NATIONAL OPEN UNIVERSITY OF NIGERIA
SCHOOL OF MANAGEMENT SCIENCES
COURSE CODE: BHM746
COURSE TITLE: MANAGEMENT OF FINANCIAL SERVICES
1
COURSE GUIDE
BHM746: MANAGEMENT OF FINANCIAL
SERVICES
Course Writer: Bala V.N Gonji
Department Of Accounting,
University Of Jos
Content Editor Dr ( Mrs ) Ayodele .O. Fagbemi
School of Business & Human Resources Mgt
National Open University of Nigeria
Programme Leader Dr. D. I. Mailafia
National Open University of Nigeria
Course Coordinator : Mr. Emmanuel . U. Abianga
School of Business & Human Resources Mgt
National Open University of Nigeria
2
TABLE OF CONTENTS PAGE
Introduction
3
Course content 3
Course objectives 4
Course material 4
Study units
5
Self assessment 5
Tutor marked assignment 5
Final examination 5
Summary
5
Reference/further reading 6
3
INTRODUTION
Financial service marketing is a two credit course. The course is designed to
equip the learner/student with knowledge of financial services, financial
institutions and the various services they render. The course is helpful to the
individual, student and employee who may find himself in an organization.
Finance is required in every facet of life. Knowledge of financial service is
important in bringing about the required finance.
COURSE CONTENT
The course has these modules each module contains five units.
Module 1 examines marketing as a management function, the meaning of
financial services and the marketing implication. The characteristics of
financial services, the necessity and procedures for planning for financial
services were covered. The role of financial services in intermediation was
analyzed. The units in this module cover these sub topics.
Module 2 deals with five units that cover market segmentation and market
mix strategies in financial services. Marketing of financial services is
important and so are innovations to sustain financial services. The
environment has significant impact on the financial services and the marketing
of financial services. These were the subject of this module.
Module 3 appraised financial services, treasury financial services, short-term,
short and medium term financing and long term financing. All these have
significance in liquidity, solvency, and capital availability which are important
in sustaining operations, ensuring viability and continuity.
This course guide is avails you the highlights of the entire course. Through it
you will be able to successfully complete this programme. You will be
equipped to identify and use financial services. This course is structured in a
pattern that is easy to read and understand. Self assessment questions help to
put the student/learner in focus. The tutor-market assignments (TMA) are to
test the understanding of the student in key areas in the subtopics. You need to
sharpen your knowledge on the topics in these assignments for personal
knowledge as well as scoring high grades in the examination.
COURES AIMS
The course equips the student/learner and strengthens the student’s/learner’s
knowledge on financial services for the purpose of accessing financial
services. The various financial institutions and the services they render ensure
4
the availability of funds for operations and growth of the organization. In this
course the following aims are to be achieved:
• To define and describe financial services.
• To identify the types and characteristics of financial services.
• To evaluate and plan for the financial services that appropriate to the
financial decision.
• To analyze the dynamics of the financial environment and financial
services marketing in order to make informed decisions.
• To identify and access short-term finance and long term finance.
• To utilize financial resources for the benefits of the organization.
COURSE OBJECTIVES
At the end of the course the following objectives would have been realized:
The student learner should be
• Able to define and describe financial services.
• Able to knowledgeably identify financial services, institutions and
their different characteristics.
• Able to evaluate, analyze and plan for financial services.
• Evaluate the financial environment for making informed decisions on
financial services.
• Able to identify and utilize financial resources for the benefits of the
organization
COURSE MATERIALS
The course has the following tools:
• Course guide
• Study units
• Text books list
• Assignments.
5
STUDY UNITS
The highlights of the 3 modules (15 units) are:
MODULE 1
Unit 1 Marketing as a management function.
Unit 2 Financial service meaning.
Unit 3 Characteristics of financial services.
Unit 4 Marketing planning in financial
services.
Unit 5 Analysis of financial service market.
MODULE 2
Unit 6 Market segment.
Unit 7 Market mix strategies in financial
services.
Unit 8 Marketing of financial services.
Unit 9 Environment for financial services
market in Nigeria.
Unit 10 Innovation in financial service-
marketing the internet system etc.
MODULE 3
Unit 11 Appraisal of financial service marketing
Unit 12 Treasury financial services
Unit 13 Financial service and short term asset
management.
Unit 14 Short and medium term financing.
Unit 15 Financial services and long term
financing.
You are expected to be committed t your study. Putting in at least 2 hours on
each unit will lead to the realization of the objectives for that unit. Towards
this the pattern has been outlined for easy reading and understanding. The
content of each unit at a glance gives the main topics to be studied. A
methodical approach will be helpful. Start with the introduction and make sure
you understand the aims of the unit. Spend more time on the main content.
Attempt the self assessment questions formally. Be serious with the Tutor-
Marked Assignments. After understanding the unit consult other books and
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the references before writing your TMA. This way you will be fully equipped
for your examinations.
SELF ASSESSMENT.
Self assessment questions are for your practice. They will help build your
understanding and confidence on the unit.
TUTOR-MARKED ASSIGNMENT
These are assignments that will be graded. You are to spend meaningful time
on each assignment. Consult other texts so that you are in no doubt as to what
you are requested to cover in the assignments. The assignments carry 30%.
Your examination will be 70%.
FINAL EXAMINATION
The examination score is 70% while your TMA is 30% giving a total of
100%. Both are important and must be given adequate time. Aim for the
highest grade of 100%.
SUMMARY
The ultimate goal for studying financial services marketing is to be equipped
with knowledge of financial services, institutions and providers of finance
services. This is helpful in procuring finance which is important in every
organization. The dynamics of the environment must be analyzed and studied
to make meaningful, informed decisions.
REFERENCES/FURTHER READING
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Asen, S.A. (2006): Principles and Practices Approach to
Management, Bauchi-
Nigeria: New Era Production.
Cole, A.C. (2007) Management Theory and Practice, C & C Offset
Printing co. Ltd, China….
7
DuBin, A.J. (2006) Essentials of Management, Thompson, South-
Western, USA.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
8
COURSE CONTENT
BHM746: MANAGEMENT OF FINANCIAL SERVICES
Course Writer Bala V.N. Gonji
Department Of Accounting,
University Of Jos
Content Editor Dr ( Mrs ) Ayodele .O. Fagbemi
School of Business & Human Resources Mgt
National Open University of Nigeria
Programme Leader Dr. D. I. Mailafia
National Open University of Nigeria
Course Coordinator : Mr. Emmanuel . U. Abianga
School of Business & Human Resources Mgt
National Open University of Nigeria
9
TABLE OF CONTENT
Module 1
Unit 1 Marketing as a management function …………………….3
Unit 2 Financial service meaning…………………………………12
Unit 3 Characteristics of financial services……………………….19
Unit 4 Marketing planning in financial services………………….26
Unit 5 Analysis of financial service market………………………35
Module 2
Unit 6 Market segment……………………………………………41
Unit 7 Market mix strategies in financial services………………..46
Unit 8 Marketing of financial services……………………………50
Unit 9 Environment for financial services market in Nigeria……..56
Unit Innovation in financial service-marketing
10 the internet system etc……………………………………...61
Module 3
Unit Appraisal of financial service marketing…………………...66
11
Unit Treasury financial services…………………………………71
12
Unit Financial service and short term asset management………..75
13
Unit Short and medium term financing………………………….79
14
Unit Financial services and long term financing………………...85
15
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UNIT 1: MARKETING AS A MANAGEMENT FUNCTION.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main cost.
3.1 Marketing
3.2 Management
3.2.1 Management objectives
3.2.2 Basic elements of management
3.2.3 Summary of functions of management
3.2 Financial Services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction.
Marketing meets the needs of the customer as goods and services are made
available to satisfy customer’s needs. In regard to financial services, marketing
identifies the financial needs of customers and satisfies these.
Management on the other hand brings about the realization of group objectives
through individuals’ best contributions (Weihrich& Koontz: 1993 ; Asen et al;
2006). Henry Fayol is the ascribed Father of management theory. Management is
defined as `the process of designing and maintaining an environment in which the
individuals, working together in groups, efficiently accomplish selected aims
(Weihrich & Koontz: 1993). The basic elements of management are planning,
organizing, staffing, leading and controlling.
Financial services bring about the financial resources that enterprises or business
require. The management of these resources means that these upon which lies the
responsibility of achieving goals of the enterprises must understand and apply the
expertise of management functions. They should be able to plan, organize, engage
the appropriate financial experts, lead and control financial resources.
2.0 Objectives.
At the end of this study, the learner should be able to:
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i) Define and describe marketing and management
ii) Explain the role of marketing and management in financial management
services.
iii) Discuss the usefulness of marketing and management in running an
enterprise or business entity successfully.
3.0 Main content
3.1 Marketing.
Kotler & Keller (2006) define marketing as “identifying and meeting human and
social needs”. This involves meeting needs profitably. Marketing savvy
transforms needs into profitable ventures. The American Marketing Association
(2004) defines marketing as
an organizational function and a set of processes for creating, communicating and
delivering value to customers and for managing customer relationships in ways
that benefit the organization and its stake-holders.
Kotler & Kellers define marketing as
a social process by which individuals and groups obtain what they need and want
through creating, offering and freely exchanging products and services of value
with others (Kotler & Keller,2006:6)
Their definition is from a social perspective and solicits response from another
party, existing or potential. The aim of marketing therefore is to help uplift the
living standard of parties involved. Markets are avenues for exchange of values
between seller and buyer. In this process, their needs and wants are satisfied.
Success in any organization is dependent on marketing ability. Demand for
products gives relevance to functions performed by different departments, units or
organs in the business. Survival in the market place and in the course of
competition is possible through good functional marketing activities. Major
decisions may fail and the business collapse unless marketing decisions such as
product design, new product, product prices, place, promotion and advertising etc
are considered. These considerations are aimed at customers and their needs.
Marketing deals with customers (Kotler & Armstrong, 2008:4) and managing
profitable relationships. Marketing is a social and managerial process by which
individuals and organizations obtain what they need and want through creating
and exchanging values with others. It builds profitable value-laden exchange
relations with customers (Kotler & Armsrong, 2008:45).Management is
concerned with the continuity and survival of the business. This can be achieved
by meeting customer needs, making profits and ensuring returns to stakeholders
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viz shareholders, managers, employees, owners, society and even customers
(existing and potential). This is realized through planning, organizing and
controlling their resources and motivating employees (Cole, 2004:7). He quotes
Drucker as having described management as the `systematic organization of
economic resources` and making this productive. Management therefore describes
a number of different activities going on in an organization under the guidance
and responsibility of some people.
The responsibility of marketing is that of management. That is the persons
responsible for realizing the objectives of the business. They use ` organizational
resources to achieve organizational objectives`, using the management function
and processes (DuBrin, 2006:1). Those who want to access such funds have their
needs and so evaluate their financial needs before approaching financial services.
Within their organizations are well trained personnel in accounting and finance,
who internally provide financial services or advice. They may obtain same from
accounting firms, stockbrokers, and friends (informally).
Financial services bring funds about at a cost. This cost must be considered for its
impact on the performance of the organization and its viability. Central to the
evaluation of financial services is the risk element. This operates both from the
providers’ and receivers’ perspective. Marketing takes cognizance of all these and
other variables in evaluating financial services. This concept is crucial in
management, in organizations and in their success or failure.
Self Assessment
What is marketing?
3.2 Management
The word management could refer to any of the following:
i) Management may refer to the functions performed by managers.
ii) Management may refer to the concept of the managing function. That is the
information or knowledge concerning managing.
iii) It may ref er to positions in organizations either profit or non-profit oriented.
iv) Management often refers to a career.
Therefore management must be understood within a context. Essentially it yields
results and objectives are realized.
3.2.1 Management Objectives.
Organizations are set up to achieve set objectives. Some of these are:
i) Profit Making:
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Businesses that are established with a view to making profits run their businesses
in such a way that they should normally have a surplus or gain, reward or return
after spending money on making their products and selling same at a price higher
than what they have spent. That is
Profit = Sales minus expenses.
Where the product is sold below the cost price, the business has made a loss or a
deficit or a shortfall. No manager allows this situation to arise. Businesses that
make profits are able to survive while those that make losses sooner than later are
out of business. Investors who buy shares etc or start their own businesses want
profit or return to accrue to them.
ii) People invest in business, whether one man business or in purchase of
shares or stocks in a public limited corporation usually want their investments to
grow or appreciate. Increasing the value of a business or share price is an
indication that a business is growing. Some prefer that their business or
investments grow. Returns are important but growth in their capital or
investments is more important to them.
iii) Survival.
What is the point in starting a business that will soon cease to exist? Managers
have a duty to ensure survival both in the immediate, short and long run.
Therefore, returns and capital growth must be balanced to ensure the survival of
the business.
iv) Not for profit organizations such as government, religious organizations or
social organizations (clubs, tribal/ cultural or ganizations etc) are managed to
achieve their social or political goals. Whatever are the goals, management helps
to fulfill these goals. Without goals an organization is aimless. Without
management, goals cannot be achieved. Goals are the focus of management.
Management involves actions that evoke from individuals their best contributions
to group objectives. This applies in every organization weather big or small or
profit or not for profit, manufacturing or services. The efforts and concer n of the
manager is efficient management of resources.
Self Assessment
What are the objectives of managements?
3.2.2 Basic Elements of Management.
The activities and functions of management revolve around five basic elements
viz:
i) Planning.
ii) Organizing
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iii) Staffing
iv) Leading
v) Controlling.
These functions are performed at the following levels of management: Top level
managers, middle level managers and first level supervisors (in preference to
lower managers). The level of involvement and the functions. Top level
management (managers) spend a great deal of time on planning and organizing
but more on organizing while ensuring that leading and controlling are not
neglected. Middle level managers spend more time on organizing and leading
while supporting planning and controlling. First level supervisors spend more
time on leading without disregarding the other functions. In other words, the three
levels of management have their areas of focus:
i) Top management focuses on organizing and planning.
ii) Middle level management focuses on leading and organizing.
iii) First level management focuses on leading.
Nevertheless, every level performs all key functions but with emphasis on the
specific element(s). These functions are further distinguished by the time spent on
each. Top level management spends more time on planning and organizing than
on the other two levels. Middle level management spend more time organizing
and leading than first level supervisors. First level supervisors spend more time on
authority.
Taking the entire functions more time and resources are expended on organizing
and leading than on planning and controlling. The issue of staffing affects the
entire structure of the business or enterprise. The planning, organizing, leading
and controlling are done using various skills (abilities of individuals). These skills
are applied at different levels and also the intensity or amount differs. Kaltz
(1974) gives 4 skills:
• Technical skills involve tools and techniques.
• Human skills involve teamwork, co-operation while allowing people to
express their opinions.
• Conceptual skill visualizes the whole picture of relationships amongst
elements and their effects.
• Design skills are used to solve problems and remove challenges
Self Assessment
What are the roles of the three management levels?
3.2.3 Summary of Functions of Management.
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Planning
This gives direction in achieving goals or objectives. The vision, mission and
courses of action to be taken should be made clear and known to all players.
These are different plans. Those currently being implemented, those for the short
time and those for the long run. There must be commitment to planning in terms
of resources, time and human efforts including supervision.
Organizing
There must be a structure that facilitates executing the various functions to realize
enterprise objectives. In this structure, roles that are to be played, a conducive
environment for individuals to perform their roles and the environment that
maintains quality of other physical resources. People should be playing roles that
lead to group objectives and they need to be motivated accordingly.
Staffing
- Individuals fill positions and are maintained.
- The requirements for positions are clear.
- Evaluating staff on ground.
- Recruiting, selecting, placing, promoting, appraising, planning career of
staff, training etc for those on ground and to be required.
Leading
People are normally influenced to contribute to obtain results or achieve
objectives. People have different aspirations or desires and attitudes. Harmonizing
these towards group efforts often prove challenging and can affect the objectives
of an enterprise. Those leading and those following need to understand
themselves, their styles of leadership etc to make this function effective.
Communication between the stakeholders has become an inevitable lubricant in
effective leading. Leading people is a constant known challenge.
16
Controlling
This involves measuring and correcting performance or efforts by individuals and
groups as regards objectives. Deviations from plans are determined and corrected.
Quantitative and non-quantitative plans must be measured against actual
performance.
Coordinating
Co-coordinating is an element that flows through all the elements of management
and so is central to the management function. Co-ordination brings about
harmony and ensures that stakeholders are carried along and all aspects of
management are not neglected.
Self Assessment
Define the key management elements.
3.3 Financial Services
Marketing of goods and services, called products, is the essence of organizations,
no matter the type of organization. In the financial industry, the products are
finance. Marketing of finance is the responsibility of providers of such finance.
Finance becomes available when investors who have surplus of funds put these in
the depository institutions for safety and for returns. The depository organizations
now source for those in need of the funds and make profitable returns from theses
activities. Users also who need the funds know where to go to obtain the much
needed finance.
Although the activities of these depository bodies are known, extensive marketing
is required to formally create awareness about their financial services. The
services themselves are as dynamic as the needs of the customers and the
providers make efforts to satisfy these needs.
Marketing of financial services is required to sensitize potential depositors to
come forward and patronize the depository institutions. The more the patronage
(by both existing and new customers) the more the funds are available to those in
need of such funds. Marketing places a key role in identifying needs of unwilling
depositors and creating services that will meet these.
Non-depository institutions like capital market (stock exchange) insurance,
building societies/mortgage institution, pension funds help in raising large sums
of money. Depository bodies may not readily make available these funds. Their
services are critical in generating funds.
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4.0 Conclusion
The above discourse has the relevance of marketing in management. Management
is responsible in harnessing group objectives through individuals’ contributions.
5.0 Summary.
This unit has examined marketing and the management functions. The key
functions of organizing, planning, staffing, leading and controlling have been
explained. The three levels of management viz: Top management, middle
management and first level management were discoursed. The functions of
management are applicable in management of financial services. Financial
services also need adequate management.
6.0 Tutor Marked Assignment
1) Define marketing and management and explain the objectives of
management.
2) Explain financial services.
3) Summarize the key functions of management.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Asen, S.A. (2006): Principles and Practices Approach to
Management, Bauchi-
Nigeria: New Era Production.
Cole, A.C. (2007) Management Theory and Practice, C & C Offset
Printing co. Ltd, China….
DuBin, A.J. (2006) Essentials of Management, Thompson, South-
Western, USA.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
18
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
Weihrich, H and Koontz (2001): Management, A Global
Perspective, McGraw-Hill Publishing Company Ltd.
New Delhi:Tata
19
UNIT 2: FINANCIAL SERVICES-MEANING:
CLASSIFICATION, CHARACTERISTICS AND MARKETING
IMPLICATIONS.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main cost.
3.1 Financial services.
3.2 Classification of financial institutions
3.2.1 Deposit-taking institutions
3.2.2 Contractual savings institutions
3.2.3 Other investment funds.
3.2.4 Money market.
3.2.5 Capital market.
3.2.6 Other financial institutions.
3.3 Financial services
3.4 Market implication
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction
Finance is required and is useful for the realization of objectives. Management of
cash is central to the finance function. Good cash management is at the heart of a
healthy business (Pike and Neale, 2006:7). Cash and finance are the life of a
business. Realization of objectives underlay the management of finance. Creation
of value through financial management involves making investment decisions and
financing decisions.
Investment decisions bring about capital assets while financing decisions resolve
issues of how and where to raise the capital to fund operations now and in the
future. These two functions drive the key objectives of value maximization
especially for the business. Not-for-profit organizations have their objectives and
these are achieved by the role the investing and financing functions play.
Financial services deal with the provision of key functions of financial
management. There are specialist organizations and individuals that render these
functions. Even within the organization these services can be enjoyed or received
from outside.
20
2.0 Objectives
At the end of this unit, the learner should be able to:
• Explain financial services.
• Describe the various types of financial services.
• Analyze the marketing implications of financial services.
3.0 Main Content
3.1 Financial Services.
Financial services should ensure that sufficient funds are available to meet the
needs of the business. Financial services are provided by financial institutions to
sustain current operations and or meet future operating requirements. Organized
businesses deal formally with known regular financial institutions. In Nigeria, that
is still developing economically, informal sectors exist alongside with the formal
institutions.
3.2 Classification of Financial Institutions.
Financial institutions that render financial services are classified with three formal
categories (Pike and Neale: 2006:27).
• Deposit-taking institutions.
• Contractual savings institution.
• Other investment funds.
• Money market.
• Capital market.
• Other financial institutions.
3.2.1 Deposit-Taking Institutions.
Banks dominate is this sector. There are commercial banks, investment banks and
merchant banks which specifically deal with wholesale banking. Commercial
banks are more common than specialized banks in terms of spread and clientele.
These special banks, such as mortgage banks and industrial or development banks
are set up for specific purposes. For example in Nigeria, there is the Nigerian
Export-Import Bank (NEXIM Bank) which is import/export focused. The
Nigerian Bank for commerce and industr y provides a conducive environment for
investment in Nigeria. Commercial banks receive deposits from customers and
21
payout these to them when demanded. There are acceptance houses which accept
bills of exchange from discount houses and discounting same. Traders that are not
well known have access to these services. Those that have established reputation
within the sector patronize banks such as commercial banks.
Merchant banks provide financial advice and arrange finances for companies.
They are also involved in flotation of shares on the stock exchange. They help in
developing new financial products and arranging mergers, acquisition and
restructuring for businesses. They manage investment portfolios of pension funds,
insurance companies, investment and unit trusts, charities. Merchant banks play a
significant role in the capital market.
Globalization has made overseas banking relevant especially through regional
economic blocks and growth of multinational companies. Notable financial hubs
such as London, New York etc market provide funds to big organizations and
their foreign subsidiaries etc. Building societies specialized in mobilizing funds
for building or purchase of houses.
Self Assessment
What are deposit taking institutions?
3.2.2 Contractual Savings Institutions.
To this category belong pension funds and insurance companies. Pension funds
receive money from employers and employees. Such funds may be invested
directly in the financial markets or insured and the risk covered by a life assurance
company. Pension funds have become major sources of funds for investment.
Insurance companies are either general or long-term. General insurance covers
losses arising from fire accidents, motor, marine etc upon payment of premiums.
Long term covers life assurance and pension provision.
Self Assessment
Give examples of contractual savings institutions.
3.2.3 Other Investment Funds.
This is private sector managed. These are being replaced by financial institutions.
They manage unit trusts. Investment trusts are companies that have their shares
quoted on the stock exchange. They invest specifically in securities. Their shares
are usually sold at a discount. These shares can be sold at the stock exchange.
Units trust syndicate or pool investments with each investor allocated units or
trenches according to amount subscribed. They are operated by banks and
subscribers supervised by managers appointed for that purpose.
22
Self Assessment
What is investment trusts?
3.2.4 Money Market
The money market is a financial arrangement for receiving and obtaining funds
for the short time period. Lending and borrowing take place within a short interim
period. This is a market for money and other short term assets such:
• Banker’s acceptances.
• Certificates of Deposits (CBN).
• Treasury Bills.
• Promissory Notes.
• Call Deposits.
• Bankers Certificates of Deposits (fixed, called).
• Commercial Papers.
The characteristics of this market are:
• Key players are the Central Bank, banks and financial discount houses. Banks are
the dominant participants.
• The instruments traded last for between 30 days to 365 days.
• Some are negotiable while others are not negotiable.
• They demand high level of trust worthiness and commitment.
• They strongly facilitate intermediation.
Self Assessment
What a money market?
3.2.5 Capital Market
The market is for long term investments. Funds are invested for longer than five
years. The market is regulated by the Nigerian Stock exchange Commission while
the place or organ that facilitates the actual trading is the Nigerian Stock
Exchange. It has the following characteristics:
• It’s a market for long term funds.
• The instruments for trading in the market are ordinary and preference shares,
bonds, debentures, options and futures.
• Participants are individuals, unit trusts, Banks, pension funds, insurance
companies, government (at all levels), central bank, Nigerian stock exchange,
securities exchange commission and stock brokers.
• Provides funds to industries and government.
23
• Sources of development and growth.
• The instruments are traded on the floor of the stock exchange except for Initial
Public Offer (IPO).
There are hybrid instruments which are found both in the money market and
capital markets. Some are;
• Treasury certificates (one to two years).
• Bonds or loan stocks for maturity under 5 years.
Self Assessment
Define capital market.
3.2.6 Other Financial Institutions.
Building societies and other financial houses such as finance companies, micro-
banks collect moneys from depositors. Those seeking for funds have access to
them based on their mandates.
3.3 Financial Services.
There are organizations that are specialized or professionals in providing
financial services. Some of these are:
• Banks.
• CBN.
• Professional Accountants.
• Chartered Accounting Firms.
• Financial Analysts.
• Stock-brokers.
• Financial consultants.
Most reputable businesses appoint financial experts apart from their employees to
guide them or be involved in making financial decisions. Financial events,
analysis and reports are sources of information which serve general financial
guides on daily regular happenings with the economy. The quality of these
services should be high and sustainable.
Self Assessment
Who are the providers of financial services?
3.4 Market Implication
24
Financial services make management smooth and successful. Therefore the users
and suppliers of these services are important. Suppliers of these services are
increasing in number and the services are in varieties. Users are being attracted in
different ways to patronize these services. Suppliers of these services compete to
meet the needs of their clients and to expand their clientele. The user has a range
of choices to make. The choices should be guided by quality, as usual. The cost of
the financial services and its impact on the performance, survival, strength,
viability and future growth of the organization are important. Financial services
chosen should not increase the risk of the beneficiary.
4.0 Conclusion
The above has explained the importance of financial services as the medium
through which finance is obtained. This is required for operations now and for the
future. The various sources of funds and types of institution show where such
funds can be obtained. The finance required and the purposes determine where to
go to obtain the finance. The providers and users employ experts or professionals
in order to provide or obtain the finance at minimum risks. These services are
being marketed but the objective and quality of service dictates the choice.
5.0 Summary
The unit has presented the various financial services available in the financial
industry. These are deposit taking, contractual savings institutions and investment
funds. The role of capital and money markets were also examined, along with the
marketing implication for financial services.
6.0 Tutor-Marked Assignment.
1) Explain the following terms
a) Depository institutions.
b) Contractual institution.
c) Investment funds.
2) List instruments used in the money and capital markets.
227.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
25
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
26
UNIT 3: CHARACTERISTICS OF FINANCIAL SERVICES.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Financial Services
3.2 Characteristics of financial services.
3.2.1 Accounting services
3.2.2 Auditing services
3.2.3 Banking services
3.2.4 Capital market services
3.2.5 Insurance services
3.3 Marketing implication
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction
Financial resources are liquid assets that are cash or can be easily translated into
cash. They manifest as cash, debtors (or receivables), inventory, investments in
short term instruments in the money market. Cash invested for long in businesses
appear as long term investments or fixed assets. The same items are described as
capital, long term liabilities or short term sources of liabilities. These explain the
sources of such funds. Funds obtained for long term investment come from issues
of debt (debentures or bond or loan stock). Shares or equity capital represent
permanent which is non-returnable.
Debt capital is repayable and so has temporar y permanence. Short term liabilities
supply short term fund such as trade creditors, accrued expenses, short term loans,
overdraft etc. Financial services are provided to supply financial resources, ensure
their optimum use. The benefits and returns or cost and disadvantages associated
with them have to be determined and balanced before making financing decisions.
The analysis of the financial resources necessitates knowing their characteristics
in order to make an informed decision. The unit will examine the characteristics
of financial services in accordance with where the finances to be obtained.
2.0 Objectives
• Describe financial services
• Explain the characteristics of financial services.
27
• Explain the marketing implications of financial services.
3.0 Main content
3.1 Financial Services
Financial services are information based. They provide information about the
sources, types, advantages and disadvantages of the type of finance. There are
risks, cost and analysis and choice of the finance considers these. There are
effects and cost implication on performance and viability, existence and
sustainability of the organization which arises from wise use of funds or poor use
funds.
The services arising from the use of finance may be from within or from without.
The internal services are internal audit, accounting services as well as financial
services. Financial services border on accessing banking, insurance, and capital
market services. Sometimes, designated officers are given responsibility to handle
or supervise these services which specifically cover long term sources of funds
especially capital market. The magnitude of the importance of financial services is
seen in the huge investment in financial record keeping, ensuring quality of
financial statements through auditing services (internal and external auditing
services).
Often, financial advisers or consultants are engaged to offer advice and
suggestions on implications. Banks are also appointed as official bankers for
professional opinion on financial matters in addition to rendering normal banking
functions. Financial services from outside are enjoyed from external auditors.
This is a statutory requirement.
Capital market services have become so important that banks, big ones, have
subsidiaries that handle capital market transactions. There are Registrars and
stockbrokers. They handle issues of shareholdings and liaising with stock
Exchange and Exchange commission in regards to new issues or raising of fresh
capital. The distinction between external and internal financial services depends
on the size and scale of operations of the organization. Small organizations
depend largely on external financial consultants, usually their auditors, to prepare
their financial statements.
Self Assessment
Define financial services.
3.2 Characteristics of Financial Services
3.2.1 Accounting Services
28
Accounting is defined as the art of recording, classifying, analyzing, summarizing
and interpreting financial information to make informed decisions. Okwoli (1993)
further says communicating the financial information is important. The American
Institute of Certified Public Accountants requires that the transactions, events
must be significant and should have economic values. Accounting provides
financial information. The characteristics involved:
• Documenting all financial transactions and their approvals.
• Ensuring qualitative and accurate data and information generation.
• Presentation of data and records.
• Interpretation and communication of information to users of accounting
information such as managers, owners, government, creditors, employees etc.
• Confidential and secured handling of information to prevent competitors
accessing same.
• Prompt processing and timely availability of accounting information guide in
decision making, planning and control.
The quality of personnel is vital to obtaining relevant, accurate and useful accounting
information. Attention on the following is important:
• Sound training, professional, qualification and commitment.
• Integrity, honesty and reliability of accounting personnel.
• Experience and hard work.
• Understanding the dynamism of the environment.
Accounting services can be obtained internally or from outside.
3.2.2 Auditing Services
The training and background as well as the quality of the auditing services
expected are the exact replica of accounting services. They serve as quality
control points through the checks, control and evaluation of all financial,
accounting and other services being rendered. This has the mandate of the Chief
Executive Officer of the organization to whom internal auditors report and the
shareholders who appoint the external auditors.
3.2.3 Banking Services
Banks are depository financial institutions that receive deposits. They offer other
services such as intermediation, cheque payment services; safe keeping of
valuables, guarantorship, agency, policy implementation etc. banks maybe:
• Commercial banks.
29
• Investment/merchant banks.
• Specialized banks.
• Micro banks.
• Savings/Mortgage banks.
These banks can be broadly classified into two categories. Those involved in short
term intermediation predominantly, such as commercial banks. They deal mainly
in the money markets. Common instruments used one cheques, bills of exchange,
treasury bills, certificates, acceptances, promissory notes. There are banks that
deal on long term intermediation such as commercial banks to some extent,
merchant banks, specialized banks such as investment, mortgage banks.
Investment banks underwrite issues and handle securities transactions. Mortgage
banks focus on property mortgages.
3.2.4 Capital Market Services
These are peculiar to long term funds such as shares, debentures/loan stock. The
Nigerian Stock Exchange is the primary market. The handling of fresh issues
(called initial public offers, IPO) is done through the Nigerian Stock market. The
market where secondary transactions other than initial issues take place is called
the second tier securities market. The Nigerian Stock Commission regulates the
stock market operations. Professional brokers handle these transactions for and on
behalf of individuals and organizations. Capital market instruments are:
• Ordinary shares.
• Preference shares.
• Debentures.
• Loan stock or bonds.
Self Assessment
Define a capital market.
30
3.2.5 Insurance Services
This is a non-depository financial institution. Premiums are received for insurable
risks, life or non life. There are risks that may occur and those that must occur.
Accidents, loss of property may arise just as jobs may be lost. Compensation may
be made upon the occurrence of the incident. There is certainty that death of the
insured individual will occur. No individual lives forever. Cushioning for effects
of sudden death or death due to illness, on family member warrants life assurance.
Insurance services are rendered b y insurance companies, insurance brokers. Their
services are important in cushioning the effect of the loss of the insured asset or
the occurrence of death or health calamity. This services demands honesty,
integrity, trustworthiness in both the insured and the insurance. Substantial sums
of money are mobilized through insurance services. These are kept in banks and/
or invested in profitable ventures.
3.3 Marketing Implication
The various financial services are regulated by the laws setting them up. Their
operations are consequently guided by such laws. The goal is bringing the
services to the awareness of existing and prospective customers. Marketing
strategies take cognizance of the peculiarities of the nature of the service, the
relevant laws and professional etiquette governing such services. Financial
resources are quite sensitive and risky.
Confidence in the providers of such services is the basis for patronage. The
qualities of integrity, honesty and reliability of providers of such services sustain
patronage. Safety of funds and accurate rendition of information concerning
financial transactions remain fundamental to marketing of these services.
Communication between providers and consumers of financial services should be
regular and quite capable of resolving gray areas that may create mistrust.
Bankers and insurance businesses are quite many and compete freely. They
advertise their services old and new products publicly. Also, energy and any
available media that will give the customers and the public adequate information
are employed.
The marketing implication focuses on quality services to be gained in patronizing
any bank or insurance company. Auditing and accounting services are not given
wide publicity as done by banks and insurance businesses. Through personal
contact and reputation, the services are patronized. The professional bodies ensure
commitment and integrity through appropriate guidelines, standards, monitoring
and regular training. Capital market operations take place in the stock exchange
markets. Appropriate legislation and control are important to maintaining
security, efficiency and success of the market operations.
31
The growth of the market is seen in the establishment of branches of the market in
viable cities. Marketing has the objective of bringing out the advantages and
benefits of investment in the capital market. The more the public is aware of this,
the longer will be the market. The brokers who are key operators in the market are
regulated and monitored by the stock exchange commission and the stock
exchange market regulators.
Self Assessment
What is the marketing implication of financial services?
4.0 Conclusion.
Financial services generate financial resources of various types. Each type of
resources has benefits and costs. They are solvent and risky. The cost and benefits
are to be weighed to enable informed decisions making on the choice of a
particular type or a composition of some. Accurate documentation, correct
information and integrity of the personnel responsible for financial services are
worthy of consideration.
5.0 Summary.
The unit has described and explained the nature type and sources of financial
resources. Financial services have different characteristics depending on their
sources. Auditing, accounting services, insurance and capital market services have
been discussed. Their marketing implications were also high lighted.
6.0 Tutor-Marked Assignment.
1. Discuss qualities that will make accounting information useful.
2. Explain the term financial services and list their types.
3. What are the key considerations in marketing accounting, auditing, capital,
banking and insurance services?
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
32
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
33
UNIT 4: MARKETING PLANNING IN FINANCIAL
SERVICES.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing planning.
3.2 Steps in marketing planning.
3.3 Planning for financial services.
3.4 Linkage between marketing planning and
financial services.
3.5 Planning for financial services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Market assignment.
7.0 References/Further readings.
1.0 Introduction
Marketing has been defined as “identifying and meeting human and social needs”
(Kolter and Keller, 2006) and at a profit. Therefore, meeting the needs of an
organization requires that the organization identifies the needs of the customers.
This necessitates planning. Planning is essential to achieve objectives of an
organization.
The plan must have a scope to meet the needs of customers at the short run and in
the long run. Needs cannot be met unless there are financial resources to meet
them. These resources are more often than not scarce. Their availability must be
planned for. Planning for financial services is the sure way to obtaining financial
resources which are needed to sustain operations. These resources vary and they
have costs.
Holding excess financial resources may result in waste or loss of revenue. The
revenue that would have been received were they invested would be lost.
Shortage of financial resources have costs. The operations may have to be
temporary. This means customer needs may not be met as and when expected. It
may also mean that satisfying customer needs may be delayed. This results in loss
of such customers or loss of market share. Obtaining these resources when
scarcity of them sets in may be at a cost. Emergency remedies have their
34
disadvantages. Thus, planning for financial services is inevitable. The sources of
finance and the organizations providing these services have to be put on notice to
average for finance. Planning in this regard is a good way to avoid
embarrassment.
2.0 Objectives
• Explain marking planning.
• Explain linkage between marketing, planning and financial services.
• Describe how to plan for financial resources.
3.0 Main Content
3.1 Marketing Planning
Financial resources are ultimately needed to accomplish marketing plans and
satisfy existing markets and even future markets. Resources are efficiently
deployed on the basis of good and implementable or workable plans. Planning for
markets usually culminate in financial resources for meeting the needs of these
markets. Products do not come into existence unless they are produced. The
sources for finance and the sort of services available by those rendering or
providing such should be known and planned for. Marketing planning is
fundamentally:
• Analyzing marketing opportunities.
• Selecting target markets
• Designing market strategies.
• Developing marketing programs.
• Managing the marketing effort. (Kotler and Keller, 2006).
Marketing planning results in delivering superior value that will meet and satisfy
customer needs, demands and wants in the midst of abundant choices. In
developing markets (developing countries) choices are limited and so planning to
meet market needs may be unnecessary.
However, in developed economies, there is competition because there are choices
of products and services. Micro-marketing is common in developed economies
while mass marketing is common in developing or less developed economies. The
major goal is value delivery, delivering what customers want. * The value
delivering process requires a choice of either customer segmentation or market
focus or value positioning. This covers product development, service
development, sourcing making the value (product or service) and distributing
35
same. The last function is communicating the value. This is how the value is
brought to the customer through sales promotion and advertising. Planning
preceeds value delivery. The traditional approach is product design, procuring or
making the product, pricing, selling advertising, promoting distributing and
providing customer service. Marketing planning depends on the approach taken
by the planners.
That is whether it is Webster’s or Kumar’s approach viz;
Webster’s marketing approach Kumar’s marketing approach
Value defining process. Value segmentation.
Value developing process. Value positioning.
Value delivering process. Value network.
These approaches will have identical results.
Self Assessment exercise: List the fundamentals in marketing planning and list
Webster’s and Kumar’s marketing approaches.
Self Assessment
What do we mean by marketing planning?
3.2 Steps in Marketing planning
Based on the approach chosen, the following are to be considered value chain.
Chains are activities followed to bring about a product or value. There are nine
such activities divided into primary and support activities.
A) Primar y activities.
These are:
1) Bringing materials into the business.
2) Material conversion to final product.
3) Shipping out.
4) Marketing and sales.
5) Servicing.
B) Support activities.
These include:
1) Procurement.
2) Technology development.
36
3) Human resource management.
4) Firm infrastructure (both internal and outsource). For example management,
planning, finance, accounting, legal etc. The value chain is received constantly to
reduce costs, improve value even its existence.
Core Competencies
Core competence is the area in which the organization has comparative advantage
over others. It is key to its existence.
• It gives the company an edge over others.
• It contributes significantly to its profitability.
• It has wide application within the market.
• It cannot be imitated easily by competitors.
Market Orientation and culture
The goal of marketing is to satisfy relationships and especially stakeholders.
Therefore, people involved, valued exploration, creation and delivery is
important. Customers, owners, management, employees, community and
government must be satisfied.
Strategic Planning
This leads to successes. It takes us there. The value delivery process recognizes
strategic planning as well as tactical planning in relation to the whole marketing
effort. Strategic planning considers the distant future beyond five years while the
tactical deals with current or immediate coping strategies. The strategies consist
of the marketing strategy, the technological strategy and the sourcing strategy.
Planning for the long run is quite difficult (Palmer, 2004). Planning for the short
term and long term profitability should consider the environment. (Palmer,
2004:208).
Defining the Corporate Mission
Corporate mission is the whole essence of the organizations existence. Why was
the organization set up? To accomplish what? Organizations mission statements
capture their missions. This must be redefined as the need dictates. The definition
of the business and its mission may incorporate customer need, group or
technology. Different businesses in an organization must be defined separately
especially in a group.
37
Assessing Growth Opportunities
The company must determine where it is now in terms of operations and
profitability, the extent of meeting customer needs, how to fill any gap between
projected sales and desired levels considering the level of activity. Desired levels
are usually higher than projected (based on current operations). The desired may
be filled by expanding current operations or intensifying operations. It can be by
acquiring relevant businesses integration or by acquiring businesses that may not
be related (diversification). Businesses must evaluate and plan strategies for
growth for expected returns to shareholders and greater career opportunities for
managers (Palmer, 2004).
Organization and Culture
The structure of the organization may contribute positively or negatively to the
success of the organization. Its policies and culture are capable of affecting the
business. Structures and policies change easily but not culture. Both organization
and organizational culture are important in planning. Culture refers to the shared
values, norms, experiences, beliefs, of people within an organization.
Business unit Strategic Planning
This covers business missions, SWOT (internal and external) goal formulation,
strategy formulation, programme formulation, implementation and feedback and
control in this sequence. At the feedback and control stage the whole sequence is
re-started. Planning is required for short term and long term profitability and
should respond to changes in the environment (Palmer, 2004:208)
Establishing Strategic Business units
This defines the business the company is carrying on to achieve its corporate
missions, for example, car making, food processing, shoe making etc. The core
business can be redefined continually. Business definition may be based on
customer groups or customer needs or technology. Where there are different
businesses, each may have a separate strategy, and funding.
Assigning Resources to Strategic Business Units
• Profitability must be considered.
• The relevance must be evident.
• No wastages.
• Possibility of outsourcing.
Self Assessment
38
Discuss briefly the steps in marketing planning.
3.3 Planning for Financial services
The organizations size in terms of operations and markets will determine the level
of finance required. Small ones depend on the reputation and the integrity of the
owner(s). The level of finance required may be less substantial. Big organizations
have their reputation built around corporate management, policy instruments,
legal framework and their financial standing within the industry and economy.
The medium size businesses exist between the small organizations and big
organizations. They suffer the most because their sizes do not give them the
privileges of big organizations. They are larger than the small ones and yet suffer
their disadvantages.
Sources of finance for organizations are:
• Commercial banks.
• Capital market for long term finance (projects).
• Money market for short term finance.
• Internally generated funds from operations.
• Specialized banks e.g. NEXIM Bank and Nigerian Bank for Commerce and
Industry.
Providers of such finances are:
• Commercial banks.
• Insurance companies.
• Capital market operations e.g. brokers.
• Finance and accounting departments.
• Specialized banks.
Self Assessment
What are the sources of finance?
List the providers of such finances.
3.4 Linkage Between Marketing, Planning and Financial Services
Marketing helps to identify the needs of consumers. These needs have to be met
according to customer demand. Once the needs are identified the organization
commences procedures to bring the products or services that will satisfy these
needs, wants and demand. Marketing planning fulfils the procedures for bringing
about the products. Resources that are required to bring products into existence
39
are linked to the stages of production. Financial resources are central to marketing
planning. Marketing planning identifies the markets and financial planning
identifies the sources of funds to finance these activities.
3.5 Planning for Financial Services
The need for finance arises once a marketing plan has been drawn up. Depending
on the level of the organization and the scope of the market, the quality of goods
or extent of the service will be determined. The considerations are:
1) Can the financial resources available to the organization
from within finance the marketing plan? For future markets
with the organization look inward or should it look
outwards?
2) The level of planning may require sourcing for funds from
outside. Where the need is only for a short period or to
meet immediate needs, short term sources of funds
especially banks and financial institutions may be handy.
3) The organization may build up funds in the money market
to meet the immediate or temporar y financial needs of the
organization. For example, investing surpluses in fixed
deposits, treasury bills etc.
4) For long term needs of customer’s long term sources of
funds will be considered. Ordinary shares or preference
shares may be issued and raised to expand facilities,
operations or markets. Debentures or loan stock, in the case
of governments, may be issued and loans raised to finance
the marketing.
5) Long term loans, equity (preference and ordinary shares)
have serious implications which must be considered.
6) Approval of the Board may be required for lar ge
organizations. Processes for approval may be long.
7) The quality of financial statements matter. Audited
accounts must be available.
8) Financial plans, including cash budgets, must be available.
9) The need to use the services of the bank, stoke broker or
financial consultants must be examined.
10) Evaluating the cost of the funds to be obtained in the face
of alternative sources of financing is necessary.
Self Assessment
Why is it important to plan for financial services?
4.0 Conclusion
40
Marketing planning is essential in delivering of products. This must end with
financial planning in order to emplo y the resources of the organization to
efficiency. Planning for financial services takes cognizance of the various sources
of finance and who the providers are. Planning helps in enjoying financial
services and in meeting customer demand and profitably.
5.0 Summary
In this unit, marketing was defined and marketing planning was explained. The
various steps and procedures for planning was described. The need for financial
planning was equally presented.
6.0 Tutor-Marked Assignment.
1) Explain the steps that are important in marketing planning?
2) How do you plan for financial services?
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making millions from shares,
Go-Go International Limited Jos, Nigeria.
Kotler, P & Armstrong, G. (2008). Principles of Marketing, Pearson,
Prentice Hall, New Jersey.
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial Services, McGrams
Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market. Financial Institutions
and Instruments in a Global Market Place, New York
Sanders, A. & Cornett, M. M. (2006) Financial Institution Management: A Risk
Management Approach, McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A Managerial Approach,
Harper Collins College Publishers, New York.
41
42
UNIT 5: ANALYSIS OF FINANCIAL SERVICES MARKET.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Financial markets.
3.2 Financial services.
3.3 Analysis of financial service markets
(institutions).
3.3.1 Deposit taking institutions.
3.3.2 Contractual financial institutions.
3.3.3 Units and investment trusts.
3.3.4 Globalization and financial services
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked Assignment.
7.0 References/Further reading.
1.0 Introduction
There are various sources of finance and different services provided towards
securing the needed finance. The wheels that bring about financial resources are
financial services. The objective of financial decisions and services is to
contribute to the attainment of corporate goals. The task of those providing the
service and the resource itself is “to plan, raise and use funds in an effective
manner to achieve objectives” (Pike & Neale, 2006:5).
Key decisions involved in finance are investment decisions and financing
decisions which have to do with what to acquire and wher e such finance is to be
obtained respectively .Apart from these, the financial manager has a responsibility
to ensure the sufficiency and availability of funds to meet the needs of the
organization. Therefore, in-depth knowledge of the future financial requirements
and the financial markets need be possessed.
3.1 Financial Markets
There are two broad categories of financial markets. The distinction between them
is based on the time factor and the type of transaction and instruments used. These
are the money and capital markets. The money market is where banks
significantly dominate with other financial services. They are involved in mainly
short term sourcing and investments of funds within a short period, usually one.
Common instruments used are cheques, credit cards, deposits’
43
acknowledgements, certificates of deposits, treasury bills, commercial papers,
banks etc by which funds become available in the market. From these short term
loans, over drafts, payments and other transactions are made.
Direct investment is the money that is not usually made through treasury bills,
certificates etc. Individuals, government and businesses access this category of
funds not necessary through the banks but directly. Users of funds who acquire
funds in the money market may invest such funds in stocks and enhance their
operations. Repayment of credits is possible through obtaining funds in the money
market. The financial services provided should be efficient and the cost of
obtaining the service should not be arbitrary.
Regulations and regulatory bodies monitor and ensure that the costs made by
banks, financial institutions have to be in accordance with existing regulation.
There is the need to ensure solvency. Each institution should be liquid enough to
sustain its activities. Threats and fears of insecurity should be prevented as these
can cause panic and loss of confidence.
Capital markets deal with long term investments and instruments involved are
debentures, loan stock or bonds, ordinary shares, preference shares. The markets
for these instruments are the stock Exchange, the Wall Street (America) etc. The
market is either primary for fresh issues or secondary where holders of the
instruments can dispose of their interest as they desire. The secondary market
operations ensure that the capital raised in the primary market is not temper ed
with. The capital market is an avenue for investors (business individuals and
government to invest directly. They use stock brokers or issuing agents (houses).
The funds so raised are used to expand businesses, purchase plants, land, or build
properties. The instruments or investments must be secured. Their values should
be reasonable (as regulated by the stock Exchange and Stock Exchange
Commission). There should be free access to information on regularly basis.
Management should ensure that there is good corporate governance and
accountability. Government through regulation and supervision ensures
transparency otherwise there would be loss of confidence in this market. The
consequences will be disastrous.
Self Assessment
Explain financial market.
3.2 Financial Services.
There are several services rendered by financial markets. The major role is
intermediation. The money and capital market institutions facilitate
intermediation. The others are:
44
• Generating finance from several small investors, individuals and pooling together
these to lend to those who need the fund.
• Reducing risk especially from unit trusts. Funds from trusts are invested in
different portfolios. Institutional investors diversify their investments to reduce
risks.
• The markets provide both short term and long term funds. Those borrowing short
go to the money market. Those borrowing long go to the capital market.
Borrowing long from money markets is quite risky. Insolvency may arise leading
to bank failures as in 2008/2009 globally. This began in USA.
• Financial markets bring together small savers and large or institutional borrowers
at reduced or low costs.
• Lenders and borrowers have access to professional and expert advice.
Financial services markets should be seen to be providing these services. Without
these, their relevance would be questionable. They have a duty to ensure
efficiency and continuity of their businesses and those of their clients or
customers. They have to make “sound, adequate and reliable financial
information”, (Rose & Marquis, 2006;54).
Self Assessment
What do we mean by intermediation?
3.3 Analysis of Financial Service Markets (institutions).
3.3.1 Deposit Taking institutions
The main feature of this category is the receiving of deposits. Majority banks play
this role. Other financial institutions are also involved in deposit taking.
• Commercial Banks-Retain Banking services.
• They receive deposits from customers and are involved in commercial lending
(Sanders & Cornett, 2006).
• Payment services such as clearing of cheques, paying out of currency.
• In universal banking system they undertake whole banking also.
• Commercial banks have sub-categories viz:
a) Micro banks/ community banks.
b) Regional Banks.
c) National or Super regional banks.
(Saunders & Millon, 2006).
In Nigeria there are 25 Mega banks as at 2009 and micro banks which have
replaced community banks.
45
Savings Institutions
This category mainly mobilizes savings for a long period. Immediate release of
such savings is not a target. Savers save for a long term purpose. Short term
savings are also encouraged.
Whole Sale Banking
This is also called Merchant Banking. They finance businesses through accepting
services (bills of exchange) and discounting services, providing cash to by
discount bills of exchange. They save institutional investors, large corporate and
governments. They help businesses in mergers and acquisition arrangement. They
help businesses also manage funds. They are also advice companies etc on
financial matters. They manage pension funds, unit trusts, insurance funds,
investments, leasing.
Building societies and Mortgage
Institutions
They mobilize savings and grant loans for building purchase. They are specialized
savings institutions.
Self Assessment
List financial institutions.
3.3.2 Contractual Financial Institutions
• Pension funds are a major source of investible funds. They manage pension
contributions for employees and employers. They have two schemes.
a) Self-administered schemes: the funds are invested directly in the financial
market (capital market).
b) Insured scheme where the funds are insured a life assurance company and
the risk are covered the company.
• Insurance companies
a) Life assurance. }
b) Pension provision. } these are long term insurance.
General insurance cover losses from fire, accidents, motor etc within a 12 month
period. Funds generated from these are invested in short term investments.
46
3.3.3 Units and Investment Trusts
Investment Units
Investor’s funds are pooled into a portfolio of investments. Each investor is
allotted tranches or units according to amount contributed. They are mainly
operated by banks, insurance and finance companies. Individuals can only dispose
of their tranches or holdings only through the manager.
Investment Trusts
They are limited companies set up to invest in securities quoted on the stock
Exchange. They invest specifically in services. Shares are soled on the stock
exchange.
3.3.4 Globalization and Financial Services
The activities of prominent stock markets are always on internet, dailies, news.
Development in one country affects other countries. The financial meltdown
began in USA and towards the end of 2008 and has affected the world.
Individuals and institutions patronize other stock markets. Trading of securities in
the internet has become a growing business. Financial markets have been brought
to the door steps of individuals, governments and businesses.
4.0 Conclusion
The above analysis has revealed the major role of financial services markets in
intermediation. Borrowers and lenders are linked and their transactions protected.
Therefore, making financing and investing decisions has been possible. These
decisions lead to efficiency and sustainability of businesses. Each sector of the
financial market plays a significant role. They are regulated to sustain confidence
of investors, provide liquidity in the short and long run.
5.0 Summary
The unit has discussed what finance services, institutions and markets do. The
benefits of their services underscore their continuity. The various types of services
rendered were also discussed. The globalization and impacts of financial markets
was briefly made.
6.0 Tutor-Marked Assignments
47
1a) Distinguish between capital and money market.
b) Distinguish between primary and secondar y market.
2) Discuss the services financial institutions provide.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
48
UNIT 6: MARKET SEGMENT.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Market segmentation.
3.2 Levels of market segmentation.
3.2.1 Mass marketing.
3.2.2 Micro marketing.
3.2.3 Market segmentation.
3.2.4 Niche marketing.
3.2.5 Local marketing.
3.2.6 Customerization.
3.3 Requirements for market segmentation.
4.0 Conclusion
5.0 Summary.
6.0 Tutor-Marked Assignment.
7.0 References/Further reading.
1.0 Introduction
The essence of marketing is not only to provide goods and services which are
needed. The ultimate is to make a profit. The stakeholders; shareholders, loan
providers, management, government and community have expectations which
have to be met and usually from profits and activities of the organization.
Marketing has an objective. Careful analysis of the market is required for
sustained and profitable marketing of products and services. Market segmentation
is inevitable.
2.0 Objectives
• Define and explain market segmentation.
• Describe the types of market segment.
• Explain requirements for segmentation.
3.0 Main Content
3.1 Market segmentation
Market segmentation is identifying and analyzing a market and dividing it into
segments. This is based on profiling of customers who want various
49
products/services depending on their demography, psychography and behavior
(Kotler and Keller, 2006). The reason for segmentation is to determine the
segment that offers the greatest opportunity for offering. From these segments, a
choice of the segment that presents the highest of opportunities is made. From
segmentation, the target markets are identified. The benefits are then revealed to
this segment. Efforts are concentrated on this segment. Market segmentation
should show where the marketer or organization should focus. Exploring and
exploiting segments have great rewards where:
• The segment is attractive.
• The company’s objectives are realized.
• The resources are employed for the higher benefits.
• Developing and communicating a positioning strategy (STP).
a) Through segmentation.
b) Through targeting and
c) Through positioning.
The end result of segmentation should cover:
• Meeting the needs of the group.
• Satisfying these needs in a superior way.
• Making the segment market to recognize the distinct way the needs are met.
• Avoiding confusion in the market and its image.
The role of the marketer is to identify not to create the segment based on
preferences of the customers.
3.2 Levels of Market Segmentation
3.2.1 Mass Marketing
This is broad, generalized and meets a large need. It involves mass production,
distribution and promotion of one product to meet the needs of all users (Kotler
&Keller, 2006). For example, coca cola produces to meet all buyers.
3.2.2 Micro Marketing
This is taking over mass marketing as meeting the demands of buyers with one
product in becoming a fallacy. Some may want the coke with less caffeine or
sugar or gas or smaller or bigger. Still, some may want it in small quantities or
bottles or cans for take always. Micro marketing is done at different levels such as
50
segment marketing, Niche marketing, Local marketing, customerization
(individuals).
3.2.3 Market Segmentation
This category share common needs. There may be customers who want low-cost
cars or luxury cars. Segmentation seeks to cope with competition and meet
specific need more than mass marketing. Three different patterns of segment
marketing can emerge based on preferences:
• Homogenous Preferences
Their preferences are similar and clearly recognizable. They share the same
attributes, taste and presentability.
• Diffused Preferences
They have varying needs. They need different marketers and brands to satisfy
their demand.
• Clustered Preferences
There preferences are natural to them. Different branches are required for this
market. Marketing can, begin anywhere on the scale and spread to other parts of
the market. From an area of high population or low population the other market
will be covered. It can begin with the largest population (called concentrated
marketing).
3.2.4 Niche Marketing
This is sub-segment. The customers have distinctive set of needs and are ready to
pay higher to have their needs made. They are smaller and attract only one or two
competitors. Their products are usually special.
3.2.5 Local Marketing
These markets suit customers within a locality. The services are tailored towards
the needs in the locality. This can be called grass root marketing or experimental
marketing (unique experiences), e.g. sponsoring football or golf tournaments.
51
3.2.6 Customerization.
This is the ultimate called one-to-one marketing. Marketing meets the needs of
individuals. This required knowledge information about the individual customer
and his needs.
3.4 Required For Market Segmentation
• Geographic segmentation divides the market into geographic units:
nations, states, regions, countries, cities, local areas etc.
• Demographic segmentation identifies age, family sizes, cycle, gender,
income, occupation, religion, race, generation, etc.
• Psychographic segmentation examines the psychology of consumers e.g.
personality, lifestyles, values. The customer in a demographic segment
may reveal different profiles or personality and tastes.
4.0 Conclusion
The above has defined and explained market segmentation. The marketing
objective is to make a profit by providing products and services to markets
segmenting markets yield this objective. Understanding the need of the market
and the various segments informs wise marketing decisions.
5.0 Summary
The unit has thrown more light on the concept of marketing segment. The various
segments that are basic to understanding the market have been explained. The
basic variables to be considered in market segmentation are also discussed briefly.
6.0 Tutor-Marked Assignments
1) Explain market segmentation micro marketing.
2) List the basic requirements for market segmentation.
7.0 References/Further reading
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
52
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
53
UNIT 7: MARKET MIX STRATEGIES IN FINANCIAL
SERVICES.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing mix.
3.2 Market mix strategies in financing.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked assignment.
7.0 References/Further reading.
1.0 Introduction
There are different market segments that offer different opportunities.
Organizations usually go for one or select the contribution of markets that have
optimum profits. Different measures and used to determine and describe the
markets. Markets can be measured through sales volume, sales values, growth rate
or level of competitiveness. Marketing mix is a framework that highlights the
principal decisions that managers make in configuring their offerings to suit their
customers’ needs. These tools are useful for both the long term and short term
tactical programs (Palmer, 2004:19).
2.0 Objectives
• Explain marketing mix.
• Explain market mix strategies in financial services.
3.0 Main Content
3.1 Marketing mix
This is
A set of marketing tools that work together to satisfy customer needs and
build customer relationships and is useful in implementing marketing
strategy
(Kotler & Armstrong, 2008:8 & 12).
54
The market mix is the set of controllable, tactical marketing tools that the
organization blends to produce the desired response in the market. (Kotler &
Keller, 2006, Kotler & Armstrong, 2008) explain that the four marketing Ps
center on target market. These Ps are:
• Product- product variety, quality, design, features, brand, name, packaging, sizes,
services warranties and returns.
• Price- focuses on price list, discounts, allowances, payment periods and credit
terms.
• Promotion- covers sales promotion, advertising sales, force, public relations,
direct marketing.
• Place- gives coverage, channels, assortments, locations, inventory and transport.
These are the sellers’ strategies which match the customers’ 4 Cs.
• Customer solution.
• Customer convenience.
• Customer cost.
• Communication.
Palmer adds 3 Ps to Kotler & Keller’s, Armstrong’s 4 Ps.
• People.
• Process.
• Physical.
All these are directed at meeting and satisfying customer needs at a profit. These
tools are interdependent and all point to the target market.
3.2 Market mix strategies in financing
Financial services bring about financial resources to prosecute the market plan.
The financial resources are based on marketing forecast and planning. Depending
on the forecast, a number of sources of funds are available. The level of
production will determine the quality of resources and finance. Financial
resources are obtained at cost. Planning involves making decisions that will bring
about the finance at optimum costs. Haphazard arrangements are risky and costly.
Sources of funds for temporary short term needs are different from sources of
funds for long term needs. The choices must be evaluated.
55
Sources of Long Term Finance
• Capital market:
a) Debentures.
b) Loan stock.
c) Preference shares.
d) Ordinary shares.
• Costs:
a) Interest.
b) Dividend.
c) Brokerage.
These are available for capital projects which returns are long term and
sustainable.
Sources of Short Term Finance
• Money markets are majorly banks and other financial/depository institutions.
• Credits from suppliers.
The costs involve interest, charges, discounts etc.
Capital Structures
The decision to obtain funds must be taken in cognizance with the composition of
the capital structure. A high ratio of loan capital increases the financial risk of the
organization. A low incidence of loan capital means the organization is not taking
advantage of the loan capital which interest is deductible from the profits thus
enhancing profitability. A balance of loans and equity both in the long run and
medium term is required.
The working Capital Segment
The sustainability of operations depends on this segment in the short run. A
balance is also required here. The short term liabilities must always be secured
and covered by short term assets. Excessive current assets holdings may indicate
high investment in stock and holding of liquid assets including debtors. This is
idle capital that could be profitably used. Shortages of these assets create
insolvency and cost of redeeming this is costly. Obtaining cash immediately or
within short intervals may be costly. Operations may slow down and markets
may be lost.
56
The sources of these services are the capital markets, banks, mortgages, stock
broking firms, capital market (stock Exchange for IPO and secondary
transactions). Services are not obtained free of charge.
4.0 Conclusion
Marketing mix strategies is a marketing concept that is useful in implementing the
marketing strategy. Achieving the marketing mix results in profitability. Applying
the concept to financial services avail the organization an opportunity to consider
the most profitable sources of finance for its current and future operations. These
costs may affect profitability and sometimes the capital balance. High gearing and
insolvency should be watched against in financing operations.
5.0 Summary
The unit has discussed marketing mix and highlighted how marketing mix
facilitates strategy implementation marketing of products and services. The 4 Ps
of Kotler and Kevin and the 3 Ps of Palmer are regular tools that enhance
marketing of products and services. The organization must consider sources of
funds from money markets and capital markets. The issue of capital structure and
gearing is pertinent in determining the composition of finance.
6.0 Tutor-Marked Assignment
1) Explain the marketing mix tools in implementing the marketing strategy.
2) Discuss the importance of considering the types of finance to use.
7.0 References/Further reading
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
57
UNIT 8: MARKETING OF FINANCIAL SERVICES
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing of financial services.
3.1.1 Banking services.
3.1.2 Capital market.
3.1.3 Insurance services.
3.2 Providers of financial services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked assignments.
7.0 References/Further readings.
1.0 Introduction
Financial services are very important in every economy. This is because financial
resources are required to run businesses successfully. Providers of financial
services have to render efficient services to users of these services. Planning and
adopting effective strategies for marketing of financial services is the
responsibility of management. They should know the types of financial services
and how to access such services to raise financial resources needed. The users of
financial services need to know that providers of financial resources can offer
useful financial advice.
2.0 Objectives
At the end of this unit you should be able to
• Understand the importance of marketing financial services.
• Identify providers of financial services.
• Identify the sources rendered b y banks, capital markets and
insurance businesses.
• Know where to obtain professional advice on financial
services.
There are experts within the economy such as bankers, accountants, stock brokers
and insurance managers etc who can give professional guidance on how to raise
and use funds (money and cash). The existence, functions and relevance as well
58
as other financial services should be known to those who need such services.
There are different types of services being offered by different bodies. Managers
and individuals should have basic knowledge of these to guide their business
choices. They should be able to know and obtain professional guidance from
them. Providers of financial services are always introducing new ways of
meeting their customers’ needs. Users must be able to acquaint themselves with
the benefits and safety of such new services. Financial services are referr ed to as
products.
3.0 Main Content
This section focuses on marketing of financial services such as banking, capital
market and insurance. The role of professionals in rendering these services will
also be covered.
3.1 Marketing of financial services
Marketing is strategic in bringing about awareness about financial services to the
door steps of customers who need such services. Marketing raises awareness and
introduces new products to existing and prospective customers. The following
financial services will be discussed.
3.1.1 Banking services
Banks play the important role of intermediation. That is they mobilize or generate
funds within the economy and investors are able to borrow from banks for the
following purposes:
• Expanding existing businesses.
• Introducing new products or technology.
• Meeting temporary financial shortage.
• Diversifying their businesses.
Banks carr y out extensive advertisements:
• Through print media such as newspapers, magazines.
• Through electronic media such as radio television.
• Internet (websites) because of the advantages of internet
communication technology.
• Door to door or personal contact.
• Sales promotion such as sports etc.
• Sponsorship.
59
These and various other strategies reveal the various services (new and old) which
banks render. These attract more customers. Usually, the more the customers, the
more the deposits and the greater the services that banks render. Energetic and
resourceful personnel are engaged to work in the marketing departments to
introduce banking services to customers and win more patronage. Services
rendered by banks:
• Accepting of deposits (customers’ funds which are kept in
the banks).
• Paying such deposits to customers on request.
• Lending of banks money to customers who desire and
request for loans.
• Keeping of valuable documents, valuables such as
certificates of occupancy, title documents of properties,
share certificates and gold trinkets jewelries etc.
• Undertaking wholesale financial services to corporate
bodies both national and multinationals.
• Undertaking insurance and other financial services to
customers under the universal banking system.
• Serving as financial advisers to their customers.
• Rendering stock broking services.
• Offering forex services.
• Transmission of funds for customers within and outside the
country. This service has been made possible and efficient
because of internet communication technology-the e-
banking.
• Intermediation- Banks mobilize funds from their customers
and a ratio of this is lent to investors who need the funds.
This way, more wealth is created and the bank returns are
enhanced. The borrower, investor, shareholders
(shareholders, employees) enjoy some level of returns
(profit) from this functions. The government also generates
revenue from the banks which pay tax on their profits.
3.1.2 Capital market
The capital market is a special market. It is a market where funds (money) for
long term investments can be raised by corporate businesses which are registered
and listed on the Stock exchange. The market is regulated by the Nigerian
Securities Commission while the Nigerian Stock Exchange is the market where
the instruments are raised and exchanged. The instruments used in the capital
market are:
60
• Ordinary shares (share certificates).
• Preference shares ( ll ll)
• Bonds / Debentures (Debentures Deed).
• Development loan stocks (Loan Deed).
There are used for raising long term loans. The following are used in the money
market (for short term loans) having repayment periods of between 90 and 360
days:
• Treasury bills.
• Treasury Certificates.
• Certificates of deposits.
• Commercial papers.
• Bank acceptances.
• Promissory Notes.
Businesses must meet certain conditions for them to be listed on the stock
exchange for them to enjoy capital market services. Once listed, they can obtain
funds by initial public offers (IPO) when the company so listed is raising fresh
funds. The secondary market on the floor of the stock exchange existing
shareholders can raise money by selling part or the whole of their shares.
3.1.3 Insurance Services
Insurance businesses are regulated by the Nigerian Insurance Commission.
Insurance services include life assurance; insurance etc. Insurance is the
undertaking by an individual to pay certain sums of money as premiums
periodically to an insurer (company) so that when an unfortunate event occurs and
causes him/her to lose his/her life or an asset the insurer will compensate the
insured accordingly.
• Insurance is a highly risky business.
• Insurance is ver y helpful in resuscitating businesses that are
devastated by hazards.
• They require regular and consistent honoring of
commitments especially premium payment.
• Banks now operate insurance business as subsidiaries.
• Insurance is yet to be embraced by the public quite unlike
banks.
3.2 Providers of Financial Services
61
• Professional Accountants.
• Professional firms owned by accountants who render financial services.
• Insurance companies.
• Stock brokers.
• Bankers.
• Financial consulting firms.
4.0 Conclusion
This unit has revealed the significant roles of marketing of financial services and
the importance of this in exposing such services to businesses. Customers can
access such services and use professional experts to guide them. Insurance of
business assets etc can be ver y helpful to the businesses and individuals.
5.0 Summary
The unit has discussed marketing of financial services. What these services are
and where they can be obtained have been discussed. The role of professionals in
providing financial guidance is also summarized.
6.0 Tutor-Marked Assignment
1) Discuss the types of financial services.
2) a) What services do banks render?
b) Mention those who can help offer professional guidance on financial
services.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
62
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
63
UNIT 9: ENVIRONMENT FOR FINANCIAL SERVICES MARKET IN
NIGERIA
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 The Nigerian financial environment.
3.2 Challenges of financial environment
3.3. The prospects of financial services in
Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
For every industry to thrive the environment must be conducive. The financial
services belong to the financial sector of the economy. The financial system
creates and regulates the operations of banks and capital market, money market,
insurance, pensions and the accounting, auditing etc professions. An efficient
financial system provides quality financial services that support the financial
sector in particular and the economy in general.
The environments for financial services constitute the general economy and
political stability. The relevant laws that direct the flow of the economy, fiscal
policies and legislative enactments as well as existing and new policies provide
the general framework for rendering financial services. The standards attained
have regional and global implications. The growth, development and stability of
the financial system depend on the economic and political stability of the country.
Policy stability, affiliation to other economies and confidence in the financial
system by foreign stakeholders or interest can strengthen or weaken the financial
services market.
2.0 Objectives
Describe the Nigerian financial environment
Discuss challenges and prospects of financial services in Nigeria
64
3.0 Main Content
3.1 The Nigerian Financial Environment
Nigeria is a highly populated country with over 140 million people, as the census
of 2006 indicates. The economy is petroleum, monoproduct dominant one. The
government is key controller of economic and financial policies. The financial
sector is regulated through the central bank of Nigeria which is the government
agent through which policies (both micro and macro) are formulated and
implemented.
The legislature that has been assuming prominence and confidence is actively
watching, refining and enacting new laws that are affecting the financial system.
The role of the regulating organs such as the Nigerian Deposit Insurance
Corporation, the Nigerian Insurance Commission, the Nigerian Stock Exchange
Commission and the Stock Exchange, the Pension Commission etc play
significant roles in the economy and in the financial system. The law courts and
judicial decisions have bearings on issues affecting the financial system. The
creation and functions of the Economic and Financial Crimes Commission, the
Independent and other Corrupt Practices Commission (ICPC) and the role of
security agencies have impact on the financial system.
Their various roles either weaken or strengthen the financial system. Since the
economy is not operating in isolation to the world economy, it is not insulated
from the state of the global economy. The confidence reposed on the system by
other international stakeholders may grow the economy or deflate the system.
The environment of financial services has been expanding. The petroleum sector
has contributed very much to the growth development of the financial services.
The next buoyant sector of the Nigerian economy is the banking sector. The
telecommunication sector has had great impact on the economy also. The two
sectors: petroleum and telecommunication have grown the financial services
sector. The financial sector is the repository of funds and growth in the sector has
been due to expansion in the petroleum sector and telecommunication. The
banking sector suffered greatly between the mid 1990s and the early 2000s. The
phenomenon of financial distress due to lack of funds reduced the strength of the
banks. This reduced the solvent banks from over 100 to 89 by 2003.
The recapitalization of the banks to minimum of N250billion Naira reduced the
number of banks to 25. The central bank of Nigeria had to intervene to save eight
banks by injecting N620billion Naira into them. They were assessed to have run
into liquidity and solvency problems.
The environment of the Nigerian financial system has been afflicted by sharp
practices bordering on indiscipline in lending, corruption, poor governance,
65
instability in monetary and fiscal policies. The r egulatory oversight, despite the
introduction of NDIC has not instilled financial discipline. The adequacies of the
legal policies and instruments have been rather questionable.
3.2 Challenges of Financial Services
in Nigeria
• The following are challenges:
• Stability of fiscal and monetary policies
• The appropriateness and adequacy of legislation of the
various sectors.
• Lack of continuity of policies.
• Corruption and challenges of corporate governance.
• Globalization and healthy competition.
• The challenges of internet and electronic operations.
3.3. The Prospects of Financial Services in Nigeria.
The Nigerian financial system and the economy general are developing. There is a
propensity to grow and this tendency reveals the potentials inherent on the
economy. The following features offer prospects for the financial markets and
financial services.
The general stability in the polity since the inception of democracy is paving way
for the release of hidden potentials on the economy. The government is shifting
towards diverting control in direct economic control and creating infrastructure to
facilitate economic growth. This is affecting the financial service sector too.
The Government is directing policies toward diversifying the economy to reduce
dependence on petroleum. This will make the mineral sector and the
manufacturing sectors to boom. This will create a boom for financial services.
The growth and impacting IC technology and globalization have impetus for the
financial services helps to boost confidence in customers who depend on financial
services for their local and international transactions.
Competition in this sector is a factor that enshrines quality and therefore
expanding the scope of financial services. This is leading to more patronage.
The population of Nigeria which is140 million is large and growing
intermediation is reducing the informal sector in the financial system and
enlarging the formal sector. This is a prospect for growing need for financial
services.
66
4.0 Conclusion
There are benefits in having an efficient financial system. The environment of the
financial system can cause it to grow. It is important to have workable policies,
legislation and supervision that will sustain confidence and patronage. Dealing
with problems of corruption, indiscipline, adherence to policies will sustain the
required atmosphere for rendering and enjoying financial services.
5.0 Summary
The unit examined the Nigerian financial environment. The general financial
system and the various sectors such as capital market, insurance, banks were
discussed. The role of the regulatory bodies, professional bodies were highlighted,
the challenges and prospects were summarized.
6.0 Tutor-Marked Assignment
1) Describe the Nigerian financial environment.
2) Discuss challenges and prospects facing the environment.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
67
Publishers, New York.
68
UNIT 10: INNOVATIONS IN FINANCIAL SERVICES
MARKETING: THE INTERNET SYSTEM ETC
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1. Innovations in financial services
3.1.1 Financial innovation
3.1.2 Services proliferation
3.1.3 Competition
3.1.4 Free enterprise and free regulation
3.1.5 Globalization and homogenization
3.1.6 Expanding markets
3.2 Socio-economic factors
3.3 Dynamics of financial needs of
customers
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/further reading
1.0 Introduction
The economy is dynamic (Rose and Marquis, 2006) because the taste of
consumers is dynamic. Marketing research is dynamic and is continually seeking
to identify and satisfy consumers’ taste. New products; cell phones, etc are
abound which were hitherto unknown. Customers to banks are daily and hourly
kept abreast of developments concerning their account balances and transactions
affecting their accounts. New things that emerge are being marketed and
customers are sensitized to embrace such new ideas and innovations.
Globalization has integrated even small organization and individuals into the
global financial system. New trends are always being introduced to improve
financial services delivery. Research and development have in focus innovations
for efficient operations.
Computer, internet connectivity, telecommunications (cell phones etc) are being
financial services and marketing to customers. These changes are compelling
consumers to change their taste also. Today’s financial system is drastically
different from that of the 1990s. Therefore the system ten years from now will be
considerably different from that of today.
69
2.0 Objectives
• Explain the dynamic nature of financial services.
• Explain new innovation in financial services marketing.
• Explain how today’s challenges affect tomorrow’s services
3.0 Main Content
3.1 Innovations in Financial Services
Forces and influences are emerging and there are many factors that are affecting
the financial system and the services being rendered.
Research into improving the system and bringing about new methods of providing
efficient financial services that satisfy customers are underway.
3.1.1 Financial Innovations
Research should avail new financial services. New instrument should be
developed to meet new customers taste. New innovations are e-banking cell
phone banking, account balance alarms, home banking etc. Current ideas include
home equity credit lines international mutual funds, trust preferred stock etc.
3.1.2 Service Proliferation
These have to do with meeting the financial service needs of customers.
Customized service pleases customers. Financial institutions have the same goal
in term of services being offered.
3.1.3 Competition
The scope of financial services rendered by the various classes of financial
institutions is being narrowed. Locally, these institutions are competing to render
similar services within each category. For example banks render services that are
virtually the same. The globalization of markets may lead to individuals and small
customers being served. This spreads clientele. Competition for customers is
acute.
Mergers and acquisition are means of expanding customers no matter how small
or big. Conglomerates have customers all over the globe.
3.1.4 Free Enterprise and free Regulation
70
Privatization is liberalizing markets and freeing governments from regulation of
businesses. The financial services are the sectors that governments especially in
developing nations want to control. A regulated financial market has a high
tendency to be inefficient compared to a deregulated market that is subject to the
forces of demand and supply. That is the financial mar ket or system is now in
private hands not government.
3.1.5 Globalization and Homogenization
Financial services are not seeking to satisfy local needs only. The types of
services are similar as needs of customers. The same service meets customers’
needs all over the globe. Homogenous services are offered to customers all over.
3.1.6 Expanding Markets
Globalization and advances in the telecommunication industry brought about by
technology have taken financial services to customers in other countries. The
local producer of mineral ores can source for markets in the internet and this
expands the market. Financial institutions have access to international financial
corporations and may be well served.
3.2 Socio-economic Factors
The population of countries and the world is changing. The advances made in
science and technology and education have refined governments business and
individuals. The life expectancy has been raised in developed nations. Good
health delivery services and higher standard of living improved the quality of life.
The movement toward individualism and gender balance are factors that are
capable of affecting the financial base and decision of individuals.
3.3 Dynamics of Financial needs of Customers
The following considerations are important:
• Aging population and transferring wealth to heirs
• Corporate customers can raise fund directly from the
market not through banks, capital markets.
• Savings for retirement by millions outside of the regular or
formal retirement plans
• Modern, ICT facilities give access to funds or credit more
easily than previous.
• Management of individuals’ assets.
• Greater ethnic diversity. The various ethnic groups have
philosophies and attitudes that define their financial need.
71
• Mobility in jobs and changing locations require financial
services that meet this kind of need.
• Personal financial planning for individuals’, families and
small businesses are emerging areas of needs.
It should be noted that new innovations have their challenges now and for the
future.
4.0 Conclusion
The above discourse has highlighted the changing tastes and needs of customers.
This dynamism poses greater challenges to modify financial services to suit
customers’ tastes. The various innovations to be embraced should be customer
and marketing research based. The effects of globalization, communication
technologies have attendant effect on the scope and quality of financial services
expected.
5.0 Summary
The unit covers innovation n financial service. The factors that reshape the
financial markets were discussed. The role of socio-economic factors are crucial
in financial service delivery as pr esented n this unit.
6.0 Tutor-Marked Assignment.
1). Discuss the environment of financial services marketing in Nigeria
2). What are the problems or challenges of the financial service environment. List
them.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
72
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
73
UNIT 11: APRAISAL OF FINANCIAL SERVICES
MARKETING
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Financial intermediation
3.2 Financial systems.
3.2.1. Savings function.
3.2.2 Wealth functions.
3.2.3 Liquidity functions.
3.3.4 Credit function.
3.2.5 Payments.
3.2.6 Risk protection.
3.2.7 Policy function.
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References\Further reading
1.0 Introduction
The financial services sector comprises of:
• Depository financial services (example are commercial banks savings
institution and credit units
• Investment banks and capital marked sector
• Insurance business
• Pension fund institutions
• Finance companies
• Mutual fund
These organizations perform the core financial services within the financial
system and the economy. The role of intermediation involves flow of funds.
This flow is essential in sustaining the system and the economy. Within this
system are sectors with surplus funds and sectors that are short of funds. Financial
institutions stand between those who have surplus funds and those who need such
funds for investment. Financial institutions perform the essential role of
channeling funds (Saunders and Cornett, 2006; Rose and Marquis, 2006). They
74
also attract savings. Money or cash that is held outside the financial system is not
available for intermediation.
3.0 Main Content
3.1 Financial Intermediation
The financial institutions provide their services in the formal sector. There is a
salient role of reducing the informal sector. The lower the role of the informal
sector in the financial services the higher is the level of intermediation. This also
measures the extent of the formal sector.
The financial services engender growth and development of the economy. Flow of
funds from suppliers to users propels expansion of business. This flow of funds is
connected to wealth creation. The freer the flow, the more the growth of the
economy. More wealth is being created.
There are risks associated with intermediation and the provision of finance. The
common risks faced are default or credit-risk, mismatching maturity of balance
sheet assets and liabilities, interest rate risk, liquidity risk (liability withdrawal),
underwriting risks, operating risk costs especially in producing financial service
(Saunders and Cornett, 2a). These risks vary with financial service. The extent of
management of risks improves the financial services and the flow of funds or it
may dampen the growth of these services.
Confidence is the factor that keeps financial institution in business. The financial
sector is the area that is given special regulation. The providers require confidence
that their funds are safe and the obligation due them are honoured. The users need
confidence that funds will be sourced by them at acceptable conditions and these
conditions are mutually agreed. The intermediators, the financial institutions,
maintain a level playing field and expect to enjoy benefits of the services they
facilitate or provide.
Regulations ensure mutual respect and help provide the necessar y atmosphere for
flows of funds. The level of development of the financial system is seen in the
attainment of smooth flow of intermediation, strong compliance with regulation,
effective monitoring of financial services being provided. The attraction of
foreign capital is indicative of the confidence outside financial system have and in
the financial system.
The internationalization of financial service brings about foreign investment.
Globalization has opened up market across nations and countries. This is a
measure of growth. Economies that access funds for investment across national
boundaries have developed confidence to customers across these borders.
75
3.2 Financial Systems
Financial systems perform the following function (Rose and Marquis, 2006:7):
• The savings function
• Wealth function
• Liquidity function
• Payments function
• Risk protection function
• Policy function
These function determine the contain button and efficiency of the function sector
to the economy
3.2.1 Savings Function
Saving by the public including businesses transform into debentures, shares, bills
of exchange, treasury bills etc. Through these more goods and services are
provided. Increase in saving enlarge this function Low savings means Low
investment. The savings function is linked to living standard. The saving
functions are linked to living standards. The more the savings, the higher the
standard of living. This role is growing in Nigeria. Decline in savings affect the
financial system. The economic melt down and insolvency in the financial system
has negative growth impetus.
3.2.2 Wealth Function
Debentures, shares, treasury bills etc are avenues to store or preserve wealth until
required. The risk of loss, unless in an era of recession, is less compared to
investment in automobiles etc. These instruments have returns which can grow
the value of the instruments if reinvested.
3.2.3 Liquidity Function
The need for immediate cash to spend makes this function critical. The money
and capital markets provide opportunities for turning debentures, bonds, shares to
users or spendable funds. The availability of liquidity is paramount in all
businesses and even to individuals. These instruments are easily convertible to
cash and at low risk of loss. The financial services markets should develop to
ensure easy convertibility and minimize the risk of loss.
3.2.4 Credit Function
76
Provision of credits is an adequate measure of the efficiency of the financial
service market. The level of credit granted determines how developed the
financial system is. Economic development and growth of the economy is a
function of the level of credits extended. This growth means the challenges in
granting credits are under control or well managed.
3.2.5 Payments
Facilitating payments encourages exchange. The clearing system and use of
cheques, credit cards, electronic payments etc measure the flow of funds.
Developed financial systems use more of electronic modes of payments and less
of cheques or paper-based medium of payments. Less developed economies
emphasize currency, cheques etc. confidence is required and the financial system
ensures this.
3.2.6 Risk Protection
There are risks in business and life. The realization of the objectives of financial
services is also seen in minimizing losses and protection against life, health,
property and income risks.
Regulations that ensure safety of funds and operations hedge risks. This affects all
sectors of the financial system.
3.2.7 Policy Function
The markets, financial and non-financial, face many uncertainties, inflation,
recession etc. governments make policies to stabilize the economy. The financial
institutions facilitate this function through enforcing implementing government
regulations, policies and laws. This is a notable function.
4.0 Conclusion
This discussion has examined the role of financial systems and the services they
play in sustaining the role of intermediation. Their role leads to growth and
development of the economy and in raising the standards of living of the people.
The level of efficiency of the financial system is measured by the function they
perform.
77
5.0 Summary
The unit has thrown light on the role played by the financial service sector. The
various contribution made in the economy has been discussed. The basis for
assessing the performance of each sector has also been highlighted.
6.0 Tutor-Marked Assignment
1) Evaluate the contribution of financial service sector.
2) Discuss how financial service engenders growth and
development of the economy.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
78
UNIT 12: TREASURY FINANCIAL SERVICES
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 The treasury functions
3.2 Funding
3.3 Financial services and good relationships
4.0 Conclusion
5.0 Summary
6.0 Tutor-marked assignment
7.0 References/Further reading
1.0 Introduction
Financial services involve daily cash management called treasury management.
This is central to the success of an organization. Treasury management determines
the daily strength of an organization. Every individual is involved in this function
on daily basis.
The neglect of this function has brought embarrassment to many individuals and
organizations. Solvent and liquid organizations have survived hard times became
treasury financial services have been given the appropriate attention.
2. Objectives
• To define and describe treasury financial services.
• To identify treasury financial services.
• To identify symptoms of good and poor treasury financial services.
3. Main Content
3.1 The Treasury Function
Financial services have become crucial in treasury management. Losses can easily
be suffered because of poor treasury services. The tem treasury refers to cash. Its
management involves cash and liquidity management and short term financing as
well as financial risk management and portfolio management. Portfolio refers to
the “combination of securities” or an y other assets (Pike and Neale, 2006:220).
79
Treasury management is defined by Association of Corporate Treasurers as the
“efficient management of liquidity and financial risk” (Pike and Neale, 2006:324).
The importance of this financial service can be seen in the number of losses and
failed businesses because of insolvency and poor liquidity.
The success of the treasury financial service can be seen in the number of
businesses that have been prevented from bankruptcy and failure because of
insolvency and poor liquidity.
The success of the treasury and financial service is achieved through:
a. setting appropriate aims and policies, usually by the Board
b. setting the authorization levels
c. setting the level of liquidity
d. Setting up finance or treasury or liquidity committee.
e. Regular review and monitoring of the dynamics of treasury assets
help to prevent financial embarrassment.
Treasury management involves cash management. The cash to be available must
be planned for. Cash flow forecasts are prepared to reveal levels of cash and when
cash may be in dire need. Surplus cash needs to be reinvested in short tem
investments in the money market. Deficits can be made up through bank
borrowing etc. Cash Economic Order Quantity and short term investments are
avenues for employing idle cash profitably.
Self Assessment
What is treasury management and how can it be achieved?
3.2 Financial Services and Funding
Funding simply addresses how cash can be obtained for short term activities or
operations and also for the long term.
The organization needs funds that are permanent, to finance major long term
assets. Short term operations require regular cash which have to be available at
the right time.
Funds can be obtained internally. Therefore, the financial services provider
responsible for this service must determine what level of operations is to be
financed with internally generated finance.
Borrowed cash is often inevitable. Too much borrowing too little has
disadvantages.
A balance must be determined to give optimum benefits.
Decisions on the type of cash to borrow are mot easy to make. This could be a
problem of choice. What type of loan or should it be an item that can be leased? Is
80
it for a long term period or a short term period? These require careful
considerations.
Management of current assets such as debtors, stock or inventor y, short term
investments should ensure availability of cash. Quality of debtors and stock
should be high to prevent their becoming bad to reduce the amount of cash
expected from them.
Self Assessment
What considerations are important in funding or financing decisions?
3.3 Financial Services and good relationships
Banks are custodians of cash in times of cash shortage. Banks and individuals and
organization should maintain good banking relationship. Suppliers of credits
(goods and services or cash) are to be held in high esteem. The relationship
should border on openness, integrity, reliability and honesty. Consistency in
transactions and in maintaining relationships are valuable assets.
Self Assessment
Why is good relationship management important in financial services?
4.0 Conclusion
The discussion above has revealed that treasury management is ver y important in
sustaining liquidity and making an organization to be solvent. Regular decisions
to sustain liquidity are to be made. This will involve sustaining good relationship
with credit providers such as banks, suppliers of goods and other services.
5.0 Summary
The unit discussed what treasury financial services entails, the important function
of cost management and potential management were highlighted .This may
involve financing decision from cash generated from operation or borrowing.
Relationship management in important in financial services and this is to be
maintained.
6.0 Tutor-Marked Assignment
(1) Define the treasury management and describe the treasury management.
(2) Discuss the importance of relationship management in financial services.
81
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
82
UNIT 13: FINANCIAL SERVICE AND SHORT-TERM
ASSET MANAGEMENT
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Importance of trade credits
3.2 Importance of inventory
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
As already discussed in unit 12, treasury management is important in making cash
to be available so that there is no shortage of cash or illiquidity. The objective can
be achieved through sound management of debtors, inventory and short term
investments. They constitute a significant portion of the working capital and
require attention. Finance services cover these areas also. Excess or low levels of
these assets affect the quality of financial service being rendered.
2.0 Objectives
To be able to describe and improve on trade credits (debtors or receivables)
To be able to evaluate the importance of inventories or stock.
3.0 Main Content
3.1 Importance of Trade credits
Credits or selling goods or rendering services on credit basis rather than cash is a
means of increasing sales, profits and consequently cash. This conveniently
makes goods and services to be available. Payments for these follow based on
mutually agreed terms. Credits are useful in the following ways:
i) Efficiency.
Quality goods and services sustain patronage by customers. Credit sales help to
confirm the quality of goods produced and sold or services being provided. Poor
quality of goods and services shut markets.
83
ii) Credit sales create investments in debtors who are greatly valued customers.
Marketing of an organization’s goods and services is advertising and making
goods and services available directly. This enlarges the volume of sales which
will have not been case if credit sales were not granted. The benefit can be seen in
a sustained relationship with the customer over a long period. There are risks
which translate to bad debts where the customer fails to honour credit terms.
iii) The sharp competition in the industry call for granting of credits. An
organization that sells cash only releases a potential market share to competitors.
Soon this will even affect the cash customers.
iv) There are organizations that may not easily access external loans to finance
their operations. They therefore have access to credits through credit sales. This
reduces difficulties of obtaining cash to purchase such goods and services.
The considerations for credits are:
• The quality of debtors must be high. This guarantees safety.
• Cash flow is maintained so that operations are not hampered and
operational costs are incurred when this can be avoided.
• Managing credit terms such that costs are avoided.
• It involves considering the effects of credit periods, standards, collection
policy as well as cost of cash discount.
Self Assessment
Why are credits necessary?
3.2 Importance of Inventory
Inventory or stock in an organization’s investment in raw materials, work in
progress goods and finished goods. These are potential cash waiting to be
realized. They have to be handled with care so that they can translate to cash at
the appropriate time.
Inventory can be held for a long time or a short time. Holding large amounts
which take long to convert to cash attract costs hold a low level and not meeting
demand is even more costly. The asset should neither be overstocked nor
understocked.
Maintaining an appropriate level can be done through the following:
• Economic order quantity
• Computer programme based materials requirements planning and
• Just in time systems.
84
Inventories avail customers with the goods they require. They are the source of
sales and profitability.
Self Assessment
Is inventor y an important asset in financial management?
4.0 Conclusion
The above discussion draws attention to the importance of current assets. Short-
term assets include debtors, inventories and these are potential cash to be realized.
It is important to manage them to increase sales, profit and make cash available.
This way liquidity is built up and operations are sustained. There are costs in
investments in these assets. These costs and benefits should be evaluated vis-avis
the benefits. Therefore current assets are important to the finance officer and the
organization.
5.0 Summary
The unit focused on the need to pay attention to debtors and inventories which are
significant in the investments of organizations. Both help to boost sales and raise
liquidity. They have costs which must be balanced with their benefits to ensure
that the debtors and inventories are employed profitably.
6.0 Tutor-Marked Assignment
1) Evaluate the need for management of debtors and inventories.
2) Discuss how debtors and inventories can be managed profitably.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
85
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
86
UNIT 14: SHORT AND MEDIUM TERM FINANCING
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main Objectives
3.1 Financing using trade credits
3.2 Financing through bank credit
3.3 Financing through money markets
3.4 Financing through leasing and hire
purchase
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignments
7.0 References/Further reading
1.0 Introduction
Financing is about making decisions to obtain funds externally. Internally
generated funds through debtors, cash sales and investments in money market
instruments may prove inadequate. Through cash flow forecasts the
requirement for more cash will be identified. This will call for a financing
decision. Law level of cash requirement may be easily addressed. Where the
amounts are substantial perhaps medium term financing will be adequate.
Where analysis reveal glowing need for l projects, long term finance will be
contemplated and planned for. Short-term financing decisions consider trade
credits; bank credits; invoice financing and money market financing decisions.
Medium term financing decisions are for a longer period than short term
credits but shorter than long term financing decisions. There are hybrids
which are longer than short but shorter than long term financing decisions.
These are leasing or hired purchase arrangements which belong to the short
term and long term finance.
2.0 Objectives
• To be able to identify short-term financing needs.
• To be able to discuss short-term and medium term sources of finance.
• To be able to evaluate and access external credits.
87
3.0 Main Content
3.1 Financing using Trade Credits
These credits flow from suppliers of goods. Services can be rendered on
credit also. This means goods and services consumed are not paid for
immediately. These credits are mutually discussed and agreed. It is normal
practice to induce early payments by granting discounts. Trade credits are
granted on the following considerations:
i. The bargaining power of the supplier dictates the credit terms.
Where the supplier has comparative advantage over other suppliers
within the industry, his terms will prevail. In the situation were
comparative advantage is shared by competitors the supplier hardly
imposes his terms.
ii. Industry custom and practice.
There is a normal range of credit terms within an industry.
Suppliers may not easily go outside this range as doing so may
cause them to lose customers.
iii The nature of the product may help to determine the credit terms.
Products having high turnover are suitable for credit sales.
These considerations should avoid delayed payments. They should
help attract customers to purchase goods on credit. When the terms
are too stringent customers will withdraw patronage. Uncontrolled
credit terms will enlarge patronage but throw the organization into
financial difficulties.
Trade creditors result from credit supplies. This is temporary borrowing
and a normal way to finance stock or inventory. The whole arrangement
depends on prompt settlement in accordance with the terms of credits.
Delays may result in instability in business:
• Closing of credit lines will reduce materials and services which
may not be readily purchased for cash.
• Suppliers may be unwilling to supply the goods and this may give
the business a bad reputation.
• They may raise prices of their supplies.
• A bad reputation can affect the confidence of other suppliers in the
organization or customer.
88
3.2 Financing through Bank Credits
Organizations can obtain short-term and medium term bank credits. They take the
form of overdrafts; term loans (with revolving facilities such as overdrafts or term
loans). Banks should have stringent conditions that qualify customers for bank
credits.
3.3 Invoice Financing
Customers who have sold goods on credit may discover they need
immediate cash. They approach discounting and factoring institutions to
buy these invoices for cash. Factoring means an organization purchases
invoices of a company. Discounting involves purchase of selected invoices
without undertaking to collect the said debts. They selling company has
the responsibility to arrange for collection of the debts.
3.4 Financing through Money Market
This is a largely known means of raising finance. All organizations use
this medium to source short-term finance.
The instruments involved are:
i) Bills of exchange
The parties should be well acquainted with specific trading transactions. The
trader draws up a bill undertaking to pay at a future time. The supplier takes this
and releases the goods. The bill may be held to maturity or discounted at a
discount house.
ii) Acceptance Bill
These are bank bills. The customer draws the bill on the bank. The bank accepts it
and the supplier releases the goods to the customer. The bill is sold in the market
at a discount and the money is made available to the trader or supplier.
iii) Commercial Paper
Popular companies may advance moneys to large financial institutions such as
pension funds, insurance or corporate organizations who may be facing temporary
liquidity difficulties. The value at maturity is greater than the amount learnt. The
paper can be discounted too.
Self Assessment
What is the difference between bill of exchange and bank bill?
89
3.5 Leasing and Hire purchase
3.5.1 Hire Purchase:
This arrangement can be for short periods not longer than one year. This is a
comfortable zone for small and medium-sized firms (SMEs).
Equipments can be hired, which makes the asset available for use. Hire purchase
has an option to purchase or return at the end of the hire purchase agreement.
Rather than large outlays of cash installmental payments are made during the hire
purchase arrangements.
3.5.2 Leasing
The difference between this and hire purchase is that there is no option to
purchase as in hire purchase arrangements. There are operational and capital
leases. Rentals are paid installmentally. Capital lease is for a longer than one year
but not beyond 5 years.
Self Assessment
Define hire purchase and lease.
4.0 Conclusion
The discussion has revealed sources of financing in the short term and medium
term period. These sources are helpful in meeting temporary or short term
financing decisions. Trade credits, bank credits through money markets and lease
and hire purchase arrangements help to supply cash for the smooth running of the
organizations.
5.0 Summary
The unit threw light on short term as well as medium term sources of finance.
There are many including trade credits, bank credits, hire purchase, leasing etc.
they are convenient and cover a wide spectrum of users especially small and
medium-sized businesses.
6.0 Tutor-Marked Assignments
1) Briefly describe the following: Bill of Exchange; Bank bill and
Commercial Paper.
2) Discuss Trade and Bank credits.
90
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
91
UNIT 15: FINANCIAL SERVICES AND LONG TERM
FINANCE
CONTENT:
1.0 Introduction
2.0 Objective
3.0 Main content
3.1 Shareholders funds
3.2 Debt instruments
3.3 Leasing
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
So far we have looked at the importance of finance. The necessity for liquidity
and solvency; and the role of investing and financing decisions have been
examined in units 12 to 14. The need for liquidity is not only important in the
short run or medium term.
The viability and continuity of the organization depends on the capacity to grow.
Growth requires investing not for the immediate future but also for the
unforeseeable long term period. Investing decisions and financing of capital
projects require large amounts of cash. The financial services in this regard are
even more strategic than short term and medium term financing and investment
decisions.
The issue of liquidity and solvency can be addressed in the long run through long
term investments. Poor attention on this limits the prospects of the business.
Equally, distress leading to bankruptcy and business failures easily arise due to
mismanagement of long term investment. The financial services providers have to
give this area as much attention as possible. All instruments relating to long term
finance are traded in the capital market.
92
3.0 Main Content
3.1 Shareholders Funds
Shareholders are investors who have invested their funds in a company through
purchase of their shares. They ar e the owners of the business and have full rights
in the business. They vote at general meetings, receive dividends when declared.
They bear the greatest amount of risk. In liquidation, they are repaid their capital
when all other claims have been made.
Preference shares are similar to ordinary shares but they are described as non-
equity share holders. They have fixed rates of dividend on profits before ordinary
share holders are considered. On return of capital at liquidation, preference share
holders are returned their capital before ordinary shareholders. There are different
types of preference shares. Some are:
• Convertible cumulative
• Redeemable
• Participating
Preference shares stand between ordinary shares and debt capital. Thus they are
described as h ybrids.
Self Assessment
What is the difference between ordinary shares and preference shares?
3.2 Debt Instruments
When loans for a long duration are obtained the lenders are given documents that
describe the nature of the debt. There are many sources of debt. The common
market for such is the capital markets specifically, the bound market. The various
types of debt instruments are:
• Debentures:
This is a document acknowledging indebtedness. They are usually secured on
the issuer’s capital assets. A mortgage debenture is a debenture secured by
mortgage deed.
The interest attached is fixed and payable whether profits are made or not.
They have priority in payment of interest and capital.
Some debentures are convertible to ordinary shares or preference shares in
accordance with the terms.
• Loan stock/bonds:
93
While debentures are issued mainly by corporate organizations in Nigeria
bonds or development/loan stocks are issued by governments or government
institutions. They have the same characteristics as debentures.
Long term debt can be secured or unsecured. They have their obligations. Debt
capital is a cheaper source of long term fund than ordinary shares. The interest on
debt is tax deductible. However, debt capital needs to be managed well as interest
and repayment obligations mean it has borrowed extensively from outsiders. This
is risky. Failure to honour repayment terms may lead to liquidation.
Self Assessment
Why is long ter m finance important?
What are the characteristics of debt capital?
3.3 Leasing and Sale-and-Lease back
Leasing involves long term contracts on capital assets such as ships, aircrafts
properties. Sale-and-lease back describes a situation where the owner of an asset
sells the property to a financial institution and surrenders ownership. The seller
arranges to lease the property back for use under the normal lease conditions.
This is convenient where a company has potentials of growth and has capital
assets which can be sold and leased so that the benefits of the assets are
maintained. Where the capital sold appreciates the new owner enjo ys this benefit.
It is expected that the arrangement will result in overall gain for the company.
The need for capital for investment that will sustain and grow the business in the
future is the responsibilities of parties. The financial service providers from within
or without must be abreast with sources of capital that are appropriate to the
strategic financial need of the business.
Self Assessment
What is the difference between leasing and sale-and-lease back?
4.0 Conclusion
The issue of strategic financial decisions is important in sustaining solvency,
viability and growth of the organization especially in the future. The implications
for using equity or debt or leasing, sale-and-lease back must be weighed. To avoid
high gearing is to prevent bankruptcy especially because of the high level of
borrowed or external capital. Distress should be avoided.
5.0. Summary
94
The unit has examined how strategic financing is important for the future
prospects of the organization. Dependence on long term sources of capital to
finance capital projects has been discussed. There are various types of long term
capital with different characteristics, risks and benefits.
6.0 Tutor-Marked Assignment
1. discuss the importance of long term finance
2. Write short notes on ordinary shares, preference shares, debt instruments,
lease-and-lease back.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
95
doc_895444304.pdf
SCHOOL OF MANAGEMENT SCIENCES
COURSE CODE: BHM746
COURSE TITLE: MANAGEMENT OF FINANCIAL SERVICES
1
COURSE GUIDE
BHM746: MANAGEMENT OF FINANCIAL
SERVICES
Course Writer: Bala V.N Gonji
Department Of Accounting,
University Of Jos
Content Editor Dr ( Mrs ) Ayodele .O. Fagbemi
School of Business & Human Resources Mgt
National Open University of Nigeria
Programme Leader Dr. D. I. Mailafia
National Open University of Nigeria
Course Coordinator : Mr. Emmanuel . U. Abianga
School of Business & Human Resources Mgt
National Open University of Nigeria
2
TABLE OF CONTENTS PAGE
Introduction
3
Course content 3
Course objectives 4
Course material 4
Study units
5
Self assessment 5
Tutor marked assignment 5
Final examination 5
Summary
5
Reference/further reading 6
3
INTRODUTION
Financial service marketing is a two credit course. The course is designed to
equip the learner/student with knowledge of financial services, financial
institutions and the various services they render. The course is helpful to the
individual, student and employee who may find himself in an organization.
Finance is required in every facet of life. Knowledge of financial service is
important in bringing about the required finance.
COURSE CONTENT
The course has these modules each module contains five units.
Module 1 examines marketing as a management function, the meaning of
financial services and the marketing implication. The characteristics of
financial services, the necessity and procedures for planning for financial
services were covered. The role of financial services in intermediation was
analyzed. The units in this module cover these sub topics.
Module 2 deals with five units that cover market segmentation and market
mix strategies in financial services. Marketing of financial services is
important and so are innovations to sustain financial services. The
environment has significant impact on the financial services and the marketing
of financial services. These were the subject of this module.
Module 3 appraised financial services, treasury financial services, short-term,
short and medium term financing and long term financing. All these have
significance in liquidity, solvency, and capital availability which are important
in sustaining operations, ensuring viability and continuity.
This course guide is avails you the highlights of the entire course. Through it
you will be able to successfully complete this programme. You will be
equipped to identify and use financial services. This course is structured in a
pattern that is easy to read and understand. Self assessment questions help to
put the student/learner in focus. The tutor-market assignments (TMA) are to
test the understanding of the student in key areas in the subtopics. You need to
sharpen your knowledge on the topics in these assignments for personal
knowledge as well as scoring high grades in the examination.
COURES AIMS
The course equips the student/learner and strengthens the student’s/learner’s
knowledge on financial services for the purpose of accessing financial
services. The various financial institutions and the services they render ensure
4
the availability of funds for operations and growth of the organization. In this
course the following aims are to be achieved:
• To define and describe financial services.
• To identify the types and characteristics of financial services.
• To evaluate and plan for the financial services that appropriate to the
financial decision.
• To analyze the dynamics of the financial environment and financial
services marketing in order to make informed decisions.
• To identify and access short-term finance and long term finance.
• To utilize financial resources for the benefits of the organization.
COURSE OBJECTIVES
At the end of the course the following objectives would have been realized:
The student learner should be
• Able to define and describe financial services.
• Able to knowledgeably identify financial services, institutions and
their different characteristics.
• Able to evaluate, analyze and plan for financial services.
• Evaluate the financial environment for making informed decisions on
financial services.
• Able to identify and utilize financial resources for the benefits of the
organization
COURSE MATERIALS
The course has the following tools:
• Course guide
• Study units
• Text books list
• Assignments.
5
STUDY UNITS
The highlights of the 3 modules (15 units) are:
MODULE 1
Unit 1 Marketing as a management function.
Unit 2 Financial service meaning.
Unit 3 Characteristics of financial services.
Unit 4 Marketing planning in financial
services.
Unit 5 Analysis of financial service market.
MODULE 2
Unit 6 Market segment.
Unit 7 Market mix strategies in financial
services.
Unit 8 Marketing of financial services.
Unit 9 Environment for financial services
market in Nigeria.
Unit 10 Innovation in financial service-
marketing the internet system etc.
MODULE 3
Unit 11 Appraisal of financial service marketing
Unit 12 Treasury financial services
Unit 13 Financial service and short term asset
management.
Unit 14 Short and medium term financing.
Unit 15 Financial services and long term
financing.
You are expected to be committed t your study. Putting in at least 2 hours on
each unit will lead to the realization of the objectives for that unit. Towards
this the pattern has been outlined for easy reading and understanding. The
content of each unit at a glance gives the main topics to be studied. A
methodical approach will be helpful. Start with the introduction and make sure
you understand the aims of the unit. Spend more time on the main content.
Attempt the self assessment questions formally. Be serious with the Tutor-
Marked Assignments. After understanding the unit consult other books and
6
the references before writing your TMA. This way you will be fully equipped
for your examinations.
SELF ASSESSMENT.
Self assessment questions are for your practice. They will help build your
understanding and confidence on the unit.
TUTOR-MARKED ASSIGNMENT
These are assignments that will be graded. You are to spend meaningful time
on each assignment. Consult other texts so that you are in no doubt as to what
you are requested to cover in the assignments. The assignments carry 30%.
Your examination will be 70%.
FINAL EXAMINATION
The examination score is 70% while your TMA is 30% giving a total of
100%. Both are important and must be given adequate time. Aim for the
highest grade of 100%.
SUMMARY
The ultimate goal for studying financial services marketing is to be equipped
with knowledge of financial services, institutions and providers of finance
services. This is helpful in procuring finance which is important in every
organization. The dynamics of the environment must be analyzed and studied
to make meaningful, informed decisions.
REFERENCES/FURTHER READING
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Asen, S.A. (2006): Principles and Practices Approach to
Management, Bauchi-
Nigeria: New Era Production.
Cole, A.C. (2007) Management Theory and Practice, C & C Offset
Printing co. Ltd, China….
7
DuBin, A.J. (2006) Essentials of Management, Thompson, South-
Western, USA.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
8
COURSE CONTENT
BHM746: MANAGEMENT OF FINANCIAL SERVICES
Course Writer Bala V.N. Gonji
Department Of Accounting,
University Of Jos
Content Editor Dr ( Mrs ) Ayodele .O. Fagbemi
School of Business & Human Resources Mgt
National Open University of Nigeria
Programme Leader Dr. D. I. Mailafia
National Open University of Nigeria
Course Coordinator : Mr. Emmanuel . U. Abianga
School of Business & Human Resources Mgt
National Open University of Nigeria
9
TABLE OF CONTENT
Module 1
Unit 1 Marketing as a management function …………………….3
Unit 2 Financial service meaning…………………………………12
Unit 3 Characteristics of financial services……………………….19
Unit 4 Marketing planning in financial services………………….26
Unit 5 Analysis of financial service market………………………35
Module 2
Unit 6 Market segment……………………………………………41
Unit 7 Market mix strategies in financial services………………..46
Unit 8 Marketing of financial services……………………………50
Unit 9 Environment for financial services market in Nigeria……..56
Unit Innovation in financial service-marketing
10 the internet system etc……………………………………...61
Module 3
Unit Appraisal of financial service marketing…………………...66
11
Unit Treasury financial services…………………………………71
12
Unit Financial service and short term asset management………..75
13
Unit Short and medium term financing………………………….79
14
Unit Financial services and long term financing………………...85
15
10
UNIT 1: MARKETING AS A MANAGEMENT FUNCTION.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main cost.
3.1 Marketing
3.2 Management
3.2.1 Management objectives
3.2.2 Basic elements of management
3.2.3 Summary of functions of management
3.2 Financial Services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction.
Marketing meets the needs of the customer as goods and services are made
available to satisfy customer’s needs. In regard to financial services, marketing
identifies the financial needs of customers and satisfies these.
Management on the other hand brings about the realization of group objectives
through individuals’ best contributions (Weihrich& Koontz: 1993 ; Asen et al;
2006). Henry Fayol is the ascribed Father of management theory. Management is
defined as `the process of designing and maintaining an environment in which the
individuals, working together in groups, efficiently accomplish selected aims
(Weihrich & Koontz: 1993). The basic elements of management are planning,
organizing, staffing, leading and controlling.
Financial services bring about the financial resources that enterprises or business
require. The management of these resources means that these upon which lies the
responsibility of achieving goals of the enterprises must understand and apply the
expertise of management functions. They should be able to plan, organize, engage
the appropriate financial experts, lead and control financial resources.
2.0 Objectives.
At the end of this study, the learner should be able to:
11
i) Define and describe marketing and management
ii) Explain the role of marketing and management in financial management
services.
iii) Discuss the usefulness of marketing and management in running an
enterprise or business entity successfully.
3.0 Main content
3.1 Marketing.
Kotler & Keller (2006) define marketing as “identifying and meeting human and
social needs”. This involves meeting needs profitably. Marketing savvy
transforms needs into profitable ventures. The American Marketing Association
(2004) defines marketing as
an organizational function and a set of processes for creating, communicating and
delivering value to customers and for managing customer relationships in ways
that benefit the organization and its stake-holders.
Kotler & Kellers define marketing as
a social process by which individuals and groups obtain what they need and want
through creating, offering and freely exchanging products and services of value
with others (Kotler & Keller,2006:6)
Their definition is from a social perspective and solicits response from another
party, existing or potential. The aim of marketing therefore is to help uplift the
living standard of parties involved. Markets are avenues for exchange of values
between seller and buyer. In this process, their needs and wants are satisfied.
Success in any organization is dependent on marketing ability. Demand for
products gives relevance to functions performed by different departments, units or
organs in the business. Survival in the market place and in the course of
competition is possible through good functional marketing activities. Major
decisions may fail and the business collapse unless marketing decisions such as
product design, new product, product prices, place, promotion and advertising etc
are considered. These considerations are aimed at customers and their needs.
Marketing deals with customers (Kotler & Armstrong, 2008:4) and managing
profitable relationships. Marketing is a social and managerial process by which
individuals and organizations obtain what they need and want through creating
and exchanging values with others. It builds profitable value-laden exchange
relations with customers (Kotler & Armsrong, 2008:45).Management is
concerned with the continuity and survival of the business. This can be achieved
by meeting customer needs, making profits and ensuring returns to stakeholders
12
viz shareholders, managers, employees, owners, society and even customers
(existing and potential). This is realized through planning, organizing and
controlling their resources and motivating employees (Cole, 2004:7). He quotes
Drucker as having described management as the `systematic organization of
economic resources` and making this productive. Management therefore describes
a number of different activities going on in an organization under the guidance
and responsibility of some people.
The responsibility of marketing is that of management. That is the persons
responsible for realizing the objectives of the business. They use ` organizational
resources to achieve organizational objectives`, using the management function
and processes (DuBrin, 2006:1). Those who want to access such funds have their
needs and so evaluate their financial needs before approaching financial services.
Within their organizations are well trained personnel in accounting and finance,
who internally provide financial services or advice. They may obtain same from
accounting firms, stockbrokers, and friends (informally).
Financial services bring funds about at a cost. This cost must be considered for its
impact on the performance of the organization and its viability. Central to the
evaluation of financial services is the risk element. This operates both from the
providers’ and receivers’ perspective. Marketing takes cognizance of all these and
other variables in evaluating financial services. This concept is crucial in
management, in organizations and in their success or failure.
Self Assessment
What is marketing?
3.2 Management
The word management could refer to any of the following:
i) Management may refer to the functions performed by managers.
ii) Management may refer to the concept of the managing function. That is the
information or knowledge concerning managing.
iii) It may ref er to positions in organizations either profit or non-profit oriented.
iv) Management often refers to a career.
Therefore management must be understood within a context. Essentially it yields
results and objectives are realized.
3.2.1 Management Objectives.
Organizations are set up to achieve set objectives. Some of these are:
i) Profit Making:
13
Businesses that are established with a view to making profits run their businesses
in such a way that they should normally have a surplus or gain, reward or return
after spending money on making their products and selling same at a price higher
than what they have spent. That is
Profit = Sales minus expenses.
Where the product is sold below the cost price, the business has made a loss or a
deficit or a shortfall. No manager allows this situation to arise. Businesses that
make profits are able to survive while those that make losses sooner than later are
out of business. Investors who buy shares etc or start their own businesses want
profit or return to accrue to them.
ii) People invest in business, whether one man business or in purchase of
shares or stocks in a public limited corporation usually want their investments to
grow or appreciate. Increasing the value of a business or share price is an
indication that a business is growing. Some prefer that their business or
investments grow. Returns are important but growth in their capital or
investments is more important to them.
iii) Survival.
What is the point in starting a business that will soon cease to exist? Managers
have a duty to ensure survival both in the immediate, short and long run.
Therefore, returns and capital growth must be balanced to ensure the survival of
the business.
iv) Not for profit organizations such as government, religious organizations or
social organizations (clubs, tribal/ cultural or ganizations etc) are managed to
achieve their social or political goals. Whatever are the goals, management helps
to fulfill these goals. Without goals an organization is aimless. Without
management, goals cannot be achieved. Goals are the focus of management.
Management involves actions that evoke from individuals their best contributions
to group objectives. This applies in every organization weather big or small or
profit or not for profit, manufacturing or services. The efforts and concer n of the
manager is efficient management of resources.
Self Assessment
What are the objectives of managements?
3.2.2 Basic Elements of Management.
The activities and functions of management revolve around five basic elements
viz:
i) Planning.
ii) Organizing
14
iii) Staffing
iv) Leading
v) Controlling.
These functions are performed at the following levels of management: Top level
managers, middle level managers and first level supervisors (in preference to
lower managers). The level of involvement and the functions. Top level
management (managers) spend a great deal of time on planning and organizing
but more on organizing while ensuring that leading and controlling are not
neglected. Middle level managers spend more time on organizing and leading
while supporting planning and controlling. First level supervisors spend more
time on leading without disregarding the other functions. In other words, the three
levels of management have their areas of focus:
i) Top management focuses on organizing and planning.
ii) Middle level management focuses on leading and organizing.
iii) First level management focuses on leading.
Nevertheless, every level performs all key functions but with emphasis on the
specific element(s). These functions are further distinguished by the time spent on
each. Top level management spends more time on planning and organizing than
on the other two levels. Middle level management spend more time organizing
and leading than first level supervisors. First level supervisors spend more time on
authority.
Taking the entire functions more time and resources are expended on organizing
and leading than on planning and controlling. The issue of staffing affects the
entire structure of the business or enterprise. The planning, organizing, leading
and controlling are done using various skills (abilities of individuals). These skills
are applied at different levels and also the intensity or amount differs. Kaltz
(1974) gives 4 skills:
• Technical skills involve tools and techniques.
• Human skills involve teamwork, co-operation while allowing people to
express their opinions.
• Conceptual skill visualizes the whole picture of relationships amongst
elements and their effects.
• Design skills are used to solve problems and remove challenges
Self Assessment
What are the roles of the three management levels?
3.2.3 Summary of Functions of Management.
15
Planning
This gives direction in achieving goals or objectives. The vision, mission and
courses of action to be taken should be made clear and known to all players.
These are different plans. Those currently being implemented, those for the short
time and those for the long run. There must be commitment to planning in terms
of resources, time and human efforts including supervision.
Organizing
There must be a structure that facilitates executing the various functions to realize
enterprise objectives. In this structure, roles that are to be played, a conducive
environment for individuals to perform their roles and the environment that
maintains quality of other physical resources. People should be playing roles that
lead to group objectives and they need to be motivated accordingly.
Staffing
- Individuals fill positions and are maintained.
- The requirements for positions are clear.
- Evaluating staff on ground.
- Recruiting, selecting, placing, promoting, appraising, planning career of
staff, training etc for those on ground and to be required.
Leading
People are normally influenced to contribute to obtain results or achieve
objectives. People have different aspirations or desires and attitudes. Harmonizing
these towards group efforts often prove challenging and can affect the objectives
of an enterprise. Those leading and those following need to understand
themselves, their styles of leadership etc to make this function effective.
Communication between the stakeholders has become an inevitable lubricant in
effective leading. Leading people is a constant known challenge.
16
Controlling
This involves measuring and correcting performance or efforts by individuals and
groups as regards objectives. Deviations from plans are determined and corrected.
Quantitative and non-quantitative plans must be measured against actual
performance.
Coordinating
Co-coordinating is an element that flows through all the elements of management
and so is central to the management function. Co-ordination brings about
harmony and ensures that stakeholders are carried along and all aspects of
management are not neglected.
Self Assessment
Define the key management elements.
3.3 Financial Services
Marketing of goods and services, called products, is the essence of organizations,
no matter the type of organization. In the financial industry, the products are
finance. Marketing of finance is the responsibility of providers of such finance.
Finance becomes available when investors who have surplus of funds put these in
the depository institutions for safety and for returns. The depository organizations
now source for those in need of the funds and make profitable returns from theses
activities. Users also who need the funds know where to go to obtain the much
needed finance.
Although the activities of these depository bodies are known, extensive marketing
is required to formally create awareness about their financial services. The
services themselves are as dynamic as the needs of the customers and the
providers make efforts to satisfy these needs.
Marketing of financial services is required to sensitize potential depositors to
come forward and patronize the depository institutions. The more the patronage
(by both existing and new customers) the more the funds are available to those in
need of such funds. Marketing places a key role in identifying needs of unwilling
depositors and creating services that will meet these.
Non-depository institutions like capital market (stock exchange) insurance,
building societies/mortgage institution, pension funds help in raising large sums
of money. Depository bodies may not readily make available these funds. Their
services are critical in generating funds.
17
4.0 Conclusion
The above discourse has the relevance of marketing in management. Management
is responsible in harnessing group objectives through individuals’ contributions.
5.0 Summary.
This unit has examined marketing and the management functions. The key
functions of organizing, planning, staffing, leading and controlling have been
explained. The three levels of management viz: Top management, middle
management and first level management were discoursed. The functions of
management are applicable in management of financial services. Financial
services also need adequate management.
6.0 Tutor Marked Assignment
1) Define marketing and management and explain the objectives of
management.
2) Explain financial services.
3) Summarize the key functions of management.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Asen, S.A. (2006): Principles and Practices Approach to
Management, Bauchi-
Nigeria: New Era Production.
Cole, A.C. (2007) Management Theory and Practice, C & C Offset
Printing co. Ltd, China….
DuBin, A.J. (2006) Essentials of Management, Thompson, South-
Western, USA.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
18
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
Weihrich, H and Koontz (2001): Management, A Global
Perspective, McGraw-Hill Publishing Company Ltd.
New Delhi:Tata
19
UNIT 2: FINANCIAL SERVICES-MEANING:
CLASSIFICATION, CHARACTERISTICS AND MARKETING
IMPLICATIONS.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main cost.
3.1 Financial services.
3.2 Classification of financial institutions
3.2.1 Deposit-taking institutions
3.2.2 Contractual savings institutions
3.2.3 Other investment funds.
3.2.4 Money market.
3.2.5 Capital market.
3.2.6 Other financial institutions.
3.3 Financial services
3.4 Market implication
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction
Finance is required and is useful for the realization of objectives. Management of
cash is central to the finance function. Good cash management is at the heart of a
healthy business (Pike and Neale, 2006:7). Cash and finance are the life of a
business. Realization of objectives underlay the management of finance. Creation
of value through financial management involves making investment decisions and
financing decisions.
Investment decisions bring about capital assets while financing decisions resolve
issues of how and where to raise the capital to fund operations now and in the
future. These two functions drive the key objectives of value maximization
especially for the business. Not-for-profit organizations have their objectives and
these are achieved by the role the investing and financing functions play.
Financial services deal with the provision of key functions of financial
management. There are specialist organizations and individuals that render these
functions. Even within the organization these services can be enjoyed or received
from outside.
20
2.0 Objectives
At the end of this unit, the learner should be able to:
• Explain financial services.
• Describe the various types of financial services.
• Analyze the marketing implications of financial services.
3.0 Main Content
3.1 Financial Services.
Financial services should ensure that sufficient funds are available to meet the
needs of the business. Financial services are provided by financial institutions to
sustain current operations and or meet future operating requirements. Organized
businesses deal formally with known regular financial institutions. In Nigeria, that
is still developing economically, informal sectors exist alongside with the formal
institutions.
3.2 Classification of Financial Institutions.
Financial institutions that render financial services are classified with three formal
categories (Pike and Neale: 2006:27).
• Deposit-taking institutions.
• Contractual savings institution.
• Other investment funds.
• Money market.
• Capital market.
• Other financial institutions.
3.2.1 Deposit-Taking Institutions.
Banks dominate is this sector. There are commercial banks, investment banks and
merchant banks which specifically deal with wholesale banking. Commercial
banks are more common than specialized banks in terms of spread and clientele.
These special banks, such as mortgage banks and industrial or development banks
are set up for specific purposes. For example in Nigeria, there is the Nigerian
Export-Import Bank (NEXIM Bank) which is import/export focused. The
Nigerian Bank for commerce and industr y provides a conducive environment for
investment in Nigeria. Commercial banks receive deposits from customers and
21
payout these to them when demanded. There are acceptance houses which accept
bills of exchange from discount houses and discounting same. Traders that are not
well known have access to these services. Those that have established reputation
within the sector patronize banks such as commercial banks.
Merchant banks provide financial advice and arrange finances for companies.
They are also involved in flotation of shares on the stock exchange. They help in
developing new financial products and arranging mergers, acquisition and
restructuring for businesses. They manage investment portfolios of pension funds,
insurance companies, investment and unit trusts, charities. Merchant banks play a
significant role in the capital market.
Globalization has made overseas banking relevant especially through regional
economic blocks and growth of multinational companies. Notable financial hubs
such as London, New York etc market provide funds to big organizations and
their foreign subsidiaries etc. Building societies specialized in mobilizing funds
for building or purchase of houses.
Self Assessment
What are deposit taking institutions?
3.2.2 Contractual Savings Institutions.
To this category belong pension funds and insurance companies. Pension funds
receive money from employers and employees. Such funds may be invested
directly in the financial markets or insured and the risk covered by a life assurance
company. Pension funds have become major sources of funds for investment.
Insurance companies are either general or long-term. General insurance covers
losses arising from fire accidents, motor, marine etc upon payment of premiums.
Long term covers life assurance and pension provision.
Self Assessment
Give examples of contractual savings institutions.
3.2.3 Other Investment Funds.
This is private sector managed. These are being replaced by financial institutions.
They manage unit trusts. Investment trusts are companies that have their shares
quoted on the stock exchange. They invest specifically in securities. Their shares
are usually sold at a discount. These shares can be sold at the stock exchange.
Units trust syndicate or pool investments with each investor allocated units or
trenches according to amount subscribed. They are operated by banks and
subscribers supervised by managers appointed for that purpose.
22
Self Assessment
What is investment trusts?
3.2.4 Money Market
The money market is a financial arrangement for receiving and obtaining funds
for the short time period. Lending and borrowing take place within a short interim
period. This is a market for money and other short term assets such:
• Banker’s acceptances.
• Certificates of Deposits (CBN).
• Treasury Bills.
• Promissory Notes.
• Call Deposits.
• Bankers Certificates of Deposits (fixed, called).
• Commercial Papers.
The characteristics of this market are:
• Key players are the Central Bank, banks and financial discount houses. Banks are
the dominant participants.
• The instruments traded last for between 30 days to 365 days.
• Some are negotiable while others are not negotiable.
• They demand high level of trust worthiness and commitment.
• They strongly facilitate intermediation.
Self Assessment
What a money market?
3.2.5 Capital Market
The market is for long term investments. Funds are invested for longer than five
years. The market is regulated by the Nigerian Stock exchange Commission while
the place or organ that facilitates the actual trading is the Nigerian Stock
Exchange. It has the following characteristics:
• It’s a market for long term funds.
• The instruments for trading in the market are ordinary and preference shares,
bonds, debentures, options and futures.
• Participants are individuals, unit trusts, Banks, pension funds, insurance
companies, government (at all levels), central bank, Nigerian stock exchange,
securities exchange commission and stock brokers.
• Provides funds to industries and government.
23
• Sources of development and growth.
• The instruments are traded on the floor of the stock exchange except for Initial
Public Offer (IPO).
There are hybrid instruments which are found both in the money market and
capital markets. Some are;
• Treasury certificates (one to two years).
• Bonds or loan stocks for maturity under 5 years.
Self Assessment
Define capital market.
3.2.6 Other Financial Institutions.
Building societies and other financial houses such as finance companies, micro-
banks collect moneys from depositors. Those seeking for funds have access to
them based on their mandates.
3.3 Financial Services.
There are organizations that are specialized or professionals in providing
financial services. Some of these are:
• Banks.
• CBN.
• Professional Accountants.
• Chartered Accounting Firms.
• Financial Analysts.
• Stock-brokers.
• Financial consultants.
Most reputable businesses appoint financial experts apart from their employees to
guide them or be involved in making financial decisions. Financial events,
analysis and reports are sources of information which serve general financial
guides on daily regular happenings with the economy. The quality of these
services should be high and sustainable.
Self Assessment
Who are the providers of financial services?
3.4 Market Implication
24
Financial services make management smooth and successful. Therefore the users
and suppliers of these services are important. Suppliers of these services are
increasing in number and the services are in varieties. Users are being attracted in
different ways to patronize these services. Suppliers of these services compete to
meet the needs of their clients and to expand their clientele. The user has a range
of choices to make. The choices should be guided by quality, as usual. The cost of
the financial services and its impact on the performance, survival, strength,
viability and future growth of the organization are important. Financial services
chosen should not increase the risk of the beneficiary.
4.0 Conclusion
The above has explained the importance of financial services as the medium
through which finance is obtained. This is required for operations now and for the
future. The various sources of funds and types of institution show where such
funds can be obtained. The finance required and the purposes determine where to
go to obtain the finance. The providers and users employ experts or professionals
in order to provide or obtain the finance at minimum risks. These services are
being marketed but the objective and quality of service dictates the choice.
5.0 Summary
The unit has presented the various financial services available in the financial
industry. These are deposit taking, contractual savings institutions and investment
funds. The role of capital and money markets were also examined, along with the
marketing implication for financial services.
6.0 Tutor-Marked Assignment.
1) Explain the following terms
a) Depository institutions.
b) Contractual institution.
c) Investment funds.
2) List instruments used in the money and capital markets.
227.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
25
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
26
UNIT 3: CHARACTERISTICS OF FINANCIAL SERVICES.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Financial Services
3.2 Characteristics of financial services.
3.2.1 Accounting services
3.2.2 Auditing services
3.2.3 Banking services
3.2.4 Capital market services
3.2.5 Insurance services
3.3 Marketing implication
4.0 Conclusion.
5.0 Summary.
6.0 Tutorial assignment.
7.0 References/Further reading.
1.0 Introduction
Financial resources are liquid assets that are cash or can be easily translated into
cash. They manifest as cash, debtors (or receivables), inventory, investments in
short term instruments in the money market. Cash invested for long in businesses
appear as long term investments or fixed assets. The same items are described as
capital, long term liabilities or short term sources of liabilities. These explain the
sources of such funds. Funds obtained for long term investment come from issues
of debt (debentures or bond or loan stock). Shares or equity capital represent
permanent which is non-returnable.
Debt capital is repayable and so has temporar y permanence. Short term liabilities
supply short term fund such as trade creditors, accrued expenses, short term loans,
overdraft etc. Financial services are provided to supply financial resources, ensure
their optimum use. The benefits and returns or cost and disadvantages associated
with them have to be determined and balanced before making financing decisions.
The analysis of the financial resources necessitates knowing their characteristics
in order to make an informed decision. The unit will examine the characteristics
of financial services in accordance with where the finances to be obtained.
2.0 Objectives
• Describe financial services
• Explain the characteristics of financial services.
27
• Explain the marketing implications of financial services.
3.0 Main content
3.1 Financial Services
Financial services are information based. They provide information about the
sources, types, advantages and disadvantages of the type of finance. There are
risks, cost and analysis and choice of the finance considers these. There are
effects and cost implication on performance and viability, existence and
sustainability of the organization which arises from wise use of funds or poor use
funds.
The services arising from the use of finance may be from within or from without.
The internal services are internal audit, accounting services as well as financial
services. Financial services border on accessing banking, insurance, and capital
market services. Sometimes, designated officers are given responsibility to handle
or supervise these services which specifically cover long term sources of funds
especially capital market. The magnitude of the importance of financial services is
seen in the huge investment in financial record keeping, ensuring quality of
financial statements through auditing services (internal and external auditing
services).
Often, financial advisers or consultants are engaged to offer advice and
suggestions on implications. Banks are also appointed as official bankers for
professional opinion on financial matters in addition to rendering normal banking
functions. Financial services from outside are enjoyed from external auditors.
This is a statutory requirement.
Capital market services have become so important that banks, big ones, have
subsidiaries that handle capital market transactions. There are Registrars and
stockbrokers. They handle issues of shareholdings and liaising with stock
Exchange and Exchange commission in regards to new issues or raising of fresh
capital. The distinction between external and internal financial services depends
on the size and scale of operations of the organization. Small organizations
depend largely on external financial consultants, usually their auditors, to prepare
their financial statements.
Self Assessment
Define financial services.
3.2 Characteristics of Financial Services
3.2.1 Accounting Services
28
Accounting is defined as the art of recording, classifying, analyzing, summarizing
and interpreting financial information to make informed decisions. Okwoli (1993)
further says communicating the financial information is important. The American
Institute of Certified Public Accountants requires that the transactions, events
must be significant and should have economic values. Accounting provides
financial information. The characteristics involved:
• Documenting all financial transactions and their approvals.
• Ensuring qualitative and accurate data and information generation.
• Presentation of data and records.
• Interpretation and communication of information to users of accounting
information such as managers, owners, government, creditors, employees etc.
• Confidential and secured handling of information to prevent competitors
accessing same.
• Prompt processing and timely availability of accounting information guide in
decision making, planning and control.
The quality of personnel is vital to obtaining relevant, accurate and useful accounting
information. Attention on the following is important:
• Sound training, professional, qualification and commitment.
• Integrity, honesty and reliability of accounting personnel.
• Experience and hard work.
• Understanding the dynamism of the environment.
Accounting services can be obtained internally or from outside.
3.2.2 Auditing Services
The training and background as well as the quality of the auditing services
expected are the exact replica of accounting services. They serve as quality
control points through the checks, control and evaluation of all financial,
accounting and other services being rendered. This has the mandate of the Chief
Executive Officer of the organization to whom internal auditors report and the
shareholders who appoint the external auditors.
3.2.3 Banking Services
Banks are depository financial institutions that receive deposits. They offer other
services such as intermediation, cheque payment services; safe keeping of
valuables, guarantorship, agency, policy implementation etc. banks maybe:
• Commercial banks.
29
• Investment/merchant banks.
• Specialized banks.
• Micro banks.
• Savings/Mortgage banks.
These banks can be broadly classified into two categories. Those involved in short
term intermediation predominantly, such as commercial banks. They deal mainly
in the money markets. Common instruments used one cheques, bills of exchange,
treasury bills, certificates, acceptances, promissory notes. There are banks that
deal on long term intermediation such as commercial banks to some extent,
merchant banks, specialized banks such as investment, mortgage banks.
Investment banks underwrite issues and handle securities transactions. Mortgage
banks focus on property mortgages.
3.2.4 Capital Market Services
These are peculiar to long term funds such as shares, debentures/loan stock. The
Nigerian Stock Exchange is the primary market. The handling of fresh issues
(called initial public offers, IPO) is done through the Nigerian Stock market. The
market where secondary transactions other than initial issues take place is called
the second tier securities market. The Nigerian Stock Commission regulates the
stock market operations. Professional brokers handle these transactions for and on
behalf of individuals and organizations. Capital market instruments are:
• Ordinary shares.
• Preference shares.
• Debentures.
• Loan stock or bonds.
Self Assessment
Define a capital market.
30
3.2.5 Insurance Services
This is a non-depository financial institution. Premiums are received for insurable
risks, life or non life. There are risks that may occur and those that must occur.
Accidents, loss of property may arise just as jobs may be lost. Compensation may
be made upon the occurrence of the incident. There is certainty that death of the
insured individual will occur. No individual lives forever. Cushioning for effects
of sudden death or death due to illness, on family member warrants life assurance.
Insurance services are rendered b y insurance companies, insurance brokers. Their
services are important in cushioning the effect of the loss of the insured asset or
the occurrence of death or health calamity. This services demands honesty,
integrity, trustworthiness in both the insured and the insurance. Substantial sums
of money are mobilized through insurance services. These are kept in banks and/
or invested in profitable ventures.
3.3 Marketing Implication
The various financial services are regulated by the laws setting them up. Their
operations are consequently guided by such laws. The goal is bringing the
services to the awareness of existing and prospective customers. Marketing
strategies take cognizance of the peculiarities of the nature of the service, the
relevant laws and professional etiquette governing such services. Financial
resources are quite sensitive and risky.
Confidence in the providers of such services is the basis for patronage. The
qualities of integrity, honesty and reliability of providers of such services sustain
patronage. Safety of funds and accurate rendition of information concerning
financial transactions remain fundamental to marketing of these services.
Communication between providers and consumers of financial services should be
regular and quite capable of resolving gray areas that may create mistrust.
Bankers and insurance businesses are quite many and compete freely. They
advertise their services old and new products publicly. Also, energy and any
available media that will give the customers and the public adequate information
are employed.
The marketing implication focuses on quality services to be gained in patronizing
any bank or insurance company. Auditing and accounting services are not given
wide publicity as done by banks and insurance businesses. Through personal
contact and reputation, the services are patronized. The professional bodies ensure
commitment and integrity through appropriate guidelines, standards, monitoring
and regular training. Capital market operations take place in the stock exchange
markets. Appropriate legislation and control are important to maintaining
security, efficiency and success of the market operations.
31
The growth of the market is seen in the establishment of branches of the market in
viable cities. Marketing has the objective of bringing out the advantages and
benefits of investment in the capital market. The more the public is aware of this,
the longer will be the market. The brokers who are key operators in the market are
regulated and monitored by the stock exchange commission and the stock
exchange market regulators.
Self Assessment
What is the marketing implication of financial services?
4.0 Conclusion.
Financial services generate financial resources of various types. Each type of
resources has benefits and costs. They are solvent and risky. The cost and benefits
are to be weighed to enable informed decisions making on the choice of a
particular type or a composition of some. Accurate documentation, correct
information and integrity of the personnel responsible for financial services are
worthy of consideration.
5.0 Summary.
The unit has described and explained the nature type and sources of financial
resources. Financial services have different characteristics depending on their
sources. Auditing, accounting services, insurance and capital market services have
been discussed. Their marketing implications were also high lighted.
6.0 Tutor-Marked Assignment.
1. Discuss qualities that will make accounting information useful.
2. Explain the term financial services and list their types.
3. What are the key considerations in marketing accounting, auditing, capital,
banking and insurance services?
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
32
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
33
UNIT 4: MARKETING PLANNING IN FINANCIAL
SERVICES.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing planning.
3.2 Steps in marketing planning.
3.3 Planning for financial services.
3.4 Linkage between marketing planning and
financial services.
3.5 Planning for financial services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Market assignment.
7.0 References/Further readings.
1.0 Introduction
Marketing has been defined as “identifying and meeting human and social needs”
(Kolter and Keller, 2006) and at a profit. Therefore, meeting the needs of an
organization requires that the organization identifies the needs of the customers.
This necessitates planning. Planning is essential to achieve objectives of an
organization.
The plan must have a scope to meet the needs of customers at the short run and in
the long run. Needs cannot be met unless there are financial resources to meet
them. These resources are more often than not scarce. Their availability must be
planned for. Planning for financial services is the sure way to obtaining financial
resources which are needed to sustain operations. These resources vary and they
have costs.
Holding excess financial resources may result in waste or loss of revenue. The
revenue that would have been received were they invested would be lost.
Shortage of financial resources have costs. The operations may have to be
temporary. This means customer needs may not be met as and when expected. It
may also mean that satisfying customer needs may be delayed. This results in loss
of such customers or loss of market share. Obtaining these resources when
scarcity of them sets in may be at a cost. Emergency remedies have their
34
disadvantages. Thus, planning for financial services is inevitable. The sources of
finance and the organizations providing these services have to be put on notice to
average for finance. Planning in this regard is a good way to avoid
embarrassment.
2.0 Objectives
• Explain marking planning.
• Explain linkage between marketing, planning and financial services.
• Describe how to plan for financial resources.
3.0 Main Content
3.1 Marketing Planning
Financial resources are ultimately needed to accomplish marketing plans and
satisfy existing markets and even future markets. Resources are efficiently
deployed on the basis of good and implementable or workable plans. Planning for
markets usually culminate in financial resources for meeting the needs of these
markets. Products do not come into existence unless they are produced. The
sources for finance and the sort of services available by those rendering or
providing such should be known and planned for. Marketing planning is
fundamentally:
• Analyzing marketing opportunities.
• Selecting target markets
• Designing market strategies.
• Developing marketing programs.
• Managing the marketing effort. (Kotler and Keller, 2006).
Marketing planning results in delivering superior value that will meet and satisfy
customer needs, demands and wants in the midst of abundant choices. In
developing markets (developing countries) choices are limited and so planning to
meet market needs may be unnecessary.
However, in developed economies, there is competition because there are choices
of products and services. Micro-marketing is common in developed economies
while mass marketing is common in developing or less developed economies. The
major goal is value delivery, delivering what customers want. * The value
delivering process requires a choice of either customer segmentation or market
focus or value positioning. This covers product development, service
development, sourcing making the value (product or service) and distributing
35
same. The last function is communicating the value. This is how the value is
brought to the customer through sales promotion and advertising. Planning
preceeds value delivery. The traditional approach is product design, procuring or
making the product, pricing, selling advertising, promoting distributing and
providing customer service. Marketing planning depends on the approach taken
by the planners.
That is whether it is Webster’s or Kumar’s approach viz;
Webster’s marketing approach Kumar’s marketing approach
Value defining process. Value segmentation.
Value developing process. Value positioning.
Value delivering process. Value network.
These approaches will have identical results.
Self Assessment exercise: List the fundamentals in marketing planning and list
Webster’s and Kumar’s marketing approaches.
Self Assessment
What do we mean by marketing planning?
3.2 Steps in Marketing planning
Based on the approach chosen, the following are to be considered value chain.
Chains are activities followed to bring about a product or value. There are nine
such activities divided into primary and support activities.
A) Primar y activities.
These are:
1) Bringing materials into the business.
2) Material conversion to final product.
3) Shipping out.
4) Marketing and sales.
5) Servicing.
B) Support activities.
These include:
1) Procurement.
2) Technology development.
36
3) Human resource management.
4) Firm infrastructure (both internal and outsource). For example management,
planning, finance, accounting, legal etc. The value chain is received constantly to
reduce costs, improve value even its existence.
Core Competencies
Core competence is the area in which the organization has comparative advantage
over others. It is key to its existence.
• It gives the company an edge over others.
• It contributes significantly to its profitability.
• It has wide application within the market.
• It cannot be imitated easily by competitors.
Market Orientation and culture
The goal of marketing is to satisfy relationships and especially stakeholders.
Therefore, people involved, valued exploration, creation and delivery is
important. Customers, owners, management, employees, community and
government must be satisfied.
Strategic Planning
This leads to successes. It takes us there. The value delivery process recognizes
strategic planning as well as tactical planning in relation to the whole marketing
effort. Strategic planning considers the distant future beyond five years while the
tactical deals with current or immediate coping strategies. The strategies consist
of the marketing strategy, the technological strategy and the sourcing strategy.
Planning for the long run is quite difficult (Palmer, 2004). Planning for the short
term and long term profitability should consider the environment. (Palmer,
2004:208).
Defining the Corporate Mission
Corporate mission is the whole essence of the organizations existence. Why was
the organization set up? To accomplish what? Organizations mission statements
capture their missions. This must be redefined as the need dictates. The definition
of the business and its mission may incorporate customer need, group or
technology. Different businesses in an organization must be defined separately
especially in a group.
37
Assessing Growth Opportunities
The company must determine where it is now in terms of operations and
profitability, the extent of meeting customer needs, how to fill any gap between
projected sales and desired levels considering the level of activity. Desired levels
are usually higher than projected (based on current operations). The desired may
be filled by expanding current operations or intensifying operations. It can be by
acquiring relevant businesses integration or by acquiring businesses that may not
be related (diversification). Businesses must evaluate and plan strategies for
growth for expected returns to shareholders and greater career opportunities for
managers (Palmer, 2004).
Organization and Culture
The structure of the organization may contribute positively or negatively to the
success of the organization. Its policies and culture are capable of affecting the
business. Structures and policies change easily but not culture. Both organization
and organizational culture are important in planning. Culture refers to the shared
values, norms, experiences, beliefs, of people within an organization.
Business unit Strategic Planning
This covers business missions, SWOT (internal and external) goal formulation,
strategy formulation, programme formulation, implementation and feedback and
control in this sequence. At the feedback and control stage the whole sequence is
re-started. Planning is required for short term and long term profitability and
should respond to changes in the environment (Palmer, 2004:208)
Establishing Strategic Business units
This defines the business the company is carrying on to achieve its corporate
missions, for example, car making, food processing, shoe making etc. The core
business can be redefined continually. Business definition may be based on
customer groups or customer needs or technology. Where there are different
businesses, each may have a separate strategy, and funding.
Assigning Resources to Strategic Business Units
• Profitability must be considered.
• The relevance must be evident.
• No wastages.
• Possibility of outsourcing.
Self Assessment
38
Discuss briefly the steps in marketing planning.
3.3 Planning for Financial services
The organizations size in terms of operations and markets will determine the level
of finance required. Small ones depend on the reputation and the integrity of the
owner(s). The level of finance required may be less substantial. Big organizations
have their reputation built around corporate management, policy instruments,
legal framework and their financial standing within the industry and economy.
The medium size businesses exist between the small organizations and big
organizations. They suffer the most because their sizes do not give them the
privileges of big organizations. They are larger than the small ones and yet suffer
their disadvantages.
Sources of finance for organizations are:
• Commercial banks.
• Capital market for long term finance (projects).
• Money market for short term finance.
• Internally generated funds from operations.
• Specialized banks e.g. NEXIM Bank and Nigerian Bank for Commerce and
Industry.
Providers of such finances are:
• Commercial banks.
• Insurance companies.
• Capital market operations e.g. brokers.
• Finance and accounting departments.
• Specialized banks.
Self Assessment
What are the sources of finance?
List the providers of such finances.
3.4 Linkage Between Marketing, Planning and Financial Services
Marketing helps to identify the needs of consumers. These needs have to be met
according to customer demand. Once the needs are identified the organization
commences procedures to bring the products or services that will satisfy these
needs, wants and demand. Marketing planning fulfils the procedures for bringing
about the products. Resources that are required to bring products into existence
39
are linked to the stages of production. Financial resources are central to marketing
planning. Marketing planning identifies the markets and financial planning
identifies the sources of funds to finance these activities.
3.5 Planning for Financial Services
The need for finance arises once a marketing plan has been drawn up. Depending
on the level of the organization and the scope of the market, the quality of goods
or extent of the service will be determined. The considerations are:
1) Can the financial resources available to the organization
from within finance the marketing plan? For future markets
with the organization look inward or should it look
outwards?
2) The level of planning may require sourcing for funds from
outside. Where the need is only for a short period or to
meet immediate needs, short term sources of funds
especially banks and financial institutions may be handy.
3) The organization may build up funds in the money market
to meet the immediate or temporar y financial needs of the
organization. For example, investing surpluses in fixed
deposits, treasury bills etc.
4) For long term needs of customer’s long term sources of
funds will be considered. Ordinary shares or preference
shares may be issued and raised to expand facilities,
operations or markets. Debentures or loan stock, in the case
of governments, may be issued and loans raised to finance
the marketing.
5) Long term loans, equity (preference and ordinary shares)
have serious implications which must be considered.
6) Approval of the Board may be required for lar ge
organizations. Processes for approval may be long.
7) The quality of financial statements matter. Audited
accounts must be available.
8) Financial plans, including cash budgets, must be available.
9) The need to use the services of the bank, stoke broker or
financial consultants must be examined.
10) Evaluating the cost of the funds to be obtained in the face
of alternative sources of financing is necessary.
Self Assessment
Why is it important to plan for financial services?
4.0 Conclusion
40
Marketing planning is essential in delivering of products. This must end with
financial planning in order to emplo y the resources of the organization to
efficiency. Planning for financial services takes cognizance of the various sources
of finance and who the providers are. Planning helps in enjoying financial
services and in meeting customer demand and profitably.
5.0 Summary
In this unit, marketing was defined and marketing planning was explained. The
various steps and procedures for planning was described. The need for financial
planning was equally presented.
6.0 Tutor-Marked Assignment.
1) Explain the steps that are important in marketing planning?
2) How do you plan for financial services?
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making millions from shares,
Go-Go International Limited Jos, Nigeria.
Kotler, P & Armstrong, G. (2008). Principles of Marketing, Pearson,
Prentice Hall, New Jersey.
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial Services, McGrams
Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market. Financial Institutions
and Instruments in a Global Market Place, New York
Sanders, A. & Cornett, M. M. (2006) Financial Institution Management: A Risk
Management Approach, McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A Managerial Approach,
Harper Collins College Publishers, New York.
41
42
UNIT 5: ANALYSIS OF FINANCIAL SERVICES MARKET.
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Financial markets.
3.2 Financial services.
3.3 Analysis of financial service markets
(institutions).
3.3.1 Deposit taking institutions.
3.3.2 Contractual financial institutions.
3.3.3 Units and investment trusts.
3.3.4 Globalization and financial services
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked Assignment.
7.0 References/Further reading.
1.0 Introduction
There are various sources of finance and different services provided towards
securing the needed finance. The wheels that bring about financial resources are
financial services. The objective of financial decisions and services is to
contribute to the attainment of corporate goals. The task of those providing the
service and the resource itself is “to plan, raise and use funds in an effective
manner to achieve objectives” (Pike & Neale, 2006:5).
Key decisions involved in finance are investment decisions and financing
decisions which have to do with what to acquire and wher e such finance is to be
obtained respectively .Apart from these, the financial manager has a responsibility
to ensure the sufficiency and availability of funds to meet the needs of the
organization. Therefore, in-depth knowledge of the future financial requirements
and the financial markets need be possessed.
3.1 Financial Markets
There are two broad categories of financial markets. The distinction between them
is based on the time factor and the type of transaction and instruments used. These
are the money and capital markets. The money market is where banks
significantly dominate with other financial services. They are involved in mainly
short term sourcing and investments of funds within a short period, usually one.
Common instruments used are cheques, credit cards, deposits’
43
acknowledgements, certificates of deposits, treasury bills, commercial papers,
banks etc by which funds become available in the market. From these short term
loans, over drafts, payments and other transactions are made.
Direct investment is the money that is not usually made through treasury bills,
certificates etc. Individuals, government and businesses access this category of
funds not necessary through the banks but directly. Users of funds who acquire
funds in the money market may invest such funds in stocks and enhance their
operations. Repayment of credits is possible through obtaining funds in the money
market. The financial services provided should be efficient and the cost of
obtaining the service should not be arbitrary.
Regulations and regulatory bodies monitor and ensure that the costs made by
banks, financial institutions have to be in accordance with existing regulation.
There is the need to ensure solvency. Each institution should be liquid enough to
sustain its activities. Threats and fears of insecurity should be prevented as these
can cause panic and loss of confidence.
Capital markets deal with long term investments and instruments involved are
debentures, loan stock or bonds, ordinary shares, preference shares. The markets
for these instruments are the stock Exchange, the Wall Street (America) etc. The
market is either primary for fresh issues or secondary where holders of the
instruments can dispose of their interest as they desire. The secondary market
operations ensure that the capital raised in the primary market is not temper ed
with. The capital market is an avenue for investors (business individuals and
government to invest directly. They use stock brokers or issuing agents (houses).
The funds so raised are used to expand businesses, purchase plants, land, or build
properties. The instruments or investments must be secured. Their values should
be reasonable (as regulated by the stock Exchange and Stock Exchange
Commission). There should be free access to information on regularly basis.
Management should ensure that there is good corporate governance and
accountability. Government through regulation and supervision ensures
transparency otherwise there would be loss of confidence in this market. The
consequences will be disastrous.
Self Assessment
Explain financial market.
3.2 Financial Services.
There are several services rendered by financial markets. The major role is
intermediation. The money and capital market institutions facilitate
intermediation. The others are:
44
• Generating finance from several small investors, individuals and pooling together
these to lend to those who need the fund.
• Reducing risk especially from unit trusts. Funds from trusts are invested in
different portfolios. Institutional investors diversify their investments to reduce
risks.
• The markets provide both short term and long term funds. Those borrowing short
go to the money market. Those borrowing long go to the capital market.
Borrowing long from money markets is quite risky. Insolvency may arise leading
to bank failures as in 2008/2009 globally. This began in USA.
• Financial markets bring together small savers and large or institutional borrowers
at reduced or low costs.
• Lenders and borrowers have access to professional and expert advice.
Financial services markets should be seen to be providing these services. Without
these, their relevance would be questionable. They have a duty to ensure
efficiency and continuity of their businesses and those of their clients or
customers. They have to make “sound, adequate and reliable financial
information”, (Rose & Marquis, 2006;54).
Self Assessment
What do we mean by intermediation?
3.3 Analysis of Financial Service Markets (institutions).
3.3.1 Deposit Taking institutions
The main feature of this category is the receiving of deposits. Majority banks play
this role. Other financial institutions are also involved in deposit taking.
• Commercial Banks-Retain Banking services.
• They receive deposits from customers and are involved in commercial lending
(Sanders & Cornett, 2006).
• Payment services such as clearing of cheques, paying out of currency.
• In universal banking system they undertake whole banking also.
• Commercial banks have sub-categories viz:
a) Micro banks/ community banks.
b) Regional Banks.
c) National or Super regional banks.
(Saunders & Millon, 2006).
In Nigeria there are 25 Mega banks as at 2009 and micro banks which have
replaced community banks.
45
Savings Institutions
This category mainly mobilizes savings for a long period. Immediate release of
such savings is not a target. Savers save for a long term purpose. Short term
savings are also encouraged.
Whole Sale Banking
This is also called Merchant Banking. They finance businesses through accepting
services (bills of exchange) and discounting services, providing cash to by
discount bills of exchange. They save institutional investors, large corporate and
governments. They help businesses in mergers and acquisition arrangement. They
help businesses also manage funds. They are also advice companies etc on
financial matters. They manage pension funds, unit trusts, insurance funds,
investments, leasing.
Building societies and Mortgage
Institutions
They mobilize savings and grant loans for building purchase. They are specialized
savings institutions.
Self Assessment
List financial institutions.
3.3.2 Contractual Financial Institutions
• Pension funds are a major source of investible funds. They manage pension
contributions for employees and employers. They have two schemes.
a) Self-administered schemes: the funds are invested directly in the financial
market (capital market).
b) Insured scheme where the funds are insured a life assurance company and
the risk are covered the company.
• Insurance companies
a) Life assurance. }
b) Pension provision. } these are long term insurance.
General insurance cover losses from fire, accidents, motor etc within a 12 month
period. Funds generated from these are invested in short term investments.
46
3.3.3 Units and Investment Trusts
Investment Units
Investor’s funds are pooled into a portfolio of investments. Each investor is
allotted tranches or units according to amount contributed. They are mainly
operated by banks, insurance and finance companies. Individuals can only dispose
of their tranches or holdings only through the manager.
Investment Trusts
They are limited companies set up to invest in securities quoted on the stock
Exchange. They invest specifically in services. Shares are soled on the stock
exchange.
3.3.4 Globalization and Financial Services
The activities of prominent stock markets are always on internet, dailies, news.
Development in one country affects other countries. The financial meltdown
began in USA and towards the end of 2008 and has affected the world.
Individuals and institutions patronize other stock markets. Trading of securities in
the internet has become a growing business. Financial markets have been brought
to the door steps of individuals, governments and businesses.
4.0 Conclusion
The above analysis has revealed the major role of financial services markets in
intermediation. Borrowers and lenders are linked and their transactions protected.
Therefore, making financing and investing decisions has been possible. These
decisions lead to efficiency and sustainability of businesses. Each sector of the
financial market plays a significant role. They are regulated to sustain confidence
of investors, provide liquidity in the short and long run.
5.0 Summary
The unit has discussed what finance services, institutions and markets do. The
benefits of their services underscore their continuity. The various types of services
rendered were also discussed. The globalization and impacts of financial markets
was briefly made.
6.0 Tutor-Marked Assignments
47
1a) Distinguish between capital and money market.
b) Distinguish between primary and secondar y market.
2) Discuss the services financial institutions provide.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
48
UNIT 6: MARKET SEGMENT.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Market segmentation.
3.2 Levels of market segmentation.
3.2.1 Mass marketing.
3.2.2 Micro marketing.
3.2.3 Market segmentation.
3.2.4 Niche marketing.
3.2.5 Local marketing.
3.2.6 Customerization.
3.3 Requirements for market segmentation.
4.0 Conclusion
5.0 Summary.
6.0 Tutor-Marked Assignment.
7.0 References/Further reading.
1.0 Introduction
The essence of marketing is not only to provide goods and services which are
needed. The ultimate is to make a profit. The stakeholders; shareholders, loan
providers, management, government and community have expectations which
have to be met and usually from profits and activities of the organization.
Marketing has an objective. Careful analysis of the market is required for
sustained and profitable marketing of products and services. Market segmentation
is inevitable.
2.0 Objectives
• Define and explain market segmentation.
• Describe the types of market segment.
• Explain requirements for segmentation.
3.0 Main Content
3.1 Market segmentation
Market segmentation is identifying and analyzing a market and dividing it into
segments. This is based on profiling of customers who want various
49
products/services depending on their demography, psychography and behavior
(Kotler and Keller, 2006). The reason for segmentation is to determine the
segment that offers the greatest opportunity for offering. From these segments, a
choice of the segment that presents the highest of opportunities is made. From
segmentation, the target markets are identified. The benefits are then revealed to
this segment. Efforts are concentrated on this segment. Market segmentation
should show where the marketer or organization should focus. Exploring and
exploiting segments have great rewards where:
• The segment is attractive.
• The company’s objectives are realized.
• The resources are employed for the higher benefits.
• Developing and communicating a positioning strategy (STP).
a) Through segmentation.
b) Through targeting and
c) Through positioning.
The end result of segmentation should cover:
• Meeting the needs of the group.
• Satisfying these needs in a superior way.
• Making the segment market to recognize the distinct way the needs are met.
• Avoiding confusion in the market and its image.
The role of the marketer is to identify not to create the segment based on
preferences of the customers.
3.2 Levels of Market Segmentation
3.2.1 Mass Marketing
This is broad, generalized and meets a large need. It involves mass production,
distribution and promotion of one product to meet the needs of all users (Kotler
&Keller, 2006). For example, coca cola produces to meet all buyers.
3.2.2 Micro Marketing
This is taking over mass marketing as meeting the demands of buyers with one
product in becoming a fallacy. Some may want the coke with less caffeine or
sugar or gas or smaller or bigger. Still, some may want it in small quantities or
bottles or cans for take always. Micro marketing is done at different levels such as
50
segment marketing, Niche marketing, Local marketing, customerization
(individuals).
3.2.3 Market Segmentation
This category share common needs. There may be customers who want low-cost
cars or luxury cars. Segmentation seeks to cope with competition and meet
specific need more than mass marketing. Three different patterns of segment
marketing can emerge based on preferences:
• Homogenous Preferences
Their preferences are similar and clearly recognizable. They share the same
attributes, taste and presentability.
• Diffused Preferences
They have varying needs. They need different marketers and brands to satisfy
their demand.
• Clustered Preferences
There preferences are natural to them. Different branches are required for this
market. Marketing can, begin anywhere on the scale and spread to other parts of
the market. From an area of high population or low population the other market
will be covered. It can begin with the largest population (called concentrated
marketing).
3.2.4 Niche Marketing
This is sub-segment. The customers have distinctive set of needs and are ready to
pay higher to have their needs made. They are smaller and attract only one or two
competitors. Their products are usually special.
3.2.5 Local Marketing
These markets suit customers within a locality. The services are tailored towards
the needs in the locality. This can be called grass root marketing or experimental
marketing (unique experiences), e.g. sponsoring football or golf tournaments.
51
3.2.6 Customerization.
This is the ultimate called one-to-one marketing. Marketing meets the needs of
individuals. This required knowledge information about the individual customer
and his needs.
3.4 Required For Market Segmentation
• Geographic segmentation divides the market into geographic units:
nations, states, regions, countries, cities, local areas etc.
• Demographic segmentation identifies age, family sizes, cycle, gender,
income, occupation, religion, race, generation, etc.
• Psychographic segmentation examines the psychology of consumers e.g.
personality, lifestyles, values. The customer in a demographic segment
may reveal different profiles or personality and tastes.
4.0 Conclusion
The above has defined and explained market segmentation. The marketing
objective is to make a profit by providing products and services to markets
segmenting markets yield this objective. Understanding the need of the market
and the various segments informs wise marketing decisions.
5.0 Summary
The unit has thrown more light on the concept of marketing segment. The various
segments that are basic to understanding the market have been explained. The
basic variables to be considered in market segmentation are also discussed briefly.
6.0 Tutor-Marked Assignments
1) Explain market segmentation micro marketing.
2) List the basic requirements for market segmentation.
7.0 References/Further reading
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
52
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
53
UNIT 7: MARKET MIX STRATEGIES IN FINANCIAL
SERVICES.
CONTENTS:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing mix.
3.2 Market mix strategies in financing.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked assignment.
7.0 References/Further reading.
1.0 Introduction
There are different market segments that offer different opportunities.
Organizations usually go for one or select the contribution of markets that have
optimum profits. Different measures and used to determine and describe the
markets. Markets can be measured through sales volume, sales values, growth rate
or level of competitiveness. Marketing mix is a framework that highlights the
principal decisions that managers make in configuring their offerings to suit their
customers’ needs. These tools are useful for both the long term and short term
tactical programs (Palmer, 2004:19).
2.0 Objectives
• Explain marketing mix.
• Explain market mix strategies in financial services.
3.0 Main Content
3.1 Marketing mix
This is
A set of marketing tools that work together to satisfy customer needs and
build customer relationships and is useful in implementing marketing
strategy
(Kotler & Armstrong, 2008:8 & 12).
54
The market mix is the set of controllable, tactical marketing tools that the
organization blends to produce the desired response in the market. (Kotler &
Keller, 2006, Kotler & Armstrong, 2008) explain that the four marketing Ps
center on target market. These Ps are:
• Product- product variety, quality, design, features, brand, name, packaging, sizes,
services warranties and returns.
• Price- focuses on price list, discounts, allowances, payment periods and credit
terms.
• Promotion- covers sales promotion, advertising sales, force, public relations,
direct marketing.
• Place- gives coverage, channels, assortments, locations, inventory and transport.
These are the sellers’ strategies which match the customers’ 4 Cs.
• Customer solution.
• Customer convenience.
• Customer cost.
• Communication.
Palmer adds 3 Ps to Kotler & Keller’s, Armstrong’s 4 Ps.
• People.
• Process.
• Physical.
All these are directed at meeting and satisfying customer needs at a profit. These
tools are interdependent and all point to the target market.
3.2 Market mix strategies in financing
Financial services bring about financial resources to prosecute the market plan.
The financial resources are based on marketing forecast and planning. Depending
on the forecast, a number of sources of funds are available. The level of
production will determine the quality of resources and finance. Financial
resources are obtained at cost. Planning involves making decisions that will bring
about the finance at optimum costs. Haphazard arrangements are risky and costly.
Sources of funds for temporary short term needs are different from sources of
funds for long term needs. The choices must be evaluated.
55
Sources of Long Term Finance
• Capital market:
a) Debentures.
b) Loan stock.
c) Preference shares.
d) Ordinary shares.
• Costs:
a) Interest.
b) Dividend.
c) Brokerage.
These are available for capital projects which returns are long term and
sustainable.
Sources of Short Term Finance
• Money markets are majorly banks and other financial/depository institutions.
• Credits from suppliers.
The costs involve interest, charges, discounts etc.
Capital Structures
The decision to obtain funds must be taken in cognizance with the composition of
the capital structure. A high ratio of loan capital increases the financial risk of the
organization. A low incidence of loan capital means the organization is not taking
advantage of the loan capital which interest is deductible from the profits thus
enhancing profitability. A balance of loans and equity both in the long run and
medium term is required.
The working Capital Segment
The sustainability of operations depends on this segment in the short run. A
balance is also required here. The short term liabilities must always be secured
and covered by short term assets. Excessive current assets holdings may indicate
high investment in stock and holding of liquid assets including debtors. This is
idle capital that could be profitably used. Shortages of these assets create
insolvency and cost of redeeming this is costly. Obtaining cash immediately or
within short intervals may be costly. Operations may slow down and markets
may be lost.
56
The sources of these services are the capital markets, banks, mortgages, stock
broking firms, capital market (stock Exchange for IPO and secondary
transactions). Services are not obtained free of charge.
4.0 Conclusion
Marketing mix strategies is a marketing concept that is useful in implementing the
marketing strategy. Achieving the marketing mix results in profitability. Applying
the concept to financial services avail the organization an opportunity to consider
the most profitable sources of finance for its current and future operations. These
costs may affect profitability and sometimes the capital balance. High gearing and
insolvency should be watched against in financing operations.
5.0 Summary
The unit has discussed marketing mix and highlighted how marketing mix
facilitates strategy implementation marketing of products and services. The 4 Ps
of Kotler and Kevin and the 3 Ps of Palmer are regular tools that enhance
marketing of products and services. The organization must consider sources of
funds from money markets and capital markets. The issue of capital structure and
gearing is pertinent in determining the composition of finance.
6.0 Tutor-Marked Assignment
1) Explain the marketing mix tools in implementing the marketing strategy.
2) Discuss the importance of considering the types of finance to use.
7.0 References/Further reading
Kotler, P & Armstrong, G. (2008). Principles of Marketing,
Pearson, Prentice Hall, New Jersey
Palmer, A. (2004). Introduction to Marketing, Theory and Practice,
Oxford University Press, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
57
UNIT 8: MARKETING OF FINANCIAL SERVICES
CONTENT:
1.0 Introduction.
2.0 Objectives.
3.0 Main content.
3.1 Marketing of financial services.
3.1.1 Banking services.
3.1.2 Capital market.
3.1.3 Insurance services.
3.2 Providers of financial services.
4.0 Conclusion.
5.0 Summary.
6.0 Tutor-Marked assignments.
7.0 References/Further readings.
1.0 Introduction
Financial services are very important in every economy. This is because financial
resources are required to run businesses successfully. Providers of financial
services have to render efficient services to users of these services. Planning and
adopting effective strategies for marketing of financial services is the
responsibility of management. They should know the types of financial services
and how to access such services to raise financial resources needed. The users of
financial services need to know that providers of financial resources can offer
useful financial advice.
2.0 Objectives
At the end of this unit you should be able to
• Understand the importance of marketing financial services.
• Identify providers of financial services.
• Identify the sources rendered b y banks, capital markets and
insurance businesses.
• Know where to obtain professional advice on financial
services.
There are experts within the economy such as bankers, accountants, stock brokers
and insurance managers etc who can give professional guidance on how to raise
and use funds (money and cash). The existence, functions and relevance as well
58
as other financial services should be known to those who need such services.
There are different types of services being offered by different bodies. Managers
and individuals should have basic knowledge of these to guide their business
choices. They should be able to know and obtain professional guidance from
them. Providers of financial services are always introducing new ways of
meeting their customers’ needs. Users must be able to acquaint themselves with
the benefits and safety of such new services. Financial services are referr ed to as
products.
3.0 Main Content
This section focuses on marketing of financial services such as banking, capital
market and insurance. The role of professionals in rendering these services will
also be covered.
3.1 Marketing of financial services
Marketing is strategic in bringing about awareness about financial services to the
door steps of customers who need such services. Marketing raises awareness and
introduces new products to existing and prospective customers. The following
financial services will be discussed.
3.1.1 Banking services
Banks play the important role of intermediation. That is they mobilize or generate
funds within the economy and investors are able to borrow from banks for the
following purposes:
• Expanding existing businesses.
• Introducing new products or technology.
• Meeting temporary financial shortage.
• Diversifying their businesses.
Banks carr y out extensive advertisements:
• Through print media such as newspapers, magazines.
• Through electronic media such as radio television.
• Internet (websites) because of the advantages of internet
communication technology.
• Door to door or personal contact.
• Sales promotion such as sports etc.
• Sponsorship.
59
These and various other strategies reveal the various services (new and old) which
banks render. These attract more customers. Usually, the more the customers, the
more the deposits and the greater the services that banks render. Energetic and
resourceful personnel are engaged to work in the marketing departments to
introduce banking services to customers and win more patronage. Services
rendered by banks:
• Accepting of deposits (customers’ funds which are kept in
the banks).
• Paying such deposits to customers on request.
• Lending of banks money to customers who desire and
request for loans.
• Keeping of valuable documents, valuables such as
certificates of occupancy, title documents of properties,
share certificates and gold trinkets jewelries etc.
• Undertaking wholesale financial services to corporate
bodies both national and multinationals.
• Undertaking insurance and other financial services to
customers under the universal banking system.
• Serving as financial advisers to their customers.
• Rendering stock broking services.
• Offering forex services.
• Transmission of funds for customers within and outside the
country. This service has been made possible and efficient
because of internet communication technology-the e-
banking.
• Intermediation- Banks mobilize funds from their customers
and a ratio of this is lent to investors who need the funds.
This way, more wealth is created and the bank returns are
enhanced. The borrower, investor, shareholders
(shareholders, employees) enjoy some level of returns
(profit) from this functions. The government also generates
revenue from the banks which pay tax on their profits.
3.1.2 Capital market
The capital market is a special market. It is a market where funds (money) for
long term investments can be raised by corporate businesses which are registered
and listed on the Stock exchange. The market is regulated by the Nigerian
Securities Commission while the Nigerian Stock Exchange is the market where
the instruments are raised and exchanged. The instruments used in the capital
market are:
60
• Ordinary shares (share certificates).
• Preference shares ( ll ll)
• Bonds / Debentures (Debentures Deed).
• Development loan stocks (Loan Deed).
There are used for raising long term loans. The following are used in the money
market (for short term loans) having repayment periods of between 90 and 360
days:
• Treasury bills.
• Treasury Certificates.
• Certificates of deposits.
• Commercial papers.
• Bank acceptances.
• Promissory Notes.
Businesses must meet certain conditions for them to be listed on the stock
exchange for them to enjoy capital market services. Once listed, they can obtain
funds by initial public offers (IPO) when the company so listed is raising fresh
funds. The secondary market on the floor of the stock exchange existing
shareholders can raise money by selling part or the whole of their shares.
3.1.3 Insurance Services
Insurance businesses are regulated by the Nigerian Insurance Commission.
Insurance services include life assurance; insurance etc. Insurance is the
undertaking by an individual to pay certain sums of money as premiums
periodically to an insurer (company) so that when an unfortunate event occurs and
causes him/her to lose his/her life or an asset the insurer will compensate the
insured accordingly.
• Insurance is a highly risky business.
• Insurance is ver y helpful in resuscitating businesses that are
devastated by hazards.
• They require regular and consistent honoring of
commitments especially premium payment.
• Banks now operate insurance business as subsidiaries.
• Insurance is yet to be embraced by the public quite unlike
banks.
3.2 Providers of Financial Services
61
• Professional Accountants.
• Professional firms owned by accountants who render financial services.
• Insurance companies.
• Stock brokers.
• Bankers.
• Financial consulting firms.
4.0 Conclusion
This unit has revealed the significant roles of marketing of financial services and
the importance of this in exposing such services to businesses. Customers can
access such services and use professional experts to guide them. Insurance of
business assets etc can be ver y helpful to the businesses and individuals.
5.0 Summary
The unit has discussed marketing of financial services. What these services are
and where they can be obtained have been discussed. The role of professionals in
providing financial guidance is also summarized.
6.0 Tutor-Marked Assignment
1) Discuss the types of financial services.
2) a) What services do banks render?
b) Mention those who can help offer professional guidance on financial
services.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
62
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
63
UNIT 9: ENVIRONMENT FOR FINANCIAL SERVICES MARKET IN
NIGERIA
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 The Nigerian financial environment.
3.2 Challenges of financial environment
3.3. The prospects of financial services in
Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
For every industry to thrive the environment must be conducive. The financial
services belong to the financial sector of the economy. The financial system
creates and regulates the operations of banks and capital market, money market,
insurance, pensions and the accounting, auditing etc professions. An efficient
financial system provides quality financial services that support the financial
sector in particular and the economy in general.
The environments for financial services constitute the general economy and
political stability. The relevant laws that direct the flow of the economy, fiscal
policies and legislative enactments as well as existing and new policies provide
the general framework for rendering financial services. The standards attained
have regional and global implications. The growth, development and stability of
the financial system depend on the economic and political stability of the country.
Policy stability, affiliation to other economies and confidence in the financial
system by foreign stakeholders or interest can strengthen or weaken the financial
services market.
2.0 Objectives
Describe the Nigerian financial environment
Discuss challenges and prospects of financial services in Nigeria
64
3.0 Main Content
3.1 The Nigerian Financial Environment
Nigeria is a highly populated country with over 140 million people, as the census
of 2006 indicates. The economy is petroleum, monoproduct dominant one. The
government is key controller of economic and financial policies. The financial
sector is regulated through the central bank of Nigeria which is the government
agent through which policies (both micro and macro) are formulated and
implemented.
The legislature that has been assuming prominence and confidence is actively
watching, refining and enacting new laws that are affecting the financial system.
The role of the regulating organs such as the Nigerian Deposit Insurance
Corporation, the Nigerian Insurance Commission, the Nigerian Stock Exchange
Commission and the Stock Exchange, the Pension Commission etc play
significant roles in the economy and in the financial system. The law courts and
judicial decisions have bearings on issues affecting the financial system. The
creation and functions of the Economic and Financial Crimes Commission, the
Independent and other Corrupt Practices Commission (ICPC) and the role of
security agencies have impact on the financial system.
Their various roles either weaken or strengthen the financial system. Since the
economy is not operating in isolation to the world economy, it is not insulated
from the state of the global economy. The confidence reposed on the system by
other international stakeholders may grow the economy or deflate the system.
The environment of financial services has been expanding. The petroleum sector
has contributed very much to the growth development of the financial services.
The next buoyant sector of the Nigerian economy is the banking sector. The
telecommunication sector has had great impact on the economy also. The two
sectors: petroleum and telecommunication have grown the financial services
sector. The financial sector is the repository of funds and growth in the sector has
been due to expansion in the petroleum sector and telecommunication. The
banking sector suffered greatly between the mid 1990s and the early 2000s. The
phenomenon of financial distress due to lack of funds reduced the strength of the
banks. This reduced the solvent banks from over 100 to 89 by 2003.
The recapitalization of the banks to minimum of N250billion Naira reduced the
number of banks to 25. The central bank of Nigeria had to intervene to save eight
banks by injecting N620billion Naira into them. They were assessed to have run
into liquidity and solvency problems.
The environment of the Nigerian financial system has been afflicted by sharp
practices bordering on indiscipline in lending, corruption, poor governance,
65
instability in monetary and fiscal policies. The r egulatory oversight, despite the
introduction of NDIC has not instilled financial discipline. The adequacies of the
legal policies and instruments have been rather questionable.
3.2 Challenges of Financial Services
in Nigeria
• The following are challenges:
• Stability of fiscal and monetary policies
• The appropriateness and adequacy of legislation of the
various sectors.
• Lack of continuity of policies.
• Corruption and challenges of corporate governance.
• Globalization and healthy competition.
• The challenges of internet and electronic operations.
3.3. The Prospects of Financial Services in Nigeria.
The Nigerian financial system and the economy general are developing. There is a
propensity to grow and this tendency reveals the potentials inherent on the
economy. The following features offer prospects for the financial markets and
financial services.
The general stability in the polity since the inception of democracy is paving way
for the release of hidden potentials on the economy. The government is shifting
towards diverting control in direct economic control and creating infrastructure to
facilitate economic growth. This is affecting the financial service sector too.
The Government is directing policies toward diversifying the economy to reduce
dependence on petroleum. This will make the mineral sector and the
manufacturing sectors to boom. This will create a boom for financial services.
The growth and impacting IC technology and globalization have impetus for the
financial services helps to boost confidence in customers who depend on financial
services for their local and international transactions.
Competition in this sector is a factor that enshrines quality and therefore
expanding the scope of financial services. This is leading to more patronage.
The population of Nigeria which is140 million is large and growing
intermediation is reducing the informal sector in the financial system and
enlarging the formal sector. This is a prospect for growing need for financial
services.
66
4.0 Conclusion
There are benefits in having an efficient financial system. The environment of the
financial system can cause it to grow. It is important to have workable policies,
legislation and supervision that will sustain confidence and patronage. Dealing
with problems of corruption, indiscipline, adherence to policies will sustain the
required atmosphere for rendering and enjoying financial services.
5.0 Summary
The unit examined the Nigerian financial environment. The general financial
system and the various sectors such as capital market, insurance, banks were
discussed. The role of the regulatory bodies, professional bodies were highlighted,
the challenges and prospects were summarized.
6.0 Tutor-Marked Assignment
1) Describe the Nigerian financial environment.
2) Discuss challenges and prospects facing the environment.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
67
Publishers, New York.
68
UNIT 10: INNOVATIONS IN FINANCIAL SERVICES
MARKETING: THE INTERNET SYSTEM ETC
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1. Innovations in financial services
3.1.1 Financial innovation
3.1.2 Services proliferation
3.1.3 Competition
3.1.4 Free enterprise and free regulation
3.1.5 Globalization and homogenization
3.1.6 Expanding markets
3.2 Socio-economic factors
3.3 Dynamics of financial needs of
customers
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/further reading
1.0 Introduction
The economy is dynamic (Rose and Marquis, 2006) because the taste of
consumers is dynamic. Marketing research is dynamic and is continually seeking
to identify and satisfy consumers’ taste. New products; cell phones, etc are
abound which were hitherto unknown. Customers to banks are daily and hourly
kept abreast of developments concerning their account balances and transactions
affecting their accounts. New things that emerge are being marketed and
customers are sensitized to embrace such new ideas and innovations.
Globalization has integrated even small organization and individuals into the
global financial system. New trends are always being introduced to improve
financial services delivery. Research and development have in focus innovations
for efficient operations.
Computer, internet connectivity, telecommunications (cell phones etc) are being
financial services and marketing to customers. These changes are compelling
consumers to change their taste also. Today’s financial system is drastically
different from that of the 1990s. Therefore the system ten years from now will be
considerably different from that of today.
69
2.0 Objectives
• Explain the dynamic nature of financial services.
• Explain new innovation in financial services marketing.
• Explain how today’s challenges affect tomorrow’s services
3.0 Main Content
3.1 Innovations in Financial Services
Forces and influences are emerging and there are many factors that are affecting
the financial system and the services being rendered.
Research into improving the system and bringing about new methods of providing
efficient financial services that satisfy customers are underway.
3.1.1 Financial Innovations
Research should avail new financial services. New instrument should be
developed to meet new customers taste. New innovations are e-banking cell
phone banking, account balance alarms, home banking etc. Current ideas include
home equity credit lines international mutual funds, trust preferred stock etc.
3.1.2 Service Proliferation
These have to do with meeting the financial service needs of customers.
Customized service pleases customers. Financial institutions have the same goal
in term of services being offered.
3.1.3 Competition
The scope of financial services rendered by the various classes of financial
institutions is being narrowed. Locally, these institutions are competing to render
similar services within each category. For example banks render services that are
virtually the same. The globalization of markets may lead to individuals and small
customers being served. This spreads clientele. Competition for customers is
acute.
Mergers and acquisition are means of expanding customers no matter how small
or big. Conglomerates have customers all over the globe.
3.1.4 Free Enterprise and free Regulation
70
Privatization is liberalizing markets and freeing governments from regulation of
businesses. The financial services are the sectors that governments especially in
developing nations want to control. A regulated financial market has a high
tendency to be inefficient compared to a deregulated market that is subject to the
forces of demand and supply. That is the financial mar ket or system is now in
private hands not government.
3.1.5 Globalization and Homogenization
Financial services are not seeking to satisfy local needs only. The types of
services are similar as needs of customers. The same service meets customers’
needs all over the globe. Homogenous services are offered to customers all over.
3.1.6 Expanding Markets
Globalization and advances in the telecommunication industry brought about by
technology have taken financial services to customers in other countries. The
local producer of mineral ores can source for markets in the internet and this
expands the market. Financial institutions have access to international financial
corporations and may be well served.
3.2 Socio-economic Factors
The population of countries and the world is changing. The advances made in
science and technology and education have refined governments business and
individuals. The life expectancy has been raised in developed nations. Good
health delivery services and higher standard of living improved the quality of life.
The movement toward individualism and gender balance are factors that are
capable of affecting the financial base and decision of individuals.
3.3 Dynamics of Financial needs of Customers
The following considerations are important:
• Aging population and transferring wealth to heirs
• Corporate customers can raise fund directly from the
market not through banks, capital markets.
• Savings for retirement by millions outside of the regular or
formal retirement plans
• Modern, ICT facilities give access to funds or credit more
easily than previous.
• Management of individuals’ assets.
• Greater ethnic diversity. The various ethnic groups have
philosophies and attitudes that define their financial need.
71
• Mobility in jobs and changing locations require financial
services that meet this kind of need.
• Personal financial planning for individuals’, families and
small businesses are emerging areas of needs.
It should be noted that new innovations have their challenges now and for the
future.
4.0 Conclusion
The above discourse has highlighted the changing tastes and needs of customers.
This dynamism poses greater challenges to modify financial services to suit
customers’ tastes. The various innovations to be embraced should be customer
and marketing research based. The effects of globalization, communication
technologies have attendant effect on the scope and quality of financial services
expected.
5.0 Summary
The unit covers innovation n financial service. The factors that reshape the
financial markets were discussed. The role of socio-economic factors are crucial
in financial service delivery as pr esented n this unit.
6.0 Tutor-Marked Assignment.
1). Discuss the environment of financial services marketing in Nigeria
2). What are the problems or challenges of the financial service environment. List
them.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
72
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
73
UNIT 11: APRAISAL OF FINANCIAL SERVICES
MARKETING
CONTENT:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Financial intermediation
3.2 Financial systems.
3.2.1. Savings function.
3.2.2 Wealth functions.
3.2.3 Liquidity functions.
3.3.4 Credit function.
3.2.5 Payments.
3.2.6 Risk protection.
3.2.7 Policy function.
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References\Further reading
1.0 Introduction
The financial services sector comprises of:
• Depository financial services (example are commercial banks savings
institution and credit units
• Investment banks and capital marked sector
• Insurance business
• Pension fund institutions
• Finance companies
• Mutual fund
These organizations perform the core financial services within the financial
system and the economy. The role of intermediation involves flow of funds.
This flow is essential in sustaining the system and the economy. Within this
system are sectors with surplus funds and sectors that are short of funds. Financial
institutions stand between those who have surplus funds and those who need such
funds for investment. Financial institutions perform the essential role of
channeling funds (Saunders and Cornett, 2006; Rose and Marquis, 2006). They
74
also attract savings. Money or cash that is held outside the financial system is not
available for intermediation.
3.0 Main Content
3.1 Financial Intermediation
The financial institutions provide their services in the formal sector. There is a
salient role of reducing the informal sector. The lower the role of the informal
sector in the financial services the higher is the level of intermediation. This also
measures the extent of the formal sector.
The financial services engender growth and development of the economy. Flow of
funds from suppliers to users propels expansion of business. This flow of funds is
connected to wealth creation. The freer the flow, the more the growth of the
economy. More wealth is being created.
There are risks associated with intermediation and the provision of finance. The
common risks faced are default or credit-risk, mismatching maturity of balance
sheet assets and liabilities, interest rate risk, liquidity risk (liability withdrawal),
underwriting risks, operating risk costs especially in producing financial service
(Saunders and Cornett, 2a). These risks vary with financial service. The extent of
management of risks improves the financial services and the flow of funds or it
may dampen the growth of these services.
Confidence is the factor that keeps financial institution in business. The financial
sector is the area that is given special regulation. The providers require confidence
that their funds are safe and the obligation due them are honoured. The users need
confidence that funds will be sourced by them at acceptable conditions and these
conditions are mutually agreed. The intermediators, the financial institutions,
maintain a level playing field and expect to enjoy benefits of the services they
facilitate or provide.
Regulations ensure mutual respect and help provide the necessar y atmosphere for
flows of funds. The level of development of the financial system is seen in the
attainment of smooth flow of intermediation, strong compliance with regulation,
effective monitoring of financial services being provided. The attraction of
foreign capital is indicative of the confidence outside financial system have and in
the financial system.
The internationalization of financial service brings about foreign investment.
Globalization has opened up market across nations and countries. This is a
measure of growth. Economies that access funds for investment across national
boundaries have developed confidence to customers across these borders.
75
3.2 Financial Systems
Financial systems perform the following function (Rose and Marquis, 2006:7):
• The savings function
• Wealth function
• Liquidity function
• Payments function
• Risk protection function
• Policy function
These function determine the contain button and efficiency of the function sector
to the economy
3.2.1 Savings Function
Saving by the public including businesses transform into debentures, shares, bills
of exchange, treasury bills etc. Through these more goods and services are
provided. Increase in saving enlarge this function Low savings means Low
investment. The savings function is linked to living standard. The saving
functions are linked to living standards. The more the savings, the higher the
standard of living. This role is growing in Nigeria. Decline in savings affect the
financial system. The economic melt down and insolvency in the financial system
has negative growth impetus.
3.2.2 Wealth Function
Debentures, shares, treasury bills etc are avenues to store or preserve wealth until
required. The risk of loss, unless in an era of recession, is less compared to
investment in automobiles etc. These instruments have returns which can grow
the value of the instruments if reinvested.
3.2.3 Liquidity Function
The need for immediate cash to spend makes this function critical. The money
and capital markets provide opportunities for turning debentures, bonds, shares to
users or spendable funds. The availability of liquidity is paramount in all
businesses and even to individuals. These instruments are easily convertible to
cash and at low risk of loss. The financial services markets should develop to
ensure easy convertibility and minimize the risk of loss.
3.2.4 Credit Function
76
Provision of credits is an adequate measure of the efficiency of the financial
service market. The level of credit granted determines how developed the
financial system is. Economic development and growth of the economy is a
function of the level of credits extended. This growth means the challenges in
granting credits are under control or well managed.
3.2.5 Payments
Facilitating payments encourages exchange. The clearing system and use of
cheques, credit cards, electronic payments etc measure the flow of funds.
Developed financial systems use more of electronic modes of payments and less
of cheques or paper-based medium of payments. Less developed economies
emphasize currency, cheques etc. confidence is required and the financial system
ensures this.
3.2.6 Risk Protection
There are risks in business and life. The realization of the objectives of financial
services is also seen in minimizing losses and protection against life, health,
property and income risks.
Regulations that ensure safety of funds and operations hedge risks. This affects all
sectors of the financial system.
3.2.7 Policy Function
The markets, financial and non-financial, face many uncertainties, inflation,
recession etc. governments make policies to stabilize the economy. The financial
institutions facilitate this function through enforcing implementing government
regulations, policies and laws. This is a notable function.
4.0 Conclusion
This discussion has examined the role of financial systems and the services they
play in sustaining the role of intermediation. Their role leads to growth and
development of the economy and in raising the standards of living of the people.
The level of efficiency of the financial system is measured by the function they
perform.
77
5.0 Summary
The unit has thrown light on the role played by the financial service sector. The
various contribution made in the economy has been discussed. The basis for
assessing the performance of each sector has also been highlighted.
6.0 Tutor-Marked Assignment
1) Evaluate the contribution of financial service sector.
2) Discuss how financial service engenders growth and
development of the economy.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
78
UNIT 12: TREASURY FINANCIAL SERVICES
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 The treasury functions
3.2 Funding
3.3 Financial services and good relationships
4.0 Conclusion
5.0 Summary
6.0 Tutor-marked assignment
7.0 References/Further reading
1.0 Introduction
Financial services involve daily cash management called treasury management.
This is central to the success of an organization. Treasury management determines
the daily strength of an organization. Every individual is involved in this function
on daily basis.
The neglect of this function has brought embarrassment to many individuals and
organizations. Solvent and liquid organizations have survived hard times became
treasury financial services have been given the appropriate attention.
2. Objectives
• To define and describe treasury financial services.
• To identify treasury financial services.
• To identify symptoms of good and poor treasury financial services.
3. Main Content
3.1 The Treasury Function
Financial services have become crucial in treasury management. Losses can easily
be suffered because of poor treasury services. The tem treasury refers to cash. Its
management involves cash and liquidity management and short term financing as
well as financial risk management and portfolio management. Portfolio refers to
the “combination of securities” or an y other assets (Pike and Neale, 2006:220).
79
Treasury management is defined by Association of Corporate Treasurers as the
“efficient management of liquidity and financial risk” (Pike and Neale, 2006:324).
The importance of this financial service can be seen in the number of losses and
failed businesses because of insolvency and poor liquidity.
The success of the treasury financial service can be seen in the number of
businesses that have been prevented from bankruptcy and failure because of
insolvency and poor liquidity.
The success of the treasury and financial service is achieved through:
a. setting appropriate aims and policies, usually by the Board
b. setting the authorization levels
c. setting the level of liquidity
d. Setting up finance or treasury or liquidity committee.
e. Regular review and monitoring of the dynamics of treasury assets
help to prevent financial embarrassment.
Treasury management involves cash management. The cash to be available must
be planned for. Cash flow forecasts are prepared to reveal levels of cash and when
cash may be in dire need. Surplus cash needs to be reinvested in short tem
investments in the money market. Deficits can be made up through bank
borrowing etc. Cash Economic Order Quantity and short term investments are
avenues for employing idle cash profitably.
Self Assessment
What is treasury management and how can it be achieved?
3.2 Financial Services and Funding
Funding simply addresses how cash can be obtained for short term activities or
operations and also for the long term.
The organization needs funds that are permanent, to finance major long term
assets. Short term operations require regular cash which have to be available at
the right time.
Funds can be obtained internally. Therefore, the financial services provider
responsible for this service must determine what level of operations is to be
financed with internally generated finance.
Borrowed cash is often inevitable. Too much borrowing too little has
disadvantages.
A balance must be determined to give optimum benefits.
Decisions on the type of cash to borrow are mot easy to make. This could be a
problem of choice. What type of loan or should it be an item that can be leased? Is
80
it for a long term period or a short term period? These require careful
considerations.
Management of current assets such as debtors, stock or inventor y, short term
investments should ensure availability of cash. Quality of debtors and stock
should be high to prevent their becoming bad to reduce the amount of cash
expected from them.
Self Assessment
What considerations are important in funding or financing decisions?
3.3 Financial Services and good relationships
Banks are custodians of cash in times of cash shortage. Banks and individuals and
organization should maintain good banking relationship. Suppliers of credits
(goods and services or cash) are to be held in high esteem. The relationship
should border on openness, integrity, reliability and honesty. Consistency in
transactions and in maintaining relationships are valuable assets.
Self Assessment
Why is good relationship management important in financial services?
4.0 Conclusion
The discussion above has revealed that treasury management is ver y important in
sustaining liquidity and making an organization to be solvent. Regular decisions
to sustain liquidity are to be made. This will involve sustaining good relationship
with credit providers such as banks, suppliers of goods and other services.
5.0 Summary
The unit discussed what treasury financial services entails, the important function
of cost management and potential management were highlighted .This may
involve financing decision from cash generated from operation or borrowing.
Relationship management in important in financial services and this is to be
maintained.
6.0 Tutor-Marked Assignment
(1) Define the treasury management and describe the treasury management.
(2) Discuss the importance of relationship management in financial services.
81
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
82
UNIT 13: FINANCIAL SERVICE AND SHORT-TERM
ASSET MANAGEMENT
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Importance of trade credits
3.2 Importance of inventory
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
As already discussed in unit 12, treasury management is important in making cash
to be available so that there is no shortage of cash or illiquidity. The objective can
be achieved through sound management of debtors, inventory and short term
investments. They constitute a significant portion of the working capital and
require attention. Finance services cover these areas also. Excess or low levels of
these assets affect the quality of financial service being rendered.
2.0 Objectives
To be able to describe and improve on trade credits (debtors or receivables)
To be able to evaluate the importance of inventories or stock.
3.0 Main Content
3.1 Importance of Trade credits
Credits or selling goods or rendering services on credit basis rather than cash is a
means of increasing sales, profits and consequently cash. This conveniently
makes goods and services to be available. Payments for these follow based on
mutually agreed terms. Credits are useful in the following ways:
i) Efficiency.
Quality goods and services sustain patronage by customers. Credit sales help to
confirm the quality of goods produced and sold or services being provided. Poor
quality of goods and services shut markets.
83
ii) Credit sales create investments in debtors who are greatly valued customers.
Marketing of an organization’s goods and services is advertising and making
goods and services available directly. This enlarges the volume of sales which
will have not been case if credit sales were not granted. The benefit can be seen in
a sustained relationship with the customer over a long period. There are risks
which translate to bad debts where the customer fails to honour credit terms.
iii) The sharp competition in the industry call for granting of credits. An
organization that sells cash only releases a potential market share to competitors.
Soon this will even affect the cash customers.
iv) There are organizations that may not easily access external loans to finance
their operations. They therefore have access to credits through credit sales. This
reduces difficulties of obtaining cash to purchase such goods and services.
The considerations for credits are:
• The quality of debtors must be high. This guarantees safety.
• Cash flow is maintained so that operations are not hampered and
operational costs are incurred when this can be avoided.
• Managing credit terms such that costs are avoided.
• It involves considering the effects of credit periods, standards, collection
policy as well as cost of cash discount.
Self Assessment
Why are credits necessary?
3.2 Importance of Inventory
Inventory or stock in an organization’s investment in raw materials, work in
progress goods and finished goods. These are potential cash waiting to be
realized. They have to be handled with care so that they can translate to cash at
the appropriate time.
Inventory can be held for a long time or a short time. Holding large amounts
which take long to convert to cash attract costs hold a low level and not meeting
demand is even more costly. The asset should neither be overstocked nor
understocked.
Maintaining an appropriate level can be done through the following:
• Economic order quantity
• Computer programme based materials requirements planning and
• Just in time systems.
84
Inventories avail customers with the goods they require. They are the source of
sales and profitability.
Self Assessment
Is inventor y an important asset in financial management?
4.0 Conclusion
The above discussion draws attention to the importance of current assets. Short-
term assets include debtors, inventories and these are potential cash to be realized.
It is important to manage them to increase sales, profit and make cash available.
This way liquidity is built up and operations are sustained. There are costs in
investments in these assets. These costs and benefits should be evaluated vis-avis
the benefits. Therefore current assets are important to the finance officer and the
organization.
5.0 Summary
The unit focused on the need to pay attention to debtors and inventories which are
significant in the investments of organizations. Both help to boost sales and raise
liquidity. They have costs which must be balanced with their benefits to ensure
that the debtors and inventories are employed profitably.
6.0 Tutor-Marked Assignment
1) Evaluate the need for management of debtors and inventories.
2) Discuss how debtors and inventories can be managed profitably.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
85
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
86
UNIT 14: SHORT AND MEDIUM TERM FINANCING
CONTENTS:
1.0 Introduction
2.0 Objectives
3.0 Main Objectives
3.1 Financing using trade credits
3.2 Financing through bank credit
3.3 Financing through money markets
3.4 Financing through leasing and hire
purchase
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignments
7.0 References/Further reading
1.0 Introduction
Financing is about making decisions to obtain funds externally. Internally
generated funds through debtors, cash sales and investments in money market
instruments may prove inadequate. Through cash flow forecasts the
requirement for more cash will be identified. This will call for a financing
decision. Law level of cash requirement may be easily addressed. Where the
amounts are substantial perhaps medium term financing will be adequate.
Where analysis reveal glowing need for l projects, long term finance will be
contemplated and planned for. Short-term financing decisions consider trade
credits; bank credits; invoice financing and money market financing decisions.
Medium term financing decisions are for a longer period than short term
credits but shorter than long term financing decisions. There are hybrids
which are longer than short but shorter than long term financing decisions.
These are leasing or hired purchase arrangements which belong to the short
term and long term finance.
2.0 Objectives
• To be able to identify short-term financing needs.
• To be able to discuss short-term and medium term sources of finance.
• To be able to evaluate and access external credits.
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3.0 Main Content
3.1 Financing using Trade Credits
These credits flow from suppliers of goods. Services can be rendered on
credit also. This means goods and services consumed are not paid for
immediately. These credits are mutually discussed and agreed. It is normal
practice to induce early payments by granting discounts. Trade credits are
granted on the following considerations:
i. The bargaining power of the supplier dictates the credit terms.
Where the supplier has comparative advantage over other suppliers
within the industry, his terms will prevail. In the situation were
comparative advantage is shared by competitors the supplier hardly
imposes his terms.
ii. Industry custom and practice.
There is a normal range of credit terms within an industry.
Suppliers may not easily go outside this range as doing so may
cause them to lose customers.
iii The nature of the product may help to determine the credit terms.
Products having high turnover are suitable for credit sales.
These considerations should avoid delayed payments. They should
help attract customers to purchase goods on credit. When the terms
are too stringent customers will withdraw patronage. Uncontrolled
credit terms will enlarge patronage but throw the organization into
financial difficulties.
Trade creditors result from credit supplies. This is temporary borrowing
and a normal way to finance stock or inventory. The whole arrangement
depends on prompt settlement in accordance with the terms of credits.
Delays may result in instability in business:
• Closing of credit lines will reduce materials and services which
may not be readily purchased for cash.
• Suppliers may be unwilling to supply the goods and this may give
the business a bad reputation.
• They may raise prices of their supplies.
• A bad reputation can affect the confidence of other suppliers in the
organization or customer.
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3.2 Financing through Bank Credits
Organizations can obtain short-term and medium term bank credits. They take the
form of overdrafts; term loans (with revolving facilities such as overdrafts or term
loans). Banks should have stringent conditions that qualify customers for bank
credits.
3.3 Invoice Financing
Customers who have sold goods on credit may discover they need
immediate cash. They approach discounting and factoring institutions to
buy these invoices for cash. Factoring means an organization purchases
invoices of a company. Discounting involves purchase of selected invoices
without undertaking to collect the said debts. They selling company has
the responsibility to arrange for collection of the debts.
3.4 Financing through Money Market
This is a largely known means of raising finance. All organizations use
this medium to source short-term finance.
The instruments involved are:
i) Bills of exchange
The parties should be well acquainted with specific trading transactions. The
trader draws up a bill undertaking to pay at a future time. The supplier takes this
and releases the goods. The bill may be held to maturity or discounted at a
discount house.
ii) Acceptance Bill
These are bank bills. The customer draws the bill on the bank. The bank accepts it
and the supplier releases the goods to the customer. The bill is sold in the market
at a discount and the money is made available to the trader or supplier.
iii) Commercial Paper
Popular companies may advance moneys to large financial institutions such as
pension funds, insurance or corporate organizations who may be facing temporary
liquidity difficulties. The value at maturity is greater than the amount learnt. The
paper can be discounted too.
Self Assessment
What is the difference between bill of exchange and bank bill?
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3.5 Leasing and Hire purchase
3.5.1 Hire Purchase:
This arrangement can be for short periods not longer than one year. This is a
comfortable zone for small and medium-sized firms (SMEs).
Equipments can be hired, which makes the asset available for use. Hire purchase
has an option to purchase or return at the end of the hire purchase agreement.
Rather than large outlays of cash installmental payments are made during the hire
purchase arrangements.
3.5.2 Leasing
The difference between this and hire purchase is that there is no option to
purchase as in hire purchase arrangements. There are operational and capital
leases. Rentals are paid installmentally. Capital lease is for a longer than one year
but not beyond 5 years.
Self Assessment
Define hire purchase and lease.
4.0 Conclusion
The discussion has revealed sources of financing in the short term and medium
term period. These sources are helpful in meeting temporary or short term
financing decisions. Trade credits, bank credits through money markets and lease
and hire purchase arrangements help to supply cash for the smooth running of the
organizations.
5.0 Summary
The unit threw light on short term as well as medium term sources of finance.
There are many including trade credits, bank credits, hire purchase, leasing etc.
they are convenient and cover a wide spectrum of users especially small and
medium-sized businesses.
6.0 Tutor-Marked Assignments
1) Briefly describe the following: Bill of Exchange; Bank bill and
Commercial Paper.
2) Discuss Trade and Bank credits.
90
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
91
UNIT 15: FINANCIAL SERVICES AND LONG TERM
FINANCE
CONTENT:
1.0 Introduction
2.0 Objective
3.0 Main content
3.1 Shareholders funds
3.2 Debt instruments
3.3 Leasing
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further reading
1.0 Introduction
So far we have looked at the importance of finance. The necessity for liquidity
and solvency; and the role of investing and financing decisions have been
examined in units 12 to 14. The need for liquidity is not only important in the
short run or medium term.
The viability and continuity of the organization depends on the capacity to grow.
Growth requires investing not for the immediate future but also for the
unforeseeable long term period. Investing decisions and financing of capital
projects require large amounts of cash. The financial services in this regard are
even more strategic than short term and medium term financing and investment
decisions.
The issue of liquidity and solvency can be addressed in the long run through long
term investments. Poor attention on this limits the prospects of the business.
Equally, distress leading to bankruptcy and business failures easily arise due to
mismanagement of long term investment. The financial services providers have to
give this area as much attention as possible. All instruments relating to long term
finance are traded in the capital market.
92
3.0 Main Content
3.1 Shareholders Funds
Shareholders are investors who have invested their funds in a company through
purchase of their shares. They ar e the owners of the business and have full rights
in the business. They vote at general meetings, receive dividends when declared.
They bear the greatest amount of risk. In liquidation, they are repaid their capital
when all other claims have been made.
Preference shares are similar to ordinary shares but they are described as non-
equity share holders. They have fixed rates of dividend on profits before ordinary
share holders are considered. On return of capital at liquidation, preference share
holders are returned their capital before ordinary shareholders. There are different
types of preference shares. Some are:
• Convertible cumulative
• Redeemable
• Participating
Preference shares stand between ordinary shares and debt capital. Thus they are
described as h ybrids.
Self Assessment
What is the difference between ordinary shares and preference shares?
3.2 Debt Instruments
When loans for a long duration are obtained the lenders are given documents that
describe the nature of the debt. There are many sources of debt. The common
market for such is the capital markets specifically, the bound market. The various
types of debt instruments are:
• Debentures:
This is a document acknowledging indebtedness. They are usually secured on
the issuer’s capital assets. A mortgage debenture is a debenture secured by
mortgage deed.
The interest attached is fixed and payable whether profits are made or not.
They have priority in payment of interest and capital.
Some debentures are convertible to ordinary shares or preference shares in
accordance with the terms.
• Loan stock/bonds:
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While debentures are issued mainly by corporate organizations in Nigeria
bonds or development/loan stocks are issued by governments or government
institutions. They have the same characteristics as debentures.
Long term debt can be secured or unsecured. They have their obligations. Debt
capital is a cheaper source of long term fund than ordinary shares. The interest on
debt is tax deductible. However, debt capital needs to be managed well as interest
and repayment obligations mean it has borrowed extensively from outsiders. This
is risky. Failure to honour repayment terms may lead to liquidation.
Self Assessment
Why is long ter m finance important?
What are the characteristics of debt capital?
3.3 Leasing and Sale-and-Lease back
Leasing involves long term contracts on capital assets such as ships, aircrafts
properties. Sale-and-lease back describes a situation where the owner of an asset
sells the property to a financial institution and surrenders ownership. The seller
arranges to lease the property back for use under the normal lease conditions.
This is convenient where a company has potentials of growth and has capital
assets which can be sold and leased so that the benefits of the assets are
maintained. Where the capital sold appreciates the new owner enjo ys this benefit.
It is expected that the arrangement will result in overall gain for the company.
The need for capital for investment that will sustain and grow the business in the
future is the responsibilities of parties. The financial service providers from within
or without must be abreast with sources of capital that are appropriate to the
strategic financial need of the business.
Self Assessment
What is the difference between leasing and sale-and-lease back?
4.0 Conclusion
The issue of strategic financial decisions is important in sustaining solvency,
viability and growth of the organization especially in the future. The implications
for using equity or debt or leasing, sale-and-lease back must be weighed. To avoid
high gearing is to prevent bankruptcy especially because of the high level of
borrowed or external capital. Distress should be avoided.
5.0. Summary
94
The unit has examined how strategic financing is important for the future
prospects of the organization. Dependence on long term sources of capital to
finance capital projects has been discussed. There are various types of long term
capital with different characteristics, risks and benefits.
6.0 Tutor-Marked Assignment
1. discuss the importance of long term finance
2. Write short notes on ordinary shares, preference shares, debt instruments,
lease-and-lease back.
7.0 References/Further reading
Adeyi, J.A (2008). Profiting with stocks: Top secrets of making
millions from shares, Go-Go International Limited Jos,
Nigeria.
Howells, P and Bain, K. (2004) Financial Markets and Institution,
Pearson
Rose, P. & Hudgins, S.C. (2005) Bank Management and Financial
Services, McGrams Hill, New York.
Rose, P.S. & Marqui’s, M. H (2006) Money and Capital Market.
Financial Institutions and Instruments in a Global Market
Place, New York
Saunders, A. & Cornett, M. M. (2006) Financial Institution
Management: A Risk Management Approach,
McGrams Hill, New York
Thygerson, K, (1993) Financial Markets and Institutions: A
Managerial Approach, Harper Collins College
Publishers, New York.
95
doc_895444304.pdf