Money Supply and Private Sector Funding in Nigeria: A Multi-Variant Study
Keywords:
Money Supply, Private Sector Funding, Private Sector Demand Deposits, Money Supply, Small and Medium Scale Enterprises.
Abstract
This study examined the effect of money supply on private sector funding in Nigeria. The purpose of the study was to examine the extent to which monetary policy affect private sector funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector was used as dependent variables while narrow money supply, broad money supply, large money supply, private sector demand deposit was used as independent variables. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that money supply explains 82.1 percent variation on credit to core private sector, 85.2 percent and 23.4 percent of the variation in credit to private sector and credit to small and medium scale enterprises sector. The study conclude that money supply has significant relationship with credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector. From the findings, the study recommends that Central Bank of Nigeria should induce the variations of the amount of money changes through the nominal interest rates. That the monetary authorities should ensure adequate quantity of money supply that positively affect private sector funding in Nigeria.
References
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Adefeso, H. A. & Mobolaji, H. I., (2010). The fiscal-monetary policy and economic growth in Nigeria: Further empirical evidence. Pakistan Journal of Social Sciences, 7(2), 137– 142.
Adeniyi1, A.M., Adeyemi, A.K, Salawudeen O.S. and Fagbemi, T.O. (2018). Monetary Policy and Bank Credit in Nigeria: A Toda-Yamamoto Approach. ACTA Universitatis Danubius, 14(5), 718-739.
Adofu, I., Abula, M. & Audu, S. I. (2010). An assessment of the effects of interest rate deregulation in enhancing agricultural productivity in Nigeria. Current Research Journal of Economic Theory 2(2), 82-86.
Afonso, A, and Aubyn, M. (1997). Is there credit rationing in Portuguese banking? Department of Economics, Working Paper No 6 (97).
Akani, H. W., (2017). Effects of monetary policy transmission mechanism on capital market fundamentals in Nigeria: 1981 – 2015 (Unpublished PhD Thesis), Nnamdi Azikiwe University, Awka, Nigeria.
Alper, D., & Anbar, A. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical Evidence from Turkey” Business and Economic Research Journal 2(2), 139-152
Amassoma, J.D., Nwosa, P.I. & Ofere, A.F. (2011). The nexus of interest rate, deregulation lending rate and agricultural productivity in Nigeria. Current Research Journal of Economic Theory,3, (2):53-60.
Anigbogu, T. U., Okoli, I. M. & Nwakoby, N. P. (2015). Financial intermediation and small and medium enterprises performance in Nigeria (An aggregated analysis: 1980-2013). European Scientific Journal, 11(28), 257-272.
Anyanwu, et al., (2005). The structure of Nigerian economy (1960-1997). Joanee Educational Publishers. Onitsha.
Arora, R.U. (2014). Access to finance: An Empirical Analysis. European Journal of Development Research, 26 (5), 798-814.
Assefa, M. (2014). Determinants of growth in bank credit to the private sector in Ethiopia: A supply side approach. Research Journal of Finance and Accounting, 5(17),43-62.
Ayub, G. & Seyed, A.M. (2016). The relationship between monetary policy and bank lending behavior and the influence of bank specific features on this relationship in the banks listed on the Tehran Stock Exchange. International Journal of Advanced Biotechnology and Research (IJBR), 7(2).115-125.
Baltensperger, E. & Devinney, T. (1985). Credit rationing theory: A survey and synthesis. Zeitschrift für die gesamte Staatswissenschaft, 14(1), 475–502.
Bernanke, B. S., & Gertler, M., (1995). Inside the black box: the credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48.
Bester, H., (1984). Screening versus rationing in credit markets with imperfect information. Discussion Paper No. 136.
Bester, H. (1985). Screening vs. rationing in credit markets with imperfect information. The American Economic Review, 75 (4), 850-855.
Cecchetti, S.C. (1995). Distinguishing theories of the monetary transmission mechanism. Retrieved on 15/01/2020 from https://files.stlouisfed.org/files/htdocs/publications/review/95/05.
Chimobi, O.P., & Igwe, O.L. (2010). Budget deficit, money supply, and inflation in Nigeria. European Journal of Economics, Finance and Administrative Sciences, 19(5), 52-60.
Cressy, R. (1996). Funding gaps: A symposium. The Economic Journal, 112 (477) F1-F16.
Echekoba F.N, Okaro C.S, Ananwude AC, Akuesodo O.E (2018) Monetary Policy and Capital Market Performance: An Empirical Evidence from Nigerian Data. Res J Econ 2:1.
Echekoba, F.N. &Ubesie M.C. (2018) Assessment of Financial Deepening on the Growth of Nigerian Economy: 1990-2016. International Journal of Academic Management Science Research (IJAMSR), 11 (4), 70-82.
Enyioko N. (2012) Impact of Interest Rate Policy and Performance of Deposit Money Banks in Nigerian. Global Journal of Management and Business Research, 12 (21), 373-386.
Eyas G. A. O, (2014). The impact of private sector credit on Saudi Arabia economic growth (GDP): an econometrics model using (ARDL) approach to cointegration. American International Journal of Social Science,3(6),64-86.
Fama, E. (1981). Separation of ownership and control. Journal of Law and Economics, 26 (2), 301-325.
Gujarati, D. N. (2004). Basic econometrics (4th Ed.) McGraw-Hill, New York.
Iddrisu, S, Harvey, S. K., and Amidu, .M, (2017). The impact of monetary policy on stock market performance: Evidence from Twelve (12) African countries. Research in International Business and Finance http://dx.doi.org/10.1016/j.ribaf.2017.07.075.
Imoughele, L. E. &Ismaila, M. (2014). The impact of commercial bank credit on the growth of small and medium scale enterprises: An econometric evidence from Nigeria (1986 - 2012). Journal of Educational Policy and Entrepreneurial Research, 1(2), 251-261.
Jegede, C.A. (2014). Impacts of monetary policy on the commercial banks lending in Nigeria. Review of Public Administration and Management, 3(5), 134 – 146.
Jhingan, M. L (1992). Macroeconomic theory. 10th Edition, Vrinda Publications Ltd, New Delhi
João B. R., Barroso, R. B., Gonzalez, B. F. Nazar V. D. (2017). Credit Supply Responses to Reserve Requirement: loan-level evidence from macroprudential policy. Banco Central do Brasil. Working Paper Series 467.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economics Dynamic and Control, 12, 231 – 254.
John, N. N. U. and Onwubiko, N. D. (2013). Challenges of bank credit among small and medium enterprises in Nigeria. Journal of Economics and Sustainable Development, 4(6), 84-90
Karimo, T.M. and Ogbonna, O.L (2017). Financial Deepening and Economic Growth Nexus in Nigeria: Supply-Leading or Demand-Following? Economies. MPDI Articles.
Katusiime, L. (2018). Private Sector Credit and Inflation Volatility. Economies, 6(2),67-92.
Lawal, A.I., Somoye, R.O. and Babajide, A.A. (2017). The effect of monetary and fiscal policies interaction on stock market performance: Evidence from Nigeria. Elsevier Future Business Journal, 2(3),78-90.
Mishkin, F.S. (1995). Symposium on the monetary transmission mechanism. Journal of Economic Perspectives 9: 4: 3−10.
Mohammed, O. (2014). Re-positioning commercial banks to enhance the productive capacities of Small and Medium – Scale Enterprises (SMEs) for economic growth of developing nations: A focus on Nigeria. International Journal of Public Administration and Management Research, 2(2): 193-198
Nasko, A. M. (2016). Impact of Monetary Policy on the Economy of Nigeria. Pyrex Journal of Business and Finance Management Research Vol 2. Pp.163-179.
Ogolo & Tamunotonye M. (2018). Monetary Policy and Commercial Bank Lending to the Real Sector in Nigeria: A Time Series Study. American Finance & Banking Review; Vol. 2, No. 1; 2018.
Okoye V. and Eze, O. R. (2013) Effect of Bank Lending Rate on The Performance of Nigerian Deposit Money Banks. International Journal of Business and Management Review Vol. 1, No. 1, March 2013, Pp.34-43.
Olorunmade, G., Samuel, O.J., and Adewole, J. A. (2019) Determinant of Private Sector Credit and Its Implication on Economic Growth in Nigeria: 2000-2017. American Economic and Social Review. Vol. 5 No 1.
Olukayode, R., & Somoye, C. (2018). The impact of finance on entrepreneurship growth in Nigeria: International Journal of Small and Medium Enterprises, 1(2); 117-227.
Onoh, J. K. (2007), Dimensions of Nigeria’s Monetary and Fiscal Policies: Domestic and External. Astra Meridian Publishers, Aba.
Otalu, Aladesanmi & Mary (2014). Monetary policy and commercial banks performance in Nigeria: an assessment of credit creation role. The International Journal of Business and Management, 2(7), pp. 45 -51.
Ovat, O. O. (2016). Commercial banks’ credit and the growth of small and medium scale enterprises: The Nigerian experience. Journal of Economics and Finance, 7(6), 23-30.
Robinson, O. O. and Victor, I. I. (2015). Role of finance on the growth of small and medium enterprises in Edo state of Nigeria. Journal of Educational and Social Research, 5, 241-248.
Saunders, S. (2010). Financial Markets and Institutions: An introduction to the risk management approach. McGraw Hill Pub.
Sesay, B., and Abdulai, B.S. (2017).Monetary policy effects on private sector investment: Evidence from Sierra Leone. International Journal of Economics and Financial Issues, 7(1), 476-488.
Somoye, R. O. C., Ilo, B.M., 2009. The impact of macroeconomic instability on the banking sector lending behavior in Nigeria. Journal of Money, Investment and Banking 7, 88-100.
Stiglitz, J. E., & Weiss, A. (1981).Credit rationing in markets with imperfection. American Economic Review, 71, (3), 16-36.
Stiglitz, J., and Weiss, A. (1984). Credit rationing and collateral in corporate finance. Cambridge: Cambridge University Press.
Suleyman, S., (2014). The effects of the monetary policies on bank credit for SME's in the manufacturing sector: Evidence from Turkey. Istanbul Chamber of Commerce Department of SME's.
Tsenkwo, B.J., & Longdu D.T. (2013). The Relationship between monetary policy rates (MPR) and banking rates: Evidence from regression and multivariate causality analysis. An international journal of Arts and Humanities, 2(3) 111-121.
Ubesie1, C.M., Echekoba, F.N., Chris-Ejiogu, U.G. and Ananwude, A.C. (2019). Sectoral Allocation of Deposit Money Banks’ Credit and the Growth of Nigerian Real Economy: A Disaggregated Analysis (2008Q1 – 2017Q4). Journal of Economics, Management and Trade 22(1): 1-22, 2019.
Udeh, S.N. (2015). Impact of monetary policy instruments on profitability of commercial banks in Nigeria: Zenith bank experience. Research Journal of Finance and Accounting, 6(10), pp. 190-206.
William, O., Zehou, S. and Hazimi, B.H., (2019). Determinants of domestic credit to the private sector in Ghana: Application of Vector Auto Regressive Method. Advances in Social Science, Education and Humanities Research, 3(9),90-119.
Zuzana, F., Riikka, N. and Laurent, W. (2015). Reserve Requirements and the Bank Lending Channel in China (September 21, 2015). BOFIT Discussion Paper No. 26/2015.
Adefeso, H. A. & Mobolaji, H. I., (2010). The fiscal-monetary policy and economic growth in Nigeria: Further empirical evidence. Pakistan Journal of Social Sciences, 7(2), 137– 142.
Adeniyi1, A.M., Adeyemi, A.K, Salawudeen O.S. and Fagbemi, T.O. (2018). Monetary Policy and Bank Credit in Nigeria: A Toda-Yamamoto Approach. ACTA Universitatis Danubius, 14(5), 718-739.
Adofu, I., Abula, M. & Audu, S. I. (2010). An assessment of the effects of interest rate deregulation in enhancing agricultural productivity in Nigeria. Current Research Journal of Economic Theory 2(2), 82-86.
Afonso, A, and Aubyn, M. (1997). Is there credit rationing in Portuguese banking? Department of Economics, Working Paper No 6 (97).
Akani, H. W., (2017). Effects of monetary policy transmission mechanism on capital market fundamentals in Nigeria: 1981 – 2015 (Unpublished PhD Thesis), Nnamdi Azikiwe University, Awka, Nigeria.
Alper, D., & Anbar, A. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical Evidence from Turkey” Business and Economic Research Journal 2(2), 139-152
Amassoma, J.D., Nwosa, P.I. & Ofere, A.F. (2011). The nexus of interest rate, deregulation lending rate and agricultural productivity in Nigeria. Current Research Journal of Economic Theory,3, (2):53-60.
Anigbogu, T. U., Okoli, I. M. & Nwakoby, N. P. (2015). Financial intermediation and small and medium enterprises performance in Nigeria (An aggregated analysis: 1980-2013). European Scientific Journal, 11(28), 257-272.
Anyanwu, et al., (2005). The structure of Nigerian economy (1960-1997). Joanee Educational Publishers. Onitsha.
Arora, R.U. (2014). Access to finance: An Empirical Analysis. European Journal of Development Research, 26 (5), 798-814.
Assefa, M. (2014). Determinants of growth in bank credit to the private sector in Ethiopia: A supply side approach. Research Journal of Finance and Accounting, 5(17),43-62.
Ayub, G. & Seyed, A.M. (2016). The relationship between monetary policy and bank lending behavior and the influence of bank specific features on this relationship in the banks listed on the Tehran Stock Exchange. International Journal of Advanced Biotechnology and Research (IJBR), 7(2).115-125.
Baltensperger, E. & Devinney, T. (1985). Credit rationing theory: A survey and synthesis. Zeitschrift für die gesamte Staatswissenschaft, 14(1), 475–502.
Bernanke, B. S., & Gertler, M., (1995). Inside the black box: the credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48.
Bester, H., (1984). Screening versus rationing in credit markets with imperfect information. Discussion Paper No. 136.
Bester, H. (1985). Screening vs. rationing in credit markets with imperfect information. The American Economic Review, 75 (4), 850-855.
Cecchetti, S.C. (1995). Distinguishing theories of the monetary transmission mechanism. Retrieved on 15/01/2020 from https://files.stlouisfed.org/files/htdocs/publications/review/95/05.
Chimobi, O.P., & Igwe, O.L. (2010). Budget deficit, money supply, and inflation in Nigeria. European Journal of Economics, Finance and Administrative Sciences, 19(5), 52-60.
Cressy, R. (1996). Funding gaps: A symposium. The Economic Journal, 112 (477) F1-F16.
Echekoba F.N, Okaro C.S, Ananwude AC, Akuesodo O.E (2018) Monetary Policy and Capital Market Performance: An Empirical Evidence from Nigerian Data. Res J Econ 2:1.
Echekoba, F.N. &Ubesie M.C. (2018) Assessment of Financial Deepening on the Growth of Nigerian Economy: 1990-2016. International Journal of Academic Management Science Research (IJAMSR), 11 (4), 70-82.
Enyioko N. (2012) Impact of Interest Rate Policy and Performance of Deposit Money Banks in Nigerian. Global Journal of Management and Business Research, 12 (21), 373-386.
Eyas G. A. O, (2014). The impact of private sector credit on Saudi Arabia economic growth (GDP): an econometrics model using (ARDL) approach to cointegration. American International Journal of Social Science,3(6),64-86.
Fama, E. (1981). Separation of ownership and control. Journal of Law and Economics, 26 (2), 301-325.
Gujarati, D. N. (2004). Basic econometrics (4th Ed.) McGraw-Hill, New York.
Iddrisu, S, Harvey, S. K., and Amidu, .M, (2017). The impact of monetary policy on stock market performance: Evidence from Twelve (12) African countries. Research in International Business and Finance http://dx.doi.org/10.1016/j.ribaf.2017.07.075.
Imoughele, L. E. &Ismaila, M. (2014). The impact of commercial bank credit on the growth of small and medium scale enterprises: An econometric evidence from Nigeria (1986 - 2012). Journal of Educational Policy and Entrepreneurial Research, 1(2), 251-261.
Jegede, C.A. (2014). Impacts of monetary policy on the commercial banks lending in Nigeria. Review of Public Administration and Management, 3(5), 134 – 146.
Jhingan, M. L (1992). Macroeconomic theory. 10th Edition, Vrinda Publications Ltd, New Delhi
João B. R., Barroso, R. B., Gonzalez, B. F. Nazar V. D. (2017). Credit Supply Responses to Reserve Requirement: loan-level evidence from macroprudential policy. Banco Central do Brasil. Working Paper Series 467.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economics Dynamic and Control, 12, 231 – 254.
John, N. N. U. and Onwubiko, N. D. (2013). Challenges of bank credit among small and medium enterprises in Nigeria. Journal of Economics and Sustainable Development, 4(6), 84-90
Karimo, T.M. and Ogbonna, O.L (2017). Financial Deepening and Economic Growth Nexus in Nigeria: Supply-Leading or Demand-Following? Economies. MPDI Articles.
Katusiime, L. (2018). Private Sector Credit and Inflation Volatility. Economies, 6(2),67-92.
Lawal, A.I., Somoye, R.O. and Babajide, A.A. (2017). The effect of monetary and fiscal policies interaction on stock market performance: Evidence from Nigeria. Elsevier Future Business Journal, 2(3),78-90.
Mishkin, F.S. (1995). Symposium on the monetary transmission mechanism. Journal of Economic Perspectives 9: 4: 3−10.
Mohammed, O. (2014). Re-positioning commercial banks to enhance the productive capacities of Small and Medium – Scale Enterprises (SMEs) for economic growth of developing nations: A focus on Nigeria. International Journal of Public Administration and Management Research, 2(2): 193-198
Nasko, A. M. (2016). Impact of Monetary Policy on the Economy of Nigeria. Pyrex Journal of Business and Finance Management Research Vol 2. Pp.163-179.
Ogolo & Tamunotonye M. (2018). Monetary Policy and Commercial Bank Lending to the Real Sector in Nigeria: A Time Series Study. American Finance & Banking Review; Vol. 2, No. 1; 2018.
Okoye V. and Eze, O. R. (2013) Effect of Bank Lending Rate on The Performance of Nigerian Deposit Money Banks. International Journal of Business and Management Review Vol. 1, No. 1, March 2013, Pp.34-43.
Olorunmade, G., Samuel, O.J., and Adewole, J. A. (2019) Determinant of Private Sector Credit and Its Implication on Economic Growth in Nigeria: 2000-2017. American Economic and Social Review. Vol. 5 No 1.
Olukayode, R., & Somoye, C. (2018). The impact of finance on entrepreneurship growth in Nigeria: International Journal of Small and Medium Enterprises, 1(2); 117-227.
Onoh, J. K. (2007), Dimensions of Nigeria’s Monetary and Fiscal Policies: Domestic and External. Astra Meridian Publishers, Aba.
Otalu, Aladesanmi & Mary (2014). Monetary policy and commercial banks performance in Nigeria: an assessment of credit creation role. The International Journal of Business and Management, 2(7), pp. 45 -51.
Ovat, O. O. (2016). Commercial banks’ credit and the growth of small and medium scale enterprises: The Nigerian experience. Journal of Economics and Finance, 7(6), 23-30.
Robinson, O. O. and Victor, I. I. (2015). Role of finance on the growth of small and medium enterprises in Edo state of Nigeria. Journal of Educational and Social Research, 5, 241-248.
Saunders, S. (2010). Financial Markets and Institutions: An introduction to the risk management approach. McGraw Hill Pub.
Sesay, B., and Abdulai, B.S. (2017).Monetary policy effects on private sector investment: Evidence from Sierra Leone. International Journal of Economics and Financial Issues, 7(1), 476-488.
Somoye, R. O. C., Ilo, B.M., 2009. The impact of macroeconomic instability on the banking sector lending behavior in Nigeria. Journal of Money, Investment and Banking 7, 88-100.
Stiglitz, J. E., & Weiss, A. (1981).Credit rationing in markets with imperfection. American Economic Review, 71, (3), 16-36.
Stiglitz, J., and Weiss, A. (1984). Credit rationing and collateral in corporate finance. Cambridge: Cambridge University Press.
Suleyman, S., (2014). The effects of the monetary policies on bank credit for SME's in the manufacturing sector: Evidence from Turkey. Istanbul Chamber of Commerce Department of SME's.
Tsenkwo, B.J., & Longdu D.T. (2013). The Relationship between monetary policy rates (MPR) and banking rates: Evidence from regression and multivariate causality analysis. An international journal of Arts and Humanities, 2(3) 111-121.
Ubesie1, C.M., Echekoba, F.N., Chris-Ejiogu, U.G. and Ananwude, A.C. (2019). Sectoral Allocation of Deposit Money Banks’ Credit and the Growth of Nigerian Real Economy: A Disaggregated Analysis (2008Q1 – 2017Q4). Journal of Economics, Management and Trade 22(1): 1-22, 2019.
Udeh, S.N. (2015). Impact of monetary policy instruments on profitability of commercial banks in Nigeria: Zenith bank experience. Research Journal of Finance and Accounting, 6(10), pp. 190-206.
William, O., Zehou, S. and Hazimi, B.H., (2019). Determinants of domestic credit to the private sector in Ghana: Application of Vector Auto Regressive Method. Advances in Social Science, Education and Humanities Research, 3(9),90-119.
Zuzana, F., Riikka, N. and Laurent, W. (2015). Reserve Requirements and the Bank Lending Channel in China (September 21, 2015). BOFIT Discussion Paper No. 26/2015.
Published
2020-05-13
How to Cite
Sulaiman, Z. A. (2020). Money Supply and Private Sector Funding in Nigeria: A Multi-Variant Study. Asian Finance & Banking Review, 4(1), 24-41. https://doi.org/10.46281/asfbr.v4i1.573
Section
Original Articles/Short Communications
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