WHAT IS MONEY MARKET?
Money market became a component of the financial
markets for assets involved in shortterm borrowing, lending, buying and selling with original
maturities of one year or less.
Investopedia: A segment of the financial market in which
financial instruments with high liquidity and very short
maturities are traded. The money market is used by
participants as a means for borrowing and lending in the
short term, from several days to just under a year.
Money market securities consist of negotiable certificates
of deposit (CDs), bankers acceptances, Treasury
bills, commercial paper, municipal notes, federal funds and
repurchase agreements (repos).
INTRODUCTION TO NIGERIAN
In Nigeria, the Money market is made up of universal
banks and some developmental finance institutions
with the Central Bank of Nigeria serving as the apex
It is a mechanism where liquid and short-term
borrowing and lending take place.
Some of the instruments created and traded are
Nigerian Treasury Bills, Nigerian Treasury
Certificate, Commercial papers, Bankers’ Acceptance
and other CBN Bills.
The Nigerian financial Markets services industry is
comprised of the money and capital markets, with lots
of inter-dependence for enhanced services. The former
is where short and liquid financial instruments are
created and traded with the Central Bank of Nigeria
having the responsibility for regulating the market.
There are several operators in the Nigerian money
Operators in the Nigerian Market
Currently, the major participants in the money market include:
Discount Houses: Established first in 1993, discount houses
provide discounting and rediscounting facilities in government
Commercial Banks: These are the major players in the money
market and have been in existence in Nigeria since 1892. The
deregulation of the financial sector in 1986 resulted in rapid
growth in the number of commercial banks. For instance, the
number of commercial banks rose from 30 in 1986 to 64 in 1997
Merchant Banks: Merchant banks have continued to play their role
of providing medium-to-long term financing by engaging in activities
such as equipment leasing, loan syndicating, debt factoring and project
financing. These are in addition to acting as issuing houses and
advisers for clients sourcing funds in the capital market.
People's Bank of Nigeria: The People's Bank of Nigeria was
established in 1988 to meet the credit needs of small borrowers who
cannot satisfy the stringent collateral requirements normally
demanded by conventional banks. The activities of the bank have
expanded since its inception such that by the end of 1997 there were
278 branches with total assets of 141,137.4 million
Community Banks: These are self sustaining financial institutions
owned by local communities to provide financial services to members
of the communities
INSTRUMENTS IN THE NIGERIAN
Treasury Bills (TBS)
These are money-market (short-term) securities
issued by the federal government of Nigeria. They are
sold at a discount (rather than paying coupon
interest), mature within 90 days of the date of issue.
They provide the government with a highly flexible
and relatively cheap means of borrowing cash.
Treasury Certificate (TCS)
These are similar to TBS but are issued at par or face value and
pay fixed interest rates. These fixed in interest rates are called
coupon rates. Thus, each issue promises to pay a coupon rate of
interest and the investor collects this interest by tearing coupons
off the edge of the certificate and cashing the coupon at a bank;
post office, or other specified federal office. Each coupon is
imprinted a year from the date of issue. In the Nigeria
context, their rates became market-determined like TB rates
following interest rates deregulation. Thus, treasury certificates
are medium-term government securities which mature after a
period of one to two years and are intended to bridge the gap
between the treasury bill and long term government securities
Call Money Fund Scheme- Money at call or Short
This refers to money lent by the banks on the
understanding that it is repayable at the bank’s demand or
at short notice (e.g. 24 hours or over-night). Overnight
loans are simply bank reserves that are loaned from banks
with excess reserves to banks with insufficient reserves.
One bank borrows money and pays the overnight interest
rate to another bank in order and obtains the lending
bank’s excess reserves to hold as one-day deposits. They act
as a cushion which absorbs the immediate shock of
liquidity pressures in the market. The scheme was
introduced in 1962 in Nigeria.
Commercial Papers or Commercial Bills
These are short-term promissory notes issued by the CBN
and their maturities vary from 50 to 270 days, with varying
denominations (sometimes #50,000 or more). They are
debt that arise in the course of commerce. Commercial
papers may also be sold by major companies (blue-chipslarge, old, safe, well-known, national companies) to obtain
a loan. Here, such notes are not backed by any
collateral, rather, they rely on the high credit rating of the
issuing companies. This instrument was introduced in 1962
to finance the export-marketing operations of the then
Northern Marketing Board.
Certificates of Deposits (CDS)
Negotiable (NCO) or Non-negotiable (NNCO) deposits are
inter-bank debt instruments designed mainly to channel
commercial banks surplus funds into the merchant banks.
NCO’s are rediscountable with the CBN and those with
more than 18 months tenure are eligible as liquid assets in
computing a bank’s liquidity ratio. These attributes make
the instruments attractive to banks. It was introduced in
Nigeria by the CBN in 1975. They are issued to fellowbankers within that maturity period, as one of the deposits
they accept. The CDS outstanding by 1989 averaged
REGULATION OF NIGERIAN MONEY
The main regulator for the Nigerian money market is the Central Bank of
The Financial Markets Dealers Association (FMDA), formerly Money Market
Association of Nigeria is a self regulatory body in Nigeria; registered in 1989
under land (Perpetual succession) Act of 1962; to develop financial market
infrastructure, human capital and promote professional and ethical standards
in treasury activities in Nigeria, though it was informally started in 1979. The
Association then was mainly populated by the commercial and merchant
banks, whose activities involve treasury dealing and trading of securities. The
membership of the Association was later extended to the discount houses,
when in 1991 the guidelines establishing Discount house was published, in the
spirit of deregulation and enhancement of monetary policy effectiveness.
In 2009 as a result of dramatic changes in the operating environment over the
years, a new name, Financial Markets Dealers Association was registered to
facilitate the deepening and development of Nigeria Financial market.
MONEY MARKET IN INDIA
The Money market in India is the money market for
short-term and long-term funds with maturity ranging
from overnight to one year in India including financial
instruments that are deemed to be close substitutes
Similar to developed economies the Indian money
market is diversified and has evolved through many
stages, from the conventional platform of treasury
bills and call money to commercial paper, certificates
of deposit, repos, forward rate agreements and most
recently interest rate swaps
COMPARISON BETWEEN NIGERIAN
AND INDIAN MONEY MARKETS
In India RBI is the regulator of the money market and
the government is taking all the steps for getting new
instruments in the money market. In Nigeria the
Financial Markets Dealers Association is the self
regulating authority and the main regulator is the
Central Bank of Nigeria.
Both Nigeria and India have the varieties of
participants and instruments in the money market.
The rates in India for the money market are
determined by the working of market forces except for
a few regulations imposed by the RBI. In Nigeria the
Central Bank of Nigeria has influence over the
exchange rates in the money market.