Financial institution, market, regulator and instrument all comprises a set of complex and closely interconnected financial system, proving financial services in an economy, such services includes mobilization and allocation of resources, distribution of investment funds among firms, financial intermediation and foreign exchange transactions.

The Nigeria financial system can be categorized into two via: the formal or organized and informal or unorganized financial system, the banks and non banks financial institutions make up the organized financial system while the unorganized sector comprises of indigenous bankers local money lenders‟ (ISUSU), shop-keepers or traders, merchants, landlords, saving associations, friends and relatives etc. the system is poorly developed, limited economics information, defective system of according are not integrated into the formal financial system, but very important to the Nigerian financial system. Capital formations, buying and selling of bonds and securities, creation of new assets and liabilities, executing monetary and credit policies of the central bank etc.

Are the roles and functions of financial system geared towards economic development of an economy? Patriotic researchers and policy makers have observed a declining savings rate in Nigeria over the past decades; this is due to the critical importance of saving for the maintenance of strong and sustainable growth in the world economy particularly in Nigeria.

A sound, healthy and reliable financial system relates to savings mobilization and efficient financial intermediation roles:

First, reduces hoarding and help spread the risk between household and firms.

Second, lowers interest rates thereby bringing about stability in capital market.

Third, they create liquidity in the economy by borrowing short-term and lending long-term.

Fourth, disseminate information between ultimate lenders and ultimate borrowers thereby mobilizing savings from surplus units and channeling them to deficit units through the help of financial techniques, instruments and institutions. Fifth the intermediaries promote development investment.

The Nigerian financial system comprise the regulatory /supervisory authorities, bank and non- bank financial institutions. As at the end of 2007, the system comprised of the Regulatory/ Supervisory authority, the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation (NDIC), the Securities and Exchange Commission (ESC), the national Insurance Comedienne (NAICOM), the National Pension Commission (NPC), and the Federal Mortgage Bank of Nigeria (FMBN).the CBN is the principal regulate and supervisor in the money market, consisting of a Deposit Money Banks (DMBs), Discount Houses, the Peoples Bank of Nigeria and Community Banks.

The CBN exclusively regulates the activities of finance Companies and promotes the establishment of specialized or development financial institutions. The SEC is the apex regulatory/ supervisory authority in the capital market. The Nigerian Stock Exchange (NSE) is a self-regulatory or user-regulatory institution. The issuing Houses, Registrar and stock brokers, who also interact with the money market, complex the chain in the capital. The Federal Ministry of Finance, together with the CBN constitutes the monetary authorities and share control over Bureau de change. The NAICOM is the regulatory authority in the insurance industry, whilthe FMBN regulates mortgage finance activities in Nigeria. Saving is a sacrifice of current consumption that provides for the accumulations of capital, which in term provides additional output that can potential be used for consumption in the future (Gersovitz1988). In other words, savings is the difference between current earnings and consumption. It has also been defined as “deferred consumption” or part of income, which is not spent.

Savings is described as a financial assets accumulated by the public- both government and private agents in the organized financial system. To expand financial savings involves shifting of funds from the personal and household sector to the business or corporate sector which in turn, leads to greater investment, income growth, employment and capital formation: which cannot be achieved without increasing the rate of savings, Nigeria‟s saving still falls below the requirements of its financial system due to low per capital income, under- investment in productive instruments, and investment in unproductive channels, e.g. gold, jewelry, income inequalities and demonstration effect Etc. to remedy this problems depend on the level of development of the financial sector mentioned above as well as the savings habit of the citizenry. The availability of investible funds can be a starting point for all investments in the economy, which will eventually translate to economic growth and development (Uremadu, 2006). The relationship among saving, investment and growth has historically been very close; hence, the unsatisfactory growth performance of several developing countries. Example: Nigeria has been attributed to poor saving and investment. This poor growth performance has generally led to a dramatic decline in investment. Domestic saving rates have not fared better, thus worsening the already uncertain balance of payments position (Chete, 1999). The role of savings in the economic growth of any country cannot be overemphasized. Conceptually, savings represents that part of income not spent on current consumption. Instructions in financial sector like deposit money banks (DMBs)/commercial banks mobilize savings in a economy, the deposit rate must be relatively high and inflation rate stabilized to ensured a high positive real interest rate, which motivates investors to save from their disposable income. In Nigeria Nnann, Odoko and Englama (2004) are of the view that the level of funds mobilization by financial institutions are quite low due to a number of reasons, ranging from low savings deposits rates of the poor banking habit or culture of the people.

According to them, another impediment to funds mobilization is the attitudes of banks to small savers. Another Limitation to savings mobilization is the fact that the concentration of banks and their offices are biased in favor of urban areas. Among the reasons for this, is the fact that the established banks under- rate the volume of saving to be mobilized and channeled into productive investment in the rural areas. It is often argued that since the rural economy operates at a near subsistence level, there is very little that can be squeezed out of income and consumption. Because of this, it has not been realized that large volume of idle funds, though in small units per individual exist in the rural areas. In Nigeria, there is basically lack of incentives to savings which had adversely affects savings. Some of these factors include; poor banking habits, attitudes of banks to small savers, poor orientation, unemployment, instability in the political system, corrupt taxation system, instability in the banking system, etc. one of the economic growth and development in Nigeria.


In Nigeria, there is lasting need of further efforts especially in mobilizing small savings in both urban and rural areas, and the process of financial intermediation itself, knowing fully well the saving culture in Nigeria is very poor relative to other developing economics (Uremadu, 2006). In this respect, Commercial banks in performing their roles, was found to have potential scope and prospects for mobilizing financial resource and allocating them to investment. But given the problems inherent in the formal sector, the informal savings associations, if properly developed would not only facilitate the financing of economics development but would also contribute to the development of incomes, and that necessitates the need to put in place a coherent economics policy that will be capable of providing the much needed enabling environment and also there is an urgent need to encourage Nigerians to change their current attitude towards savings, thereby placing the right saving culture by institutions and regulatory agents who influence the decisions of households, firms and government.

As pointed out earlier, since national policy is it macroeconomic or microcosmic generates variables which could influence the propensity of economics and financial actors to save. This research work could attempt to examine from policy perspectives, the magnitude and direction of such variables as: interest rate, income, 16

growth, urbanization, foreign (aid) sector, fiscal policy etc, on savings in Nigeria.

Therefore, this research question will try and answer the following:

  1. What are the factors that reduce savings in Nigeria?
  2. What impact does factors reducing saving have on aggregate savings in Nigeria?

1.3 OBJECTIVES OF THE STUDY: In the light of the above problems, the objectives of this research work include:-

* To ascertain those factors that reduces savings in Nigeria.

To determine the impact of the factors that reduces saving on aggregate savings in Nigeria.


The hypotheses to be tested in this research work are:

  1. Ho; the factors that reduce saving has no significant impact on aggregate savings in Nigeria.
  2. H1; the factors that reduces saving has a significant impact on aggregate savings in Nigeria. 17


This research work will be of immense help to [policy formulators particularly those involved in the development of the Nigerian economic agenda. It will help them in choosing the appropriate policy in the macroeconomic policy management, particularly those affecting saving in Nigeria. Also, through the findings and suggestions of this research project work, a greater awareness will be generated in the financial arena or sectors so as to appreciate the effects being carried out by the federal; government of Nigeria through the Central Bank of Nigeria and Federal Ministry of Financial in improving the policies affecting positive saving in recent years. Finally, this study will assists in a modest way to increasing student‟s knowledge on the practical and real- life situation of the theories they learn in the classroom.


The scope of this study is to estimate and evaluate the factors that reduce savings in Nigeria (1980-2010).

The Limitations are constrained to lack of fund, human error and limited time frame, which imposed difficulties when serious attempt to effect a general in – depth towards the study of the factors that reduce savings in Nigeria.

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