter system is the double coincidence of wants. But in many cases,
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 there was a lack of double coincidence of wants, as a result, the exchange became
difficult. When money is used as a medium of exchange double coincidence of
wants between two individuals is no longer necessary. The values can now be
measured easily and quickly. There is no difficulty in the exchange of indivisible
goods. Nor is there any difficulty in exchanging one commodity for another. No
difficulty is experienced in storing purchasing power.
v. Money transfers savings into investment. The savings of the common people can
be got transformed into an investment with the help of money. Individual savings
are pooled together by banking institutions which make them available to the
individual entrepreneurs for investment purposes.
vi. Money helps in the allocation of resources among different lines of production.
The price mechanism expressed in terms of money allocates economic resources
to different industries and lines of production in a capitalist economy. Without this
price- mechanism, all economic activities under capitalism would come to an end.
Even in a socialist economy, the planning authority is also guided by the price
mechanism in allocating economic resources to individual industries.
vii. Money facilitates trade. Money facilitates trade by serving as a medium of
exchange. Rapid exchange of goods is possible in a modern economy because of
money. Money constitutes the basis of the price mechanism through which the
economic activities of the community are adjusted.
viii. Money makes capital more productive by increasing its mobility. Money makes
capital more liquid. On account of its increased liquidity, capital becomes more
mobile. It becomes possible to divert capital from less productive uses to more
productive uses. It is on account of this increased mobility of capital that the
economic development of a country becomes possible.
ix. Money establishes a link between the present and future. Saving in terms of goods
involves two difficulties (a) it creates the problem of storage, and (b) it results in
the deterioration of the quality of the stored commodities over time. But savings
in terms of money do not give rise to any such difficulties for the savers. On the
contrary, savings in the form of money help the saver to lay claims on goods and

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 services in the future because money can be used to buy such goods and services.
Money thus establishes a link between present and future.
x. Money has made future transactions possible. Future transactions have a special
place in a capitalist setup. In future transactions, the prices are settled in the
present, but payments are made in the future. This is because, of all the
commodities, money is the most stable in value. The parties to a future transaction
know that the value of money will not change much in course of time. Hence,
future transactions are concluded in terms of money.
xi. Importance in distribution. The rewards to various factors of production, for their
service in production, are distributed in terms of money. Rent, wages, interest, and
profits are all determined and paid to factors of production in terms of
Furthermore, equitable distribution of national income in society is attained with
the help of money.
xii. Significance in public finance. The government plays a predominant role in the
functioning of a modern economy. The government receives its income in the form
of taxes, fees, prices, etc., and utilizes this income for administrative and
developmental purposes. Without money, the administrative and developmental
functions of a modern state would become difficult. Money plays an important role
so far as accounting and budgeting are concerned. Without money, efficient
accounting and budgeting would become impossible. Money has enabled the
individual to make a rational choice between work and leisure, spending and
saving, investing and hoarding.
Characteristics or Features of Money
Conventionally, economist identify the following features of money:

i. Acceptability. In order for something to qualify as money, then it must be acceptable

by the general public as a medium of exchange for goods and services. This is one of
the major characteristics of money.
ii. Portability. Money is always portable. Portability of money basically means that it must
be easy and convenient to carry about wherever you go. Money should be able to be
placed in one’s pockets, purse, wallet or bag without facing any problems doing so. If

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 a thing cannot do this then it is not money. This is the reason we cannot use buildings,
food, etc as money. All in all money must be convenient to carry.
iii. Divisibility. Another very common characteristic or feature of money is the fact that it
is divisible. By divisible we mean that money is capable of being divided into smaller
denominations.
iv. Durability. By being durable, money does not easily wear out or deteriorate.
v. Recognizability. If money is not recognizable by the general public then it cannot be
called money. Everyone must find it very easy to recognize it and know its value.
Because of this feature of money, it makes it pretty easy for many to identify
counterfeit currency.
vi. Homogeneity. By being homogeneity, what we mean is that money is uniform. Each
denomination should be the same everywhere in the country.
vii. Scarcity. The last but not least characteristic or feature of money is the fact that it
should not be abundant in the system. This is what makes money to maintain its value.
If it is abundant in the system then it becomes valueless. This is the reason we cannot
use common commodities such as sand as money because sand is so abundant that it
has practically become valueless. Money is always scarce in the economy.

FINANCIAL INSTITUTIONS
Financial institutions, as the name implies, are entities that deal in finances. They offer a wide
range of monetary or financial services to individuals and businesses. From helping individuals
save money to enabling them to invest in stocks, such institutions serve different functions
simultaneously. Financial institutions are thus entities that help individuals and businesses
fulfill their monetary or financial requirements, either by depositing money, investing it, or
managing it. Some of the institutions labeled under this category include – banks, investment
firms, trusts, brokerage ventures, insurance companies, etc. As the financial institutions
enable individuals and companies to save, manage, invest, and use the funds productively, the
administrative authorities of a nation take due care of their regulations. If not dealt with well,
these institutions might collapse, damaging the economy to a great extent. In short, a
properly regulated financial entity will mean a healthy economy.

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Types of Financial Institutions
There are various types of financial institutions to fulfill different requirements of customers.
They look into the customer’s financial needs, be it an individual or a company, and offer
relevant services. These entities provide customers with valuable pieces of advice while
choosing appropriate financial investment or savings options. The professionals explain the
pros and cons of each alternative for their customers to decide which investment they should
spend on. The national and international financial institutions have a great role in ensuring a
healthy economy. With the give and take of the monetary resources, the flow of transactions
remains balanced, which keeps the economy going. Moreover, such entities in the nation
make the market liquid, triggering more economic activities in the respective countries.
Therefore, any damage to these financial entities can have a direct negative impact on the
economic health of the nation. Basically financial institutions are grouped into:
a) Banking Financial Institutions and
b) Nonbanking Financial Institutions.

BANKING FINANCIAL INSTITUTIONS

Banking financial institutions are in the business of taking deposits from the public and making
loans. In addition, they provide other services such as investment banking, foreign exchange,
and safe deposit boxes. These institutions are heavily regulated by governments to protect
consumers and ensure that the banking system is stable. They include:
i. Central Bank
ii. Commercial Banks
iii. Development banks
iv. Merchant Banks

CENTRAL BANKING
Central banks are apex national banks that provides financial and banking services for their
country's government and commercial banking system, as well as implementing the
government's monetary policy and issuing currency. They are crucial element of a country’s
economic and financial structure. Central banks control, regulate, and stabilize the nation’s
monetary and banking system. They are usually independent national authorities. Most
central banks are governed by a board. The country's chief elected official appoints the
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directors. The national legislative body approves them. That keeps the central bank aligned
with the nation's long-term policy goals. At the same time, it's free of political influence in its
day-to-day operations. The Federal Reserve, commonly referred to as the Fed, is the central
bank of the United States, The Bank of England (BOE), is a central bank of England, while
central bank of Nigeria is the national bank in Nigeria.

Functions of Central Bank

The functions of central bank are different from other banks. The following functions of
central bank are stated below:
a) Traditional or general functions.
i. Issue of notes and coins: The first and foremost function of central bank is to issue
notes and coins as per needs of the public and requirement of business and
commerce. As per rules, notes are issued against gold, silver and foreign currency.
In Nigeria, Central Bank keeps foreign currency reserves as security against issuance
of notes. It thus, it reserves the right to issue notes and coins. In Nigeria notes
includes N5, N10, N20, N50, N100, N200, N500 and N1000. The arguments in its
favour are as follows:
 To maintain equilibrium in quality between notes and currency issue,
 To maintain equilibrium in size, types and values of notes and currency,
 To maintain stability in rates of exchange both inland and foreign,
 To create confidence on the people,
 To control money market.
ii. Banker to the government. One of the important functions of the central bank is
to act as the bank to the government. The central bank accepts deposits and issues
funds to the government. It is also involved in making and receiving payments for
the government. Central banks also offer short term loans to the government in
order to recover from bad phases in the economy. In addition to being the bank to
the government, it acts as an advisor and agent of the government by providing
advice to the government in areas of economic policy, capital market, money
market and loans from the government. In addition to that, the central bank is

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 instrumental in formulation of monetary and fiscal policies that help in regulation
of money in the market and controlling inflation.

iii. Banker’s Bank: Central Bank acts as banker‟s bank. As a rule, all scheduled and
commercial banks have to maintain Statutory Liquidity Reserve with Central Banks.
All other banks in the country are bound either by law or by convention to keep a
certain proportion of their total deposits as reserve with me Central Bank. These
reserves help the Central Bank to control the issue of credit by commercial banks.
They also keep their spare cash with the Central Bank on which they draw as and
when needed.
iv. Lender of the last Resort. In times of financial difficulty, the central bank is a lender
of last resort by lending money to commercial banks. It carries out this duty by
offering loans secured by securities and treasury bills, as well as by rediscounting
bills. This is one of the central bank’s most important roles because it prevents the
financial foundation of the economy from crumbling.
v. Custodian of International currency: An important function of the central bank is
to maintain a minimum balance of foreign currency. The purpose of maintaining
such a balance is to manage sudden or emergency requirements of foreign
reserves and also to overcome any adverse deficits of balance of payments.
vi. Clearing house for transfer and settlement: Central bank acts as a clearing house
of the commercial banks and helps in settling of mutual indebtedness of the
commercial banks. In a clearing house, the representatives of different banks meet
and settle the interbank payments.
vii. Controller of credit: Central banks also function as the controller of credit in the
economy. It happens that commercial banks create a lot of credit in the economy
that increases the inflation. The central bank controls the way credit creation by
commercial banks is done by engaging in open market operations or bringing
about a change in the CRR to control the process of credit creation by commercial
banks. The following are the ways of controlling credit:
 Change in bank rates,
 Open market operation
 Change (increase or decrease) in reserve- ratio,
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  Selective credit,
 Direct influence
 Moral suasion
viii. Protecting depositors interests: Central bank also needs to keep an eye on the
functioning of the commercial banks in order to protect the interests of depositors
Developmental Functions.
Central banks in developing countries have been given wide powers to promote the growth
of such economies. They, therefore, perform the following functions towards this end.
i. Promotion of the growth of the money and capital markets. Central Bank acts as
a controller and guardian of the currency market. For the purpose of formation,
control and maintenance of currency market and for its overall development,
central bank is the pioneer.
ii. Stabilize Exchange Rate. Central Bank maintains stability of the foreign currency
exchange rates by means of controlling credit. Stable exchange rates position
helps create favourable balance of trade and acceptability of stable currency gets
momentum in the international market.
iii. Maintain Gold Standard. Central Bank is responsible for maintenance and control
of gold reserve.
iv. Stabilize Price-Level. Fluctuations and frequent changes of price-level affect
economic growth. With a view to making good of the economic imbalances and
crisis situations, central bank takes necessary measures for stabilizing price-level.
Central Bank formulates credit policy and with this spirit, central bank takes
necessary steps to protect economic depression for stabilizing business activities.
Central Bank takes initiatives for creating employment opportunities by means of
credit-control mechanism.
v. Development of Agriculture and industrial sectors. Central Bank formulates policy
for expansion of Agri-sector for the purpose of economic upliftments in the
country. Thus the CBN established special schemes and funds, for example, the
Agricultural Credit Guarantee Scheme (ACGS), Anchor-borrower Scheme. Thus it
also put in place the National Economic Reconstruction Fund (NERFUND);

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 promotion of and support for specialised institutions, for instance, the Nigerian
Export Import Bank (NEXIM), Nigerian Deposit Insurance Corporation (NDIC), etc.
vi. Adviser and Representative of Government. Central Bank advises Government on
economic issues and sometimes acts as a representative of the Government.
vii. Economic Research. Central Bank conducts various economic research works and
formulates policies for economic development. Central Bank conducts survey on
different economic issues for the knowledge of the general public of the country.

COMMERCIAL BANKING
Commercial bank are profit-based financial institution that grants loans, accepts deposits, and
offers other financial services, such as overdraft facilities and electronic transfer of funds.
Commercial Banks are the institutions that make short make short term bans to business and
in the process create money. In other words, commercial banks are financial institutions that
accept demand deposits from the general public, transfer funds from the bank to another,
and earn profit. Commercial banks play a significant role in fulfilling the short-term and
medium- term financial requirements of industries. They do not provide, long-term credit, so
that liquidity of assets should be maintained. The funds of commercial banks belong to the
general public and are withdrawn at a short notice; therefore, commercial banks prefers to
provide credit for a short period of time backed by tangible and easily marketable securities.
Commercial banks, while providing loans to businesses, consider various factors, such as
nature and size of business, financial status and profitability of the business, and its ability to
repay loans. The approved Commercial banks in Nigeria are:

1 Access Bank Plc

2 Citibank Nigeria Limited

3 Ecobank Nigeria Plc

4 Fidelity Bank Plc

5 First Bank Nigeria Limited

6 First City Monument Bank Plc

7 Globus Bank Limited

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 8 Guaranty Trust Bank Plc

9 Heritage Banking Company Ltd.

10 Keystone Bank Limited

11 Parallex Bank Ltd

12 Polaris Bank Plc

13 Premium Trust Bank

14 Providus Bank

15 Stanbic IBTC Bank PLC

16 Standard Chartered Bank Nigeria Ltd.

17 Sterling Bank Plc

18 SunTrust Bank Nigeria Limited

19 Titan Trust Bank Ltd

20 Union Bank of Nigeria Plc

21 United Bank For Africa Plc

22 Unity Bank Plc

23 Wema Bank Plc

24 Zenith Bank Plc

Types of Commercial Banks

Commercial banks are categorized into three namely:
a) Public Sector
b) Private Sector Banks
c) Foreign Banks

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Public Sector Banks. These banks are nationalized by the government of a country. In public
sector banks, the major stake is held by the government. In Nigeria, public sector banks
operate under the guidelines of central bank e.g. Union Bank, Skye Bank.
Private Sector Banks. These are category of commercial banks in which major part of share
capital is held by private businesses and individuals. These banks are registered as companies
with limited liability. Examples include: Zennith Bank, Unity Bank, GTBank, First Bank of
Nigeria, UBA, Fidelity Bank.
Foreign Banks. These banks that are headquartered in a foreign country, but operate
branches in different countries. Some of the foreign banks operating in Nigeria are IBTC,
Citibank, Standard & Chartered Bank. Commercial banks mark significant importance in the
economic development of a country as well as serving the financial requirements of the
general public.

Functions of a Commercial Bank

Commercial banks are institutions that conduct business for profit motive by accepting public
deposits for various investment purposes. The functions of commercial banks are broadly
classified into:
a) Primary functions and
b) Secondary functions

Primary Functions
These functions are the basic activities of commercial banks that include the following:
i. Accepting Deposits. Commercial banks are mainly dependent on public deposits. There
are two types of deposits, which are discussed as follows:
 Demand Deposits. This kind of deposits can be easily withdrawn by individuals
without any prior notice to the bank. In other words, the owners of these deposits
are allowed to withdraw money anytime by simply writing a check. These deposits
are the part of money supply as they are used as a means for the payment of goods
and services as well as debts. Receiving these deposits is the main function of
commercial banks.

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  Time Deposits. These deposits are kept for certain period of time. Banks pay higher
interest on time deposits. These deposits can be withdrawn only after a specific
time period is completed by providing a written notice to the bank.
ii. Advancing Loans. The public deposits are used by commercial banks for the purpose of
granting loans to individuals and businesses. Commercial banks grant loans in the form of
overdraft, cash credit, and discounting bills of exchange. Commercial bank offers short-
term loans to individuals and organizations in the form of bank credit, which is a secured
loan carrying a certain rate of interest. Commercial also offer medium term loan. Bank loan
may be defined as the amount of money granted by the bank at a specified rate of interest
for a fixed period of time. The commercial bank needs to follow certain guidelines to
extend bank loans to a client. For example, the bank requires the copy of identity and
income proofs of the client and a guarantor to sanction bank loan. The banks grant loan
to clients against the security of assets so that, in case of default, they can recover the
loan amount. The securities used against the bank loan may be tangible or intangible, such
as goodwill, assets, inventory, and documents of title of goods.

Commercial banks also offer cash credit. This is an arrangement made by the bank for the
clients to withdraw cash exceeding their account limit. The cash credit facility is generally
sanctioned for one year but it may extend up to three years in some cases. In case of
special request by the client, the time limit can be further extended by the bank. The
extension of the allotted time depends on the consent of the bank and past performance
of the client. The rate of interest charged by the bank on cash credit depends on the time
duration for which the cash has been withdrawn and the amount of cash.
Secondary Functions
The secondary functions can be classified under three heads, namely, agency functions,
general utility functions, and other functions. These functions are explained as follows:

i. Agency Functions. Commercial banks act as agents of customers by performing

various functions, which are as follows:
 Collecting Checks. Commercial banks collect cheques and bills of exchange on
the behalf of their customers through clearing house facilities provided by the
central bank.
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  Collecting Income. Commercial banks collect dividends, pension, salaries,
rents, and interests on investments on behalf of their customers. A credit
voucher is sent to customers for information when any income is collected by
the bank.
 Paying Expenses. Commercial banks make payments of various obligations of
customers, such as telephone bills, insurance premium, school fees, and rents.
Similar to credit voucher, a debit voucher is sent to customers for information
when expenses are paid by the bank.
ii. General Utility Functions. These functions Include the following
 Providing Locker Facilities: Commercial banks provide locker facilities to its
customers for safe keeping of jewellery, shares, debentures, and other valuable
items. This minimizes the risk of loss due to theft at homes.
 Issuing Travelers’ Cheques. Commercial banks issue travelers’ cheques to
individuals for traveling outside the country. Travelers’ cheques are the safe
and easy way to protect money while traveling.
 Dealing in Foreign Exchange. Commercial banks help in providing foreign
exchange to businessmen dealing in exports and imports. However,
commercial banks need to take the permission of the central bank for dealing
in foreign exchange.
 Transferring Funds: Commercial banks transfer funds from one bank to
another. Funds are transferred by means of draft, telephonic transfer, and
electronic transfer.
iii. Creating Money. Commercial banks help in increasing money supply. For instance, a
bank lends to an individual and opens a demand deposit in the name of that individual.
Bank makes a credit entry in that account. This leads to creation of demand deposits
in that account. The point to be noted here is that there is no payment in cash. Thus,
without printing additional money, the supply of money is increased.
iv. Electronic Banking. This Includes services, such as debit cards, credit cards, and
Internet banking.
v. Discounting of Bill. Discounting of bill is a process of settling the bill of exchange by
the bank at a value less than the face value before maturity date. According to Sec. 126
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 of Negotiable Instruments, “a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at fixed or determinable future
time a sum certain in money to order or to bearer.” The facility of discounting of bill is
used by the organizations to meet their immediate need of cash for settling down
current liabilities.

DEVELOPMENT BANKING
Development banks are essentially a multi-purpose financial institutions with a broad
development outlook. A development bank may, thus, be defined as a financial institution
concerned with providing all types of financial assistance (medium as well as long-term) to
business units, in the form of loans, underwriting, investment and guarantee operations, and
promotional activities — economic development in general, and industrial development, in
particular. “In short, a development bank is a development-oriented bank.” Development
banks have been established with the motive of increasing the pace of industrialization
especially after independence in Nigeria. This is because traditional financial institutions could
not take up this challenge because of their limitations. To help all round industrialization
development banks were made multipurpose institutions. Conventionally development
banks are expected to perform the following roles:
 Financial Gap Fillers. Development banks do not provide medium-term and long-term
loans only but they help industrial enterprises in many other ways too. These banks
subscribe to the bonds and debentures of the companies, underwrite their shares and
debentures and, guarantee the loans raised from foreign and domestic sources. They
also help undertakings to acquire machinery from within and outside the country.
 Undertake Entrepreneurial Role. Developing countries lack entrepreneurs who can take
up the job of setting up new projects. It may be due to a lack of expertise and
managerial ability. Development banks were assigned the job of entrepreneurial gap
filling. They undertake the task of discovering investment projects, promotion of
industrial enterprises, provide technical and managerial assistance, undertaking
economic and technical research, conducting surveys, feasibility studies, etc. The

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 promotional role of the development bank is very significant for increasing the pace of
industrialization.
 Commercial Banking Business. Development banks normally provide medium and long-
term funds to industrial enterprises. The working capital needs of the units are met by
commercial banks. In developing countries, commercial banks have not been able to
take up this job properly. Their traditional approach in dealing with lending proposals
and assistance on securities has not helped the industry. Development banks extend
financial assistance for meeting working capital needs to their loan if they fail to
arrange such funds from other sources. So far as taking up other functions of banks
such as accepting of deposits, opening letters of credit, discounting of bills, etc. there
is no uniform practice in development banks.
 Joint Finance. Another feature of the development bank’s operations is to take up joint
financing along with other financial institutions. There may be constraints of financial
resources and legal problems (prescribing maximum limits of lending) which may force
banks to associate with other institutions for taking up the financing of some projects
jointly. It may also not be possible to meet all the requirements of concern by one
institution. So more than one institution may join hands. Not only in large projects but
also in medium-sized projects it may be desirable for a concern to have, for instance,
the requirements of a foreign loan in a particular currency, met by one institution and
under the writing of securities met by another.
 Refinance Facility. Development banks also extend the refinance facility to the lending
institutions. In this scheme, there is no direct lending to the enterprise. The lending
institutions are provided funds by development banks against loans extended’ to
industrial concerns. In this way, the institutions which provide funds to units are
refinanced by development banks.
 Credit Guarantee. The small scale sector is not getting proper financial facilities due to
the clement of risk since these units do not have sufficient securities to offer for loans,
lending institutions are hesitant to extend the loans. To overcome this difficulty many
countries including Nigeria devised the credit guarantee scheme and credit insurance
scheme.

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  Underwriting of Securities. Development banks acquire securities of industrial units
through either direct subscribing or underwriting or both. The securities may also be
acquired through promotion work or by converting loans into equity shares or
preference shares. So, as learn about development banks may build portfolios of
industrial stocks and bonds. These banks do not hold these securities permanently.
They try to disinvest in these securities in a systematic way which should not influence
the market prices of these securities and also should not lose managerial control of
the units.

Development Banks in Nigeria

There are six (6) development banks in Nigeria, namely:
1) The Infrastructure Bank PLC (TIB)
2) Bank of Agriculture (BOA)
3) Federal Mortgage Bank of Nigeria (FMBN)
4) The Development Bank of Nigeria (DBN)
5) Bank of Industry Limited (BOI)
6) Merchant Banks

The Infrastructure Bank PLC (TIB)

The Infrastructure Bank PLC (formerly known as Urban Development Bank of Nigeria Plc) was
established in 1992 under Decree 51, as Urban Development Bank Ltd. with the mandate to
foster the rapid development of infrastructure across the country. The Bank is a private
sector-led, but Government sponsored Development Finance Institution (DFI), with an
ownership structure comprising: the three tiers of Government (Federal, State and Local
Governments), the Nigeria Labour Congress, and the Private Sector block with 69%. As such,
TIB is able to effectively deliver the necessary social, institutional and regulatory framework
support needed for infrastructure development, while the Private sector provides
management, technical and operational expertise cum efficiency, crucial to navigating the
stormy waters of infrastructure development in an emerging economy such as Nigeria. In line
with its establishing Act, the Bank has the mandate to raise and manage funds for
infrastructure development projects in the country. Thus, the Bank provides custom-made

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financial solutions to projects in its focus sectors namely: Transportation, Power & Renewable
Energy, Mass Housing and District Development, and Urban Infrastructure and Municipal
Finance projects. The Bank also lends its expertise to contribute to discourse on development
strategy, with associated policy formulation and guidelines.

Products of TIB
 Product Loans. The Bank focuses on funding commercially viable projects that have
significant developmental impact. We are geared to assisting both public institutions
and private sector companies involved in the delivery of infrastructure services by
providing specially designed development loans, which are price competitive and have
medium to long term tenors
 Project Finance Advisory and Arranging. We offer bespoke advisory services to clients
to assist them in packaging their projects for attracting required competitive funding
both locally and offshore. Our role is to partner project promoters in initiating,
preparing, structuring as well as arranging finance for projects that have high
developmental impact and are financially and economically viable. With our license and
network of global partners, our clients have access to a wide range of both technical
and financial solutions.
 Proprietary Equity. The Bank will make equity and/or quasi-equity (mezzanine
financing) investments in projects that require risk capital to initiate and develop. With
the Bank taking the lead in some of these select projects, such proprietary investments
will allow and facilitate the strengthening of strategic partnerships with other
Development Finance Institutions and encourage private sector participation,
especially from the commercial banking sector environment in the provision of long
term risk capital for infrastructure projects.
 Fund Management. The Bank offers fund management services to both domestic and
external agency funding earmarked specifically for infrastructure development.
External targets may include international Commercial Finance and Development
Finance Institutions as well as bilateral and multilateral funds, whilst domestically, the
Pension Funds, Sovereign Wealth Fund, Federal Government of Nigeria intervention
Funds, and Nigeria's external reserves are accessible funding sources.

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  Capacity Building and Technical Assistance. The development challenge facing
Government is not only that of finance, but also that of delivery capacities. Capacity
constraints are evident across the country especially at the sub-national Government
level. We currently promote, organize and fund support programmes that provide
technical assistance, capacity building, advice and other value adding services to
strengthen the institutional and delivery capacities of Ministries, Departments and
Agencies, as well as sub-national Governments to maximise the developmental impact
of the Bank's financial interventions.

Bank of Agriculture (BOA)

Bank of Agriculture (BOA) Limited was incorporated as Nigerian Agricultural Bank (NAB) in
1972 and became operational in 1973. In 1978, the institution’s name was changed to Nigerian
Agricultural and Co-operative Bank (NACB) Limited to reflect a broader mandate. In October,
2001, following the Federal Government’s efforts to streamline the operations of its agencies,
the NACB, People’s Bank of Nigeria (PBN) and the risk assets of the Family Economic
Advancement Programme (FEAP) were merged to form Nigerian Agricultural, Co-operative
Rural Development Bank (NACRDB) Limited. Ten years later, in October 2010, the Bank was
rebranded and it adopted the new name Bank of Agriculture (BOA) Limited as part of its
Institutional Transformation Programme. The Federal Ministry of Finance Incorporated and
Central Bank of Nigeria (CBN) ownership structure is 60% and 40% respectively. Bank of
Agriculture Limited is supervised by Federal Ministry of Agriculture. The core mandates of the
bank includes:

• Provision of agricultural credit to support all agricultural value chain activities.

• Provision of non-agricultural micro credit
• Savings mobilization
• Capacity development through promotion of co-operatives, agricultural information
systems, and the provision of technical support and extension services.
• Provision of opportunities for self-employment in the rural areas, thereby reducing
rural-urban migration.
• Inculcation of banking habits at the grass-roots of the Nigerian society.

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Federal Mortgage Bank of Nigeria (FMBN)
Federal Mortgage Bank of Nigeria (FMBN) was established in 1956, known then as the
Nigerian Building Society (NBS), a joint venture of the Commonwealth Development
Corporation and the Federal and Eastern Governments of Nigeria. Following the introduction
of the Indigenization Policy, the Federal Government, by Indigenization Act [1973], acquired
the NBS and consequently renamed it the Federal Mortgage Bank of Nigeria (FMBN).
In 1994, FMBN assumed the status of an apex mortgage institution in Nigeria with the
promulgation of the FMBN Act 82 [1993] and the Mortgage Institutions Act 53 [1989]. It also
commenced the management and administration of the contributory savings scheme known
as the National Housing Fund (NHF) established by Act 3 of [1992]. The National Housing Fund
(NHF) is a social savings scheme designed to mobilize long-term funds from Nigerian workers,
banks, insurance companies and the Federal Government to advance concessionary loans to
contributors. In fulfilling its mandate, the Bank is to also float capital market instruments such
as Mortgage-Backed Bonds and Mortgage-Backed Securities for sale to institutional investors,
such as pension funds, insurance companies, securities companies and banks, to raise long
term funds for its secondary mortgage lending activities. This is to ensure a sustainable supply
of liquidity to finance first home mortgage loan originations.

Following the reform of the Nigerian housing sector, FMBN was restructured into a Federal
Government-Sponsored Enterprise (FGSE) with more focus on its secondary mortgage and
capital market functions. FMBN is shifting operational emphasis to expand its functions from
solely social housing on-lending under the NHF, to other areas of business including
commercial on-lending for housing, refinancing of commercial mortgages created by
mortgage loan originators, mortgage purchasing and warehousing and mortgage-backed
securitization. The Bank's current business model targets partnerships with local and
international organisations with financial and technical capacity, interested in delivering
affordable mass housing for the low income end of the market. As spelt out in the Enabling
Act of the bank, and other related legislations, FMBN functions include to:

 Provide long-term credit facilities to mortgage institutions in Nigeria.

 Encourage the emergence and promote the growth of viable primary and secondary
mortgage institutions to service the need of housing delivery in all parts of Nigeria.

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  Mobilizing both domestic and offshore funds into the housing sector.
 Link the capital market with the housing industry.
 Establish and operate a viable secondary mortgage market.
 Collect and administer the National Housing Fund in accordance with the provisions of
the NHF Act.
 Do anything and enter into any transaction which in the opinion of the Board is
necessary to ensure the proper performance of its functions under the FMBN Act.

Bank of Industry Limited (BOI)

The Bank of Industry Limited (BOI) is Nigeria’s oldest, largest and most successful
development financing institution. It was reconstructed in 2001 out of the Nigerian Industrial
Development Bank (NIDB) Limited, which was incorporated in 1964. The bank took off in 1964
with an authorized share capital of 2 million (GBP). The International Finance Corporation
which produced its pioneer Chief Executive held 75% of its equity along with a number of
domestic and foreign private investors. Although the bank’s authorized share capital was
initially set at N50 billion in the wake of NIDB’s reconstruction into BOI in 2001, it has been
increased to 250 billion in order to put the bank in a better position to address the nation’s
rising economic profile in line with its mandate. Following a successful institutional,
operational and financial restructuring programme embarked upon in 2002, the bank has
transformed into an efficient, focused and profitable institution that is well placed to
effectively carry out its primary mandate of providing long term financing to the industrial
sector of the Nigerian economy. The Mandate of BOI is basically to provide financial assistance
for the establishment of large, medium and small projects as well as the expansion,
diversification and modernisation of existing enterprises; and rehabilitation of existing ones.
The specific focus of the Bank include:

 Small, medium and large enterprises, excluding cottage industries.

 New or existing companies, seeking expansion, mordenisation or diversification.
 Credit worthy promoters who will be required to prove their commitment to the
project by contributing at least 25% of the project cost excluding land.
 Borrowers whose management capability, financial situation (including availability of
collateral and guarantee), character and reputation are incontrovertible.
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  Clients with demonstrable ability to meet loan repayments.
 Borrowers with no record of unpaid loans to erstwhile development finance
institutions and other banks.

The Development Bank of Nigeria (DBN)

The Development Bank of Nigeria (DBN) was conceived by the Federal Government of Nigeria
(FGN) in collaboration with global development partners to address the major financing
challenges facing Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria. The
partners of the bank include:

 World Bank (WB)

 African Development Bank (AfDB)
 KfW Development Bank
 French Agency for Development (AFD)
 European Investment Bank (EIB)

The bank’s objective is to alleviate financing constraints faced by MSMEs and small Corporates
in Nigeria through the provision of financing and partial credit guarantees to eligible financial
intermediaries on a market-conforming and fully financially sustainable basis. Because its
mandate fully supports the stimulation of diversified and inclusive growth, DBN will
contribute to alleviating specific financing constraints that hamper the growth of domestic
production and commerce by providing targeted wholesale funding to fill identified
enterprise financing gaps in the MSME segment. MSMEs are, collectively, the largest
employers in many low-income countries including Nigeria, yet their viability is being
threatened by lack of access to risk-management tools such as savings, insurance and credit.
Indeed, their growth is often stifled by restricted access to credit, equity and payments
services. "In Nigeria, there are over 37 million MSMEs contributing to over 50% of Nigeria’s
GDP. However, less than 5% of these businesses have access to credit in the financial system."
MSMEs in Nigeria play a crucial role in economic growth, poverty reduction, employment
creation, and shared wealth creation. DBN will play a focal and catalytic role in providing
funding and risk-sharing facilities. It will also incentivise financial institutions, predominantly
Deposit-Money and Microfinance Banks, by augmenting their capacity and by providing them

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with funding facilities designed to meet the needs of these smaller clients. The objective of
the Development Bank of Nigeria is to alleviate financing constraints faced by the Micro, Small
and Medium Enterprises (MSMEs) and small Corporates in Nigeria through the provision of
financing and partial credit guarantees to eligible financial intermediaries on a market-
conforming and fully financially sustainable basis.

 The Development Bank of Nigeria provides wholesale term funding and risk-sharing
facilities to Participating Financial Institutions (eligible retail intermediaries such as
commercial banks, microfinance banks, existing retail DFIs and leasing companies) for
on-lending to MSMEs.
 The bank’s offerings are designed to develop the society around us, supporting local
entrepreneurs and empowering small business owners to drive economic growth.
 The DBN loan repayment tenure is flexible (up to 10 years with a moratorium period of
up to 18 months) and the pricing is pragmatic and referenced to market rates.
 The bank is committed to facilitating increased access to financing for MSMEs.

The Nigerian Export-Import Bank (NEXIM)

The Nigerian Export-Import Bank (NEXIM) was established by Act 38 of 1991 as an Export
Credit Agency (ECA) with a share capital of N50, 000,000,000 (Fifty Billion Naira) held equally
by the Federal Ministry of Finance Incorporated and the Central Bank of Nigeria. The Bank
which replaced the Nigerian Export Credit Guarantee & Insurance Corporation earlier set up
under Act 15 of 1988, has the following main statutory functions: –

 Provision of export credit guarantee and export credit insurance facilities to its clients.
 Provision of credit in local currency to its clients in support of exports.
 Establishment and management of funds connected with exports.
 Maintenance of a foreign exchange revolving fund for lending to exporters who need
to import foreign inputs to facilitate export production.
 Provision of domestic credit insurance where such a facility is likely to assist exports.
 Maintenance of a trade information system in support of export business.

The Bank presently provides short and medium term loans to Nigerian exporters. It also
provides short term guarantees for loans granted by Nigerian Banks to exporters as well as
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credit insurance against political and commercial risks in the event of non-payment by foreign
buyers. The Bank is also the government’s National Guarantor under the ECOWAS Inter-state
Road Transit programme.

MERCHANT BANKING
Merchant banks are financial institution that provides banking and financial solutions to High
Net-worth Individuals (HNIs) and large corporations. They provide services like underwriting,
fundraising, issue management, loan syndication, portfolio management, and financial advice.
Merchant banks don’t serve the general public; they facilitate multi-national companies in
cross-border trade. A merchant banker plays varied roles for clients—banker, financial
advisor, broker, lender, consultant, debenture trustee, underwriter, and portfolio manager.
The banks do not provide regular banking services like a checking account.

Merchant banks offer financial services to wealthy individuals and mid-sized corporations.
They underwrite securities, raise venture capital, and raise funds. They do not provide basic
banking services. Among all the services, the focus is on financial advice. These banks primarily
earn from the fee paid for advisory services. In addition, the bank invests depositors’ assets
in financial portfolios—based on expected returns and risk-taking capacity. Merchant banking
started in the 17th and 18th centuries—in France and Italy. By the end of18th century, these
banks became popular in Europe; they facilitated distant payments, currency exchange, and
issued bills of exchange. The US introduced such banks in the 19th century—JP Morgan and
Citi Bank. Some of the oldest banks offering merchant banking services include Citi Bank and
JP Morgan. Other institutions include Bank of America, Merrill Lynch, Goldman Sachs, Morgan
Stanley, Barclays Capital, Credit Suisse, Deutsche Bank AG, Evercore, Jefferies International
Ltd, Lazard, RBC Capital Markets, SG CIB, Stifel, USBank, and UBS Investment Bank.

Features of Merchant Banks

Following are characteristics that differentiate it from other financial institutions:

 These banks serve huge corporations and high net-worth individuals instead of the
general public;
 They are innovative and have a loose organizational structure;
 Despite high liquidity measures, their profit distribution is low;

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  Since they have many decision-makers, the decision-making process is prompt;
 They offer services at domestic and international levels;
 These banks possess strong databases and high-density information;
 They make money in the form of fees and commissions.

Functions of Merchant Bank

The banks extend a variety of services and charge a fee. The services differ from those offered
by regular banks.

i. Project Counselling. Merchant bankers assist their clients at every stage of the
project—idea generation, report creation, budgeting, and financing. This is especially
the case with new entrepreneurs.
ii. Leasing Services. The banks extend leasing facilities—clients lease assets and
equipment to generate rental income.
iii. Issue Management. High net-worth individuals employ merchant banks to issue
equity shares, preference shares, and debentures to the general public.
iv. Underwriting. The banks also facilitate equity underwriting. They assess the price and
risk involved in particular security and initiate public issue and distribution of stocks.
v. Fund Raising. Through various facilities like underwriting and securities issuance,
bankers help the private companies generate capital from international and domestic
markets.
vi. Portfolio Management. On behalf of clients, these bankers invest in different kinds
of financial instruments.
vii. Loan Syndication. They finance term loans to back projects that need funding.
viii. Promotional Activities: Merchant banks are financial intermediaries that promote
new enterprises.

Merchant Banks in Nigeria

Rand Merchant Bank Nigeria Limited
Rand Merchant Bank Nigeria Limited (RMBN) is an authorised financial services provider in
Nigeria. It is a subsidiary of FirstRand Limited, the largest listed financial services group (by
market capitalisation) in Africa. RMB began formal operations in Nigeria in 2013, after

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receiving it license from Central Bank of Nigeria (CBN) in 2012. It offers services like investment
banking products and services. Also, RMBN offers advisory, finance and trading solutions;
provides investment opportunities; and manage funds for their clients. Over time, RMBN has
improved and added significant value to the Nigerian economy, and her clients through its
services. Basically, RMBN fund its client’s transactions across multiple sectors. RMB has a
large banking talent, and commodity experts who understand Nigerian and the broader
African landscape. It is one of the leading corporate and investment banks in Africa. It creates
sustainable value, provides innovative solutions and superior economic returns to her clients
and shareholders in Africa, UK and India.

Coronation Merchant Bank

Coronation Merchant Bank was first established in 1993 as an Associated Discount House
Limited (ADHL) by a consortium of reputable financial institutions. At the time, its focal point
was to provide liquidity for sovereign debt notes and money market instruments. In 2013, it
obtained a license from CBN to become a merchant bank. Additionally, in 2015 the bank
obtained a foreign exchange dealing license. Since then, Coronation Merchant Bank has
grown to being a trusted financial adviser in the Nigerian banking industry. Now, it offers
product and services in corporate banking, investment banking, wealth management,
asset/fund management, global markets, securities trading and trust services. Till date,
Coronation has a track record of significant deals as financial advisers and stockbrokers to
corporations, state governments and other financial services organisations.

FBNQuest Merchant Bank

FBNQuest Merchant Bank was formerly known as FBN Merchant Bank. It began operations
after its parent company FBN Holdings Plc acquired 100% equity in Kakawa Discount House
Limited, and subsequently secured approval to operate as a merchant bank in 2014.
Apparently, FBN Holdings Plc is one of the leading financial service providers in Africa, as it
holds a significant financial capacity and a strong tradition of governance. FBN Quest
Merchant Bank caters to the financial needs of its clients which include: high net worth
individuals, small and medium enterprises (SMEs), corporations, financial institutions and
governments. They leverage the specialisation of the subsidiaries of its parent company, FBN
Holdings Plc to deliver and provide world-class solutions to her clients. FBN Quest services
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include: coverage & corporate banking, financial advisory, debt capital markets, equity capital
markets, debt solutions, institutional sales, fixed income currency & treasury, and wealth
management.

FSDH Merchant Bank

First Securities Discount House Merchant Banks is one of the first merchant banks to be
granted license in Nigeria in the new era of banking. At first, it began operation as First
Securities Discount House Limited in 1992 and was the first discount house to operate in
Nigeria. FSDH Merchant Bank became a merchant bank after the Central Bank of Nigeria
(CBN) revoked all banking licenses, and made a new banking structure in 2009 where banks
became categorised as either a merchant bank or commercial bank. Having developed the
structures required to offer the full range of merchant banking services through its
subsidiaries, FSDH then applied for a merchant bank license. In November, 2012, the Central
Bank of Nigeria granted FSDH application and issued them a merchant banking license. FSDH
offers bespoke solutions to medium and large corporation, high net worth individuals and the
government. Their services include: cash management, wealth management, risk
management, financing services and advisory services. It also operates the FSDH Asset
Management, one of the leading asset management and financial advisory firm in Nigeria.

Nova Merchant Bank

Nova Merchant Bank Limited is a licensed merchant bank in Nigeria with focus on wholesale
and investment banking. It is operated by Nigerian and foreign institutional investors whose
several decades of experience differentiate them from other players in the areas of financial
services and the real sectors of the economy. Nova provides end-to-end financial services
solutions which involves corporate banking, investment banking, advisory, capital markets,
wealth and asset management, e.t.c. It also target private and public sector clients and high
net worth individuals. Basically, Nova focuses on the oil and gas sector, commodity
and agricultural business, utility and infrastructure, fast moving consumer goods, trade &
services and financial institutions.

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