Informal Financial Institutions in Nigeria: Criteria for Savings, Investment and Growth

Abstract

The financial intermediation theory recognizes financial intermediaries such as informal financial institutions as catalyst for economic growth owing to their grassroots reach. While these institutions have thrived for years, their actual impact on the economy remains contested by past studies within and outside Nigeria. The practise of finance involves directing money in the form of credit, loans, or invested capital to those parts of the economy that can use it most effectively. The term "investment," on the other hand, refers to the building up of capital and its commitment to a project of economic activity with the hope of increasing its return over time. For there to be economic growth, capital in form of physical or human must be accumulated overtime by growing the income and downsizing consumption. For finance to facilitate investment in order for growth to take place, financial institutions must pool savings and direct them to viable investments. How informal financial institutions in Nigeria have fulfilled this role in our distressed economy is the crux of this paper. Primary data were sourced from 250 customers and workers of informal financial institutions and analyzed using the Statistical Programme for Social Sciences (SPSS) version 20. Informal financial institutions encourage savings by households and the ability of thrifts collectors to go from house to house and shop to shop makes savings easy. Responses also showed that Informal financial institutions through their intermediation help to mobilize savings in Nigeria while contributions made through associations are form of savings.