BANKING INSTITUTIONS IN NIGERIA AND THEIR FUNCTIONS 2 (DEVELOPMENT, MORTGAGE AND MICROFINANCE BANKS)

Banking institutions are institutions involved in the business of providing financial services such as deposits, loans, investments, and currency exchanges.

In the preceding post, we discussed the functions of central banks, commercial banks, merchant banks, and noninterest banks. 

In this post, we continue our discussion by looking at development, mortgage, and microfinance banks

Development Banks

These are special banks established to carry out some specific development duties in the Nigerian economy such as providing medium and long-term funds for capital projects.

In other words, development banks are development-oriented banks established to provide medium and long-term loanable funds necessary for the economic development of the Nigerian economy.

Development banks do not accept deposits from the general public.

Instead, they relied on international financial institutions such as the African development bank (AFDB), the International Monetary fund (IMF), the International Bank for Reconstruction and Development (IBRD) for their funding.

In addition, Development banks get some of their fundings from federal government Grants

The bank of industry (BOI), the Bank of Agriculture (BOA),  Development bank Plc are all examples of development banks in Nigeria.

As a banking institution, development banks perform the following functions:

1. They provide medium and long-term loans for development purposes.

2. They carried out research to determine the type of capital project that the society needs. 

3. They create loans for agricultural production, distribution, and marketing of agricultural products.

4. They promote the growth of the Nigerian capital market by encouraging potential investors to be listed on the Nigeria stock exchange.

5. Promotes and develops feasible projects for investment.

6. They provide loans to individual farmers and businesses so as to promote economic development.

7. They advise industrialists on the best way and manner to invest.

8. They assist in the implementation of the industrial, commercial, and agricultural policies of the government.

9. They also sponsor and underwrite issues of shares and security.

Mortgage Banks

These are banks that specialized in granting loans to individuals and corporate bodies for the purpose of purchasing real estate especially private residences.

As a financial institution, mortgage banks provide loans to individuals and corporate entities for building purposes, which are repaid by installments over an extended period.

In Nigeria, all activities of mortgage banks are regulated by the federal mortgage bank of Nigeria.

The federal mortgage bank of Nigeria was established in 1956 as the Nigeria building society and changed its name to its current name after being taken over by the government in 1973

The federal mortgage bank of Nigeria is the apex body of all mortgage institutions in Nigeria. It was established to oversee the development of the Nigerian housing sector.

Generally, mortgage banks perform the following functions:

1. They grant loans and advances for people to build homes.

2. They researched mortgage financing activities and housing patterns.

3. They provide financial advice to companies involved in the construction of houses.

4. They raise necessary funds by accepting savings and deposits from the public and investing society.

5. They engage in the building of housing, which may be offered for sales to customer

6. They also provides advice to customers about the construction of houses 

Microfinance Banks

The Central Bank of Nigeria defined microfinance banks as "any company licensed to carry on the business of providing financial services such as savings and deposits, loans, domestic funds transfer, and other non-financial services to microfinance clients".

They target economically privileged individuals like the poor, low-income earned, the unbanked population of the Nigerian economy.

At this point, we can categorize microfinance banks into three types.

1. The unit microfinance banks: These are microfinance banks established to operate in just one location. They are expected to have a minimum paid-up capital of 20 million naira.

2. The state microfinance bank: These are microfinance banks that are licensed to operate in just one state of the federation. 

They can open as many branches as they want as long as they are all located in a single state. This type of microfinance bank is required to give a minimum paid-up capital of 100 million naira.

3. The national microfinance banks: These are microfinance banks that are licensed to operate in more than one state of the federation. 

The minimum capital requirement for national microfinance banks is 2 billion nairas.

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Microfinance banks perform the following function:

1. They promote rural development through financial inclusion and financial literacy

2. They boost small-scale enterprises and agriculture by financing them.

3. They mobilize deposits and deliver credit to finance micro-enterprises.

4. They provide financial services to low-income earners who are generally excluded from the traditional banking system. Hence, they are often called the banker of the poor.

5. They provide financial services to disadvantaged households like the disabled, unemployed, etc.

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