Do Non-Bank Financial Institutions’ Loans and Advances Influence Economic Growth? A Bounds Test Investigation

Abstract

The study examines the economic impact of non-bank financialinstitutions’ (NBFIs) loans and advances on Nigeria’s economic growth usingBounds testing approach to co-integration. Time series data covering the period1996-2010 was used. Economic growth, proxied by real gross domestic product(RGDP) was regressed on loans and advances of Discount Houses (DH), FinanceHouses (FH) and Insurance companies (IC) which were considered the importantnon-bank financial institutions in Nigeria. The result of the analysis showsthat there is a long-run relationship between economic growth and loans andadvances of insurance companies in Nigeria. The test further confirms thenon-existence of any significant statistical relationship between economicgrowth and the loans and advances of Finance houses and Discount houses inNigeria during the period studied.  Theempirical evidence emerging from the study suggests that non-bank financialinstitutions, especially insurance companies, are very important in theNigeria’s financial system and as such should be harnessed so as to effectivelychannel long-term investment funds from the surplus unit of the economy to thedeficit unit through them. This can be achieved through formulation of proper,prudent and investment-friendly policies by the concerned authorities in thecountry. Besides, the study indicates that the enhancement of the NBFIs canpromote the development of small-scaled and rural based industries because ofthe ability of NBFIs to mobilize and tap the latent savings potentials of ruralpeople.Keywords: Bounds test, non-bank financialinstitutions, insurance companies.