the primary role of the financial system in an economy is to mobilize savings from the surplus economic units and channel same to the deficit units thereby ensuring effective and efficient allocation of resources for the optimal benefit of the citizenry.
The development of a strong capital market is imperative because theoretical and empirical literature have shown that there is a strong, positive correlation between capital market development and economic growth of any nation”.
The capital market positively impacts both investors and companies or governments that source funds from the market in various ways. However, the economy as a whole is the greatest beneficiary of the capital market. This is because all other benefits, both to investors and issuers of securities in the market all crystallize to benefits to the economy in general. In specific terms, some of the benefits that accrue to the economy generally from capital market activities include:
Mobilization of Savings: The capital market is a veritable medium for cultivating a savings culture among the citizenry. It is an effective and efficient platform for mobilization of savings at all levels from both the least or uneducated to the very big or highly educated in the society. It encourages savings mobilization across income levels and geographic spreads.
Channelling Savings into Investments Out-lets: The little savings by individuals from across the length and breadth of the country, when pooled together becomes a huge chunk of investible funds that can be channelled into the productive sectors of the economy. The capital market provides the mechanism for the pooling together of these funds and turning them into long term investments through public offers for subscriptions and bond issues by public companies and governments.
Promotion of Real Sector of the economy: Funds raised from the capital market are usually tied to expansion, modernization or restructuring of plants, equipments and...