Research Proposal on Effect of Policy Rate on Credit Extension in Nigeria
CHAPTER ONE
Objectives of the Study
This study seeks to achieve the following specific objectives:
- To examine the historical relationship between policy rates set by the Central Bank of Nigeria and the volume of credit extended to businesses and individuals in the past.
- To assess the impact of policy rate fluctuations on interest rates and its consequences on credit accessibility by different sectors of the economy.
- To recommend policy measures that can optimize the relationship between policy rates and credit extension in Nigeria.
CHAPTER TWO
Literature Review
Credit Extension Policy
Credit extension policies play a pivotal role in the financial and economic landscape of a nation, as highlighted by Abba, Zachariah, and Inyang (2023). These policies are a set of guidelines and regulations established by the Central Bank of Nigeria (CBN) and other regulatory bodies to govern how financial institutions extend credit to businesses and individuals. Credit extension policies encompass a wide range of aspects, including interest rates, collateral requirements, loan terms, and risk assessment.
The definition of credit extension policies encompasses the rules and frameworks that dictate the terms and conditions under which financial institutions in Nigeria can provide credit to borrowers (Abba, Zachariah, & Inyang, 2023). These policies are not static; they evolve in response to changes in the economic environment, financial stability, and the goals of the central bank. Credit extension policies aim to strike a balance between promoting economic growth by providing access to credit and ensuring financial stability by managing credit risk.
The significance of credit extension policies in economic development cannot be overstated. They catalyze economic growth by providing individuals and businesses with the financial resources needed to invest, expand, and innovate. The research conducted by Abba, Zachariah, and Inyang (2023) underscores the fundamental role these policies play in shaping the financial landscape of Nigeria. When well-structured and effectively implemented, credit extension policies can contribute to higher employment rates, increased business activities, and overall economic expansion.
Financial institutions, including commercial banks and microfinance institutions, are instrumental in the implementation of credit extension policies (Abubakar, Sulaiman, Usman, & Mijinyawa, 2019). These institutions serve as intermediaries between savers and borrowers, facilitating the flow of funds by the stipulations set by credit extension policies. They are responsible for conducting risk assessments, evaluating borrowers’ creditworthiness, and ensuring compliance with the policies outlined by regulatory bodies.
The relationship between credit extension policies and economic stability is intricate. Effective policies promote economic stability by fostering responsible lending practices and mitigating excessive risk-taking by financial institutions (Accornero et al., 2018). These policies also address issues related to liquidity and solvency, ensuring that financial institutions maintain an equilibrium that prevents systemic instability.
Consequently, credit extension policies are the backbone of the financial system in Nigeria. Their definition encompasses the rules that govern the provision of credit, making them a cornerstone for economic development. Financial institutions play a vital role in implementing these policies and serve as the conduits for credit distribution. The relationship between these policies and economic stability underscores their significance in maintaining a balanced and robust financial sector, as evidenced by research conducted by Abba, Zachariah, and Inyang (2023). Understanding and effectively implementing credit extension policies are essential for fostering sustainable economic growth and financial stability in Nigeria.
CHAPTER THREE
Research Methodology
This section outlines the methodology employed in the pursuit of the study’s objectives. It describes the research design, population of the study, sampling techniques, sources and methods of data collection, data analysis, validity, reliability, and ethical considerations.
Research Design
The selection of an appropriate research design is a pivotal decision, as it fundamentally shapes the study’s approach to examining the research objectives (Creswell & Creswell, 2018). In this context, a correlational research design is the chosen methodology due to its strong alignment with the research aims and objectives.
Correlational research designs are well-suited to investigate the complex relationships between macroeconomic variables and their impacts on credit extension policies (Creswell & Creswell, 2018). This design allows for an in-depth exploration of the connections, causality, and influences between the variables under scrutiny. It serves as a powerful tool to reveal underlying patterns and associations within the data.
The selection of a correlational design is strategic and well-justified, as it offers a means to decipher the intricate web of relationships between macroeconomic variables, credit extension policies, and their consequences on economic stability and development. This approach aligns perfectly with the research’s overarching goals, as it aims to unravel the complex dynamics at the heart of the financial and economic landscape, ultimately contributing to more informed policy decisions and improved financial planning (Creswell & Creswell, 2018).
Furthermore, the correlational design is instrumental in enhancing the quality and reliability of research findings (Creswell & Creswell, 2018). By focusing on identifying connections and causality, it ensures that the study not only meets but exceeds its objectives by shedding light on the complex interactions central to the research inquiry. This design offers a structured and systematic approach to exploring correlations and relationships within the data, contributing to a more comprehensive understanding of the intricate dynamics at play within the financial and economic realm (Creswell & Creswell, 2018).
Population of the Study
The population of this study encompasses macroeconomic variables relevant to the research objectives. These variables include but are not limited to GDP growth, inflation rates, policy rates, and unemployment rates. The selection of these variables is justified by their inherent link to credit extension policies, financial stability, and economic development.
References
- Abba, G. O., Zachariah, P., & Inyang, E. E. (2023). Capital adequacy ratio and banking risks in the Nigeria money deposit banks. Research Journal of Finance and Accounting, 4, 17–25.
- Abubakar, A., Sulaiman, A. S., Usman, B., & Mijinyawa, M. U. (2019). Credit risk management and financial performance of quoted deposit money banks in Nigeria. University of Port Harcourt Journal of Management, 1, 178–192.
- Accornero, M., Cascarino, G., Felici, R., Parlapiano, F., & Sorrentino, A. M. (2018). Credit risk in banks’ exposures to non-financial firms. European Financial Management, 24, 775–791.
- Adegbie, F. F., & Otitolaiye, E. D. (2020). Credit risk and financial performance: An empirical study of deposit money banks in Nigeria. European Journal of Accounting, Auditing, and Finance Research, 8, 38–58.
- Afolabi, T. S., Obamuyi, T. M., & Egbetunde, T. (2020). Credit risk and financial performance: Evidence from microfinance banks in Nigeria. IOSR Journal of Economics and Finance, 11, 8–15.
- Afriyie, H. O., & Akotey, J. O. (2021). Credit Risk Management and Profitability of Selected Rural Banks in Ghana. Sunyani: Faculty of Economics and Business Administration, Catholic University College of Ghana, 1–18.
- Ahmad, A. U., Balakrishnan, U. V., & Jha, P. S. (2021). A study of multicollinearity detection and rectification under missing values. Turkish Journal of Computer and Mathematics Education, 12, 399–418.
- Ajao, M. G., & Oseyomon, E. P. (2019). Credit risk management and performance of deposit money banks in Nigeria. African Review of Economics and Finance, 11, 157–177.
- Akinselure, O. P., & Akinola, A. T. (2019). Impact of credit risk management on profitability of selected deposit money banks in Nigeria. International Journal of Economics, Commerce, and Management, 7, 254–268.
