Making Finance a Tool for our Development

A week ago, I was in Lagos Nigeria, being part of the World Federation of Exchanges (WFE)’ Inspection Team which was in the mission to inspect a securities exchange in Nigeria that has applied for full membership on this global/international body for stock exchanges. While in there I learnt a great deal about recent changes in the Nigerian financial market structures. The changes respond to the challenges around lack of transparency and inadequate price discovery mechanisms in their financial market, which raised concern on the effectiveness and efficiency of liquidity creation/enhancement, the efficiency around prices discovery, as well as the volatility and certainty in the economy’s fixed income (bonds), money market, foreign exchange and derivative markets. Prior to these notable changes, just like in our current situation, financial products traded in the “Over-the-Counter” (OTC) market.
By the way, an OTC market is where investors and dealers buy and sell securities (such as bonds, medium term notes and bills), foreign currencies, or other financial products directly between two parties in bilateral forms, without a meaningful supervision, or transparency, except for reporting purposes.
An OTC market is contrasted with open and transparent exchange market in that the open exchange has the benefit of facilitating liquidity, mitigates credit risks concerning the default of one party in the transaction, provides transparency, and maintaining better market price discovery mechanisms.
And so, financial market regulators – the Central Bank of Nigeria and the Securities Exchange Commission of Nigeria with financial markets actors (particularly banks and securities dealers) collaborated in introducing a market infrastructure that meant to address the issues around market transparency, price discovery and certainty, volatility and liquidity. This new market structure and infrastructure seem to have so far being working well – liquidity on foreign exchange, fixed income and money market has increased several-fold compared to prior situation. This has benefited; regulators, banks, dealers, investors, traders and importers, the government, and the society at large. With more transparency and liquidity bonds’ interest rates have declined and are relatively stable, resulting into lower borrowing costs across all key players, from the government which issues Treasury bonds and Treasury bills to private entities which issue corporate bonds and medium-term notes. Lower cost of borrowing means more demand and access to credit and finance to public sector, to businesses and to private individuals.
With enhanced transparency in the foreign exchange transactions and its embedded derivative market – which enables importers to lock-in medium to long term foreign exchange prices by buying futures and forward contracts which trades in the Exchange, means there has been relatively currency stability, reduced speculative tendency and low level of central bank involvement in ensuring price stability — benefiting not only the Government but also traders who import goods to the economy, and so the list goes.
The above, is but a tip of the iceberg of what consciousness and coordination around finance and financial markets can do the economy and the society – albeit on the sophisticated side of the financial markets. But still, it is doable for us as well for our collective good.
On the other end — as it were, access to finance is a determining factor of individual financial freedom and in extension economic prosperity, the good news is that this freedom and prosperity can be exercised only with minimum knowledge. It only requires that every citizen of this country to be able to understand what it means to save, lend, and invest and what/how these activities contribute to his/her well-being and the well-being of the economy at large. As a country, we must build a community that can understand and make use of different financing tools, products and services. To achieve this, basic knowledge is fundamental, and that’s why the noteworthy step in the direction of creating the legal infrastructure and institutional framework for financial education and financial consumer protection, which will be responsible for informing the public and analyzing products provided to them is worth the pursuing for all of us, no matter our stations in the sphere of finance and how it relates to our development.
I was privileged to be part of the Familiarization team which was recently in South Africa to educate ourselves on how best we can create the national financial consumer protection framework – South Africa itself having made significant stride in this space. In my opinion, this is a significant move by our government and other key stakeholders into right direction towards the role of finance as it relates to our development, with more availability and accessibility to financial products and services, consumer education to improve their awareness of financial matters and credit becomes of great necessity. Investors and consumers of financial products and services needs to be more and better informed. With a more informed society on these matters – we will be able to mobilize more finances to finance our development and unlock the potential sources of finances currently under mattress, and in the case of my tribe in the form of livestock, somehow unproductive.
Matters of finance cannot be left to bankers, we all need to understand them, argue them, use them and benefit from them. Imagine what would be possible if we could finally mobilize our intelligence and energy with the perspective in mind about the issues of finance and what they could do to our development. Now, this requires a change in mind-set, a different way of thinking about finance and how we can all be smarter about changing behaviors on how we access finance, how we keep our finances, how we use our finances, how we can mobilize our finances and how better we can make use our finances to unlock some aspects of our own growth and development. The good news is that this mobilization has already started and it’s taking the shape of a silent revolution, especially following the introduction of financial technology and digital platforms in the financing space. Let us work on it.

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