https://www.finalyearproject.xyz/2020/03/the-role-of-capital-market-in-bank.html

CHAPTER ONE
INTRODUCTION
1.1      BACKGROUND TO THE STUDY
The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developing economies (Donwa and Odia, 2010:136). This is made possible through some of the vital roles played by the market such as channeling resources, promoting reforms to modernize the financial sectors, financial intermediation capacity to link deficit to the surplus sector of the economy and as a veritable tool in the mobilization and allocation of savings among competitive uses which are critical to the growth and efficiency of the economy (Alile, 1984:65). It helps to channel capital or long-term resources to firms with relatively high and increasing productivity thus enhancing economic expansion and growth (Alile, 1997:8).

Ekundayo (2002) argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital market provides a means through which this is made possible. However, the paucity of long-term capital has posed the greatest predicament to economic development in most African countries including Nigeria. Osaze (2000) sees the capital market as the driver of any economy to growth and development because it is essential for the long-term growth capital formation. It is crucial in the mobilization of savings and channeling of such savings to profitable self-liquidating investment.

According to Ogbulu (2004:1), the capital market is a network of special institutions that in various ways bring together suppliers and users of capital. The capital market is therefore, the long-term end of financial market, which is made up of market, and institutions, which facilitate the issuance, and secondary trading of long-term financial instruments.

Capital market is also seen as a collection of financial institutions set up for the granting of medium and long term loans and a market for government securities, for corporate bonds, for the mobilization and utilization of long-term funds for development – the long term end of the financial system (Ologunde, Elumilade and Asaolu, 2006:155).

Donwa and Odia (2010:136), assert that the Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the economy. It not only provides the funds required for investment but also efficiently allocates these funds to projects of best returns to fund owners. This allocative function is critical in determining the overall growth of the economy. The functioning of the capital market affects liquidity, acquisition of information about firms, risk diversification, savings mobilization and corporate control (Anyanwu 1998). Therefore, by altering the quality of these services, the functioning of stock markets can alter the rate of economic growth (Equakun 2005).

Okereke-Onyiuke (2000:41) posits that the cheap source of funds from the capital market remain a critical element in the sustainable development of the economy. She enumerated the advantages of capital market financing to include no short repayment period as funds are held for medium and long term period or in perpetuity, funds to state and local government without pressures and ample time to repay loans.

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