CAPITAL MARKET AND BRIEF HISTORICAL EVOLUTION OF NIGERIAN CAPITAL MARKET
THE EXPOSITION OF CAPITAL MARKET
Capital market is a financial market that creates avenues for the purchase and sale of long term debt and equity attached with securities. It is the essential facet of the financial market charged with the responsibility of mobilizing and channeling long-term funds into lucrative investments. One of the principal features of capital market is that it acts as a vehicle that transports financial asset from surplus sectors to deficit sectors hence, ensuring equality in wealth distribution. It plays a germane role in aggrandizing the wealth of the opulent investors and uplifting pauperized investors from the dungeon of penury to the pinnacle of plenitude.
Furthermore, capital market is a financial institution whereby individuals, organizations and government engage in financial transaction of securities with the purpose of raising funds. Indubitably, it’s bedrock of national development because it helps government to secure funds used to streamline the economy in a robust and rapid way that catalyses civilization. It uses stock market, bond market, etc. as instruments of financial transaction and it comprises financial institutions like RBI, UTI, LIC and other private mutual funds like alliance, etc. These financial institutions play the role of lenders while corporate organizations are the borrowers.
TYPES OF CAPITAL MARKET
PRIMARY MARKET: – It’s also called New Issue Market where new stocks and bonds are issued to the investors. It’s the aspect of capital market that focuses on issuing new securities and it creates long-term instruments that enable corporate institution to borrow from capital market. Governments, companies and even public sectors subscribe to this market in order to obtain funds through the sales of new stock or bond issue.
SECONDARY MARKET: – It’s also referred to as Aftermarket where second-hand or existing or previously issued securities like futures, stock, etc. are traded. It’s a market for any used goods or assets and it provides detailed and pertinent pricing information that paves way for effective utilization of limited capital.
BRIEF HISTORICAL EVOLUTION OF NIGERIAN CAPITAL MARKET
The Nigerian capital market came into limelight during the dispensation of colonialism in Nigeria by the British government. Although, Nigeria had some revenue generation derived from solid minerals, agriculture, etc. but it was infinitesimal to cater for the increasing financial responsibilities which were principal for the smooth funding of the local administration. To avoid managing the funds beyond necessary, the colonial masters expanded its revenue base through reforming the system of taxation, revenue mobilization, etc. It strategized conduits of fund raising from the public through establishing financial system. This was actualized by initiating basic infrastructural facilities and long-term capital project as its inception awaiting the advent of a well-organized private sector.
Later in 1957, the colonial government adopted the Professor Barback Committee so as to scrutinize the means of developing a share market in Nigeria and part of the topical and central subject of the Committee was to establish a capital market in Nigeria. Then, with the set up of the Central Bank of Nigeria in 1959 proceeded by the Lagos Stock Exchange establishment in 1961 though was afterward transformed as Nigeria Stock Exchange by the Lagos Stock Exchange Act in 1959, concrete foundation was laid for the kick off of the Nigerian Capital Market for trading financial instrument of indefinite maturity needed to fund the economy at large.
IMPERATIVES OF DEVELOPING NIGERIAN CAPITAL MARKET
FUND MOBILIZATION: – It’s a functional tool for mobilizing funds and resources from public by enlightening them on the need to invest their idle savings into money-spinning investment that proliferate their capital investment.
CAPITAL FORMATION: – The funds realized from idle savings are used to form capital by dispensing them into various sectors like industry, agriculture, etc, thereby creating more capital.
PROVIDES INVESTMENT AVENUE: – Since capital market trades securities for a long time, it provides a pathway for people who desire to embark on a long-term investment.
EMPLOYMENT GENERATION: – It curtails unemployment availability by giving investors access to purchase securities to establish their businesses.
INFRASTRUCTURAL DEVELOPMENT: – Undeniably, in the course of streamlining a capital market, tangible and landmark infrastructures are built.
FUND REGULATION: – Capital market does not just raise funds; it also allocates these funds with propriety and prudence to avoid mismanagement.
SERVICE PROVISION: – It provides divergence of services like underwriting services, long term and short term loan, etc. to industries and these services are greatly important to them
UNLIMITED FUND AVAILABILITY: – It acts as a liquid market where funds are made available on continuous basis, thus enabling buyers and sellers transact securities without financial restriction.
ENHANCES ECONOMIC GROWTH: The monetary resources realized from capital market are appropriately channeled to boost the economy and prevent it from dwindling.
IMPROVES RESEARCH: In an attempt to meet the demands and expectations of investors, capital market promotes research activities by bringing brand-new and superlative methods of service delivery.
WAYS OF DEVELOPING NIGERIAN CAPITAL MARKET
EFFECTIVE POLICY MAKERS: – Though, it’s time-consuming to structure a viable financial system but with good policy makers as administrative heads, relevant frameworks like legal and regulatory body, etc are established to trigger its development.
JUDICIOUS MANAGEMENT: – For Nigerian capital market to experience outstanding growth, then it must yield itself to a sensible management system because it aids in profitable planning, organizing and controlling of the capital market.
ENCOURAGE LONG-TERM INVESTMENT: – There will be a lethal crash in the financial institution if the influx of short-term capital is used to finance a long term investment. Therefore, mobilizing the public to invest on long term basis is a sure way of ending economic calamity.
GOOD CORPORATE GOVERNANCE: – The Nigerian capital market should build its immune system against the incursion of a malignant economic meltdown by injecting good corporate governance into its body and this ensures that activities are implemented within the skirt of the convectional norms.
EFFECTUAL REGULATORY FRAMEWORK: – It blossoms and experiences stability if there is a well-organized regulatory and supervisory body that guide and direct its actions in order to eschew deflating the confidence of the investors who are their prime target.