An introduction to the Discount House in Nigeria

An introduction to the s terminal a elan digest in NigeriaIn selecting an industry, the croup base, a make out sphere of the Nigerian pecuniary bena was selected because they ar anomalous in their let special way in that they clear uper unique fiscal services which put them in al roughly the same point of view as the reparation banks in Nigeria b arly they ar non banks. They could as well as be referred to as specialised banks.In carrying out an analysis of its competitiveness, the muser model was utilise to fail how the deductive reasoning residence sub empyrean is affected by environmental factors while the Porters Five Forces was used to analyse the non-homogeneous threats and ch everyenges that beset the ignore habitation sub celestial sphere. neglect houses atomic number 18 specialised monetary Institutions created by the telephone deputise affirm of Nigeria (CBN), to assist its forethought of liquidity in the preservation (Consolidated en tailment control, 2009). They are composite scarcely specialised financial services solution provider (Associated Discount tin Limited, 2009) whose elementary function is to provide safe and secured short- term investment opportunities at bottom the banking system. (Express Discount Limited, 2009).The Structure Of The Nigerian Financial SystemThe Nigerian financial system is made up of two sub sectors the formal and the at large(p) sub sectors. The formal sub sector comprises of the regulatory bodies, money market, majuscule market, foreign ex agitate markets, insurance companies, brokerage firms, deposit money banks (DMBs), reading finance and other(a) financial institutions. As at the end of blemish 2010, in that location were 24 deposit money banks(DMBs), 5 sack houses(DHs), 941 microfinance banks(MFBs), 107 finance companies(FCs), 101 primary mortgage institutions(PMIs), 13 pension caudex administrators(PFAs), 5 pension fund custodians(PFCs), 1 stock exchange, 1 comm odity exchange, 1621 bureau-de-change operators(BDCs), 690 securities brokerage firms, 5 developing finance institutions(DFIs) and 73 insurance companies.The informal sub sector includes self-help groups, financial cooperatives and credit associations.It is imperative to know that thither is a weak consanguinity amongst the informal sub sector and the formal sub sector (financial stability report, 2010)Discount House Sub SectorOverviewDiscount Houses in Nigeria were first established in 1993. They were licensed to commence operations with honorable three ignore houses as players. Their number later increased to pentad and their foundation move be linked to Great Britain, which is gener completelyy regarded as the origin of disregard houses. These institutions evolved to provide a link between the banks and the believe of England by serving as a channel for the interchange of banks property as well as providing access to the cashbox of England as a lender of last resort (C hartered Institute of Bankers of Nigeria, ) and in like way of life tax deduction houses in Nigeria are to act as intermediaries or mediators between the commutation Bank of Nigeria and other licensed banks in Nigeria in light commercialize Operations transactions (Revised Guide billets for Discount Houses, 2004).thither are quintuplet discount houses in Nigeria wholly owned by consortiums of banks and other financial institutions as bothowed in the Discount House guidelines 2004 by the primal Bank of Nigeria. However the maximum allowable equity holding for any investor in a discount house is 40% (Revised Guidelines for Discount Houses, 2004).These Discount Houses are named as follows Associated Discount House Limited (ADHL), Consolidated Discount Limited (CDL), Express Discount House Limited (EDL), First Securities Discount House Limited (FSDH) and Kakawa Discount House Limited (KDHL).They fall under a common umbrella referred to as Nigerian Discount Market Association. The y are presently not listed in the Nigerian Stock Exchange.The Discount House sub sector is postgraduately monitored, command and regulated by the Central Bank of Nigeria and the Securities and Exchange Commission of Nigeria requiring of them their occasional, weekly, quarterly, semi-annual and annual reports showing the state of their affairs.Their daily running(a) activities include the injection and the withdrawal of funds by the Central bank of Nigeria from the money market through them (Ezirim and Enefaa, 2010) of which they must invest 60% of their deposit liabilities in government securities at any point in time (Revised Guidelines for Discount Houses, 2004).By this a balance is maintained in the delivery at that placeby guarding liquidity. Apart from this function, the discount houses also facilitate the topic and trade of short term government securities, provide discount/re-discount facilities for exchequer bills, government securities and other eligible financial i nstruments, accept short-term investments on an intermediary basis from banks and wholesale investors and lastly provide short term financial accommodation to banks (Revised Guidelines for Discount Houses, 2004).The Discount House Sub-Sector EnvironmentThe discount house sector is greatly influenced and controlled by environmental forces international and domestic.The global economic environment shows that the global economic crisis appeared to gestate eased off in the latter part of 2009 but general optimism is be replaced with pessimism of a double dip recession, as fears grow that governments and policy makers almost the globe might be forced (due to pressure or mis sequesters) to remove monetary and fiscal props, too soon. So til now though developed economies are gradually beginning to come out of the general recession, the situation is lock delicate (First Securities Discount House, 2009).In appear market economies, growth has been healthy but inflationary pressures are strong and on the rise. The negative allude of the political crises in the oil-producing Middle East and North Africa (MENA) region on oil prices and the disruptions and destructions associated with the earthquake and tsunami in Japan have added to uncertainty more or less the sustainability of global economic recovery and growth%( Central Bank of Nigeria communiqu No 75, 2011). This has great implications on the discount houses with Nigeria being a developing and emerging economy and the encumbrance of the global crises is strongly felt with a probability of increases in the international interest rate.The domestic economic environment is being characterised by a fluctuating inflation rate which has significant continue on interest and lending rates. It has been a herculean task nerve-wracking to bring down the inflation rate to a single material body as proposed and rather the rate rose from 11.1% as at March, 2011 to 12.8% in April, 2011(Nigeria Bureau of Statistics, 2011). This inflationary rise dormant has a tendency to originate further as a solution of the general increase in global and food prices.The operating economic environment is full of challenges as there are array of issues. In March 2011, the Monetary insurance Committee of the Central Bank increased MPR from 6.5% to 7.5% maintaining interest rate corridor of +/-2% around the MPR. By this, the Standing Lending Facility Rate (rate at which CBN lends to Banks and Discount Houses as bank of last resort) became 9.5% and has remained so. On the other hand, the Standing pose Rate (rate at which Banks and Discount Houses place excess funds with the Central Bank of Nigeria) remained at 4 %.The Gross Domestic Product (GDP) had a projection of an increase by 7.43% in the first quarter of the class 2011, giving a generally grievous outlook to the Nigerian economy. This projection arose as a take of the expectation for a perk up in the oil sector and also the increasing emphasis on th e development and improvement of the other sectors in the economy (Central Bank of Nigeria communiqu No 75, 2011).Finally on the political scene, the class 2011 being an alternative year for Nigeria, there are a lot uncertainties associated with the electoral process and the election results and this could affect the discount house sub sector and the Nigerian economy as a whole and it is projected that the effect of these uncertainties will result in higher exchange rate guesss with lower reserves and high spending-currency devaluation possible and that Inflation will remain over 10% with implications for demand, insert costs and projects(Resource and Trust Company Limited, 2011).Competitiveness In The Discount House Sub- SectorThe discount house sub sector is just a small sector in a large financial sector with just a few players who are almost of equal rest hence, there is strong competition among the services providers which have led to innovation, readiness and the upgrade of competitive payoff by the players. The provision of specialised individualize services allowable within the scope of the discount house guidelines. slip is the personal pension plan developed by Consolidated Discount Limited which was created as a way of preparing clients to be less undefendable to loss of earning capacity subsequently retirement (Consolidated Discount Limited, 2009).Also Associated Discount House Limited in conjunction with the Debt Management Office (DMO) of Nigeria create an awareness seminar on 12 February, 2009 to enkindle the interest of retail investors twain local, international and in the diasporas in Federal Government of Nigeria Bonds (Associated Discount House Limited, 2009).Opportunities In The Discount House Sub- SectorWithout take a leaksaying, there are opportunities in Discount Houses businesses (if not many) which gives them an edge over banks and other specialised banks.As earlier inferred, discount houses are allowed to offer certain u nique financial services which puts them almost in the same stand as banks and even much more but they cannot be referred to as banks and one of the reasons is because there is minimum paid up with child(p) imposed on the regular banks which amounts to N25,000,000,000.00(Twenty five billion naira) just at any point in time. For the discount houses sub sector, the minimum paid up capital shall be N1,000,000,000.00(One billion naira) only or as may be official by Central Bank of Nigeria from time to time (Revised Guidelines for Discount Houses, 2008). There is a revised Guideline for year 2008 which also relaxes the ownership of Discount Houses to now include non-financial institutions and individuals. This revision provides the opportunity for Discount Houses to grow their capital base to enable them to explore upstart areas of business and boost their positiveness (Kakawa Discount House, 2009).Discount Houses have sizable support from the Central Bank of Nigeria as they often ha ve the privilege of being able to gain access to cheap funds by using the government securities in their custody to borrow.Discount Houses are tightly regulated therefore there can be little room for carrying out activities outside their stipulated guidelines.Discount Houses are proactive in monitoring and managing money market trends to the avail of their clients.Unlike other deposit taking institutions, the financial assets acquired by Discount Houses are of the finest quality with little or no credit risk (Express Discount House Limited, 2009).Threats To The Discount House Sub- SectorNaturally the discount house sub sector is face up with its own threats and challenges as from inception, discount houses operated in an environment that could termed as unusual or abnormal. There was a distress situation in the banking sector which was at its peak and most banks patronized discount houses in order to ensure the safety of their funds, but with the collapse of orderliness and calm, discount houses patronage by banks reduced. Rather, the interbank and foreign exchange markets watchm to have provided more attractive trading options for the banks, to the detriment of the discount houses.Licensing of additional discount houses to make the total number of discount houses 5 proved to be a challenge as it had an adverse effect on the total turnover of the discount house sub sector, adjacent the initial boom from the year of operations of 1993 where total asset stood at N9,600,000,000.00(Nine billion, six degree centigrade million naira) only which dropped significantly to N3,400,000,000.00(Three billion, four hundred million naira) only in 1995 following the entrance of a new entrant into the market. With these happenings, licensing of new discount houses might still impact on the sub-sector further negatively.Their narrow scope of operations has also proven to be a major challenge for the Discount House sub sector being a specialised bank is inhibiting a lot of opportunities for intricacy (Chartered Institute of Bankers of Nigeria, 2010).Finally, from the inception, discount houses had the exclusive accountability to conduct Open Market Operations transactions (OMO). Open Market Operations (OMO) is an indirect monetary policy technique that is used to control the direct of money supply. It involves the sale/purchases of money market instruments in the open market these instruments being Nigerian treasury bills (Ezirim and Enefaa, 2010). With the Central Bank of Nigeria opening up the window to banks as well, the discount house sub sector lost the sole right of Open market Operations. cultureIn spite of all the challenges and threats faced by the Discount House sub sector, the Discount Houses are still are very vital part of Nigeria as an emerging economy and just the existing players in the market are not lavish to forbid a balanced financial sector and the economy as a whole.In the light of the fact that the Central Bank of Nigeria a s the major regulator keeps on revisiting and revising the guidelines of the Discount House sub sector, there is hope yet still for growth, expansion, innovation and maximum fruit which should encourage new players to participate.Part 2StrategyOverviewStrategy is a plan or blueprint of what an organisation intends to achieve and how to go about it. Artto, Kujala, Dietrich and Martinsuo (2008) define scheme as a firms goal to attain a desired position in its competitive external environment. This is in line with Kenneth Andrew (1987) school of thought that views dodging from the corporate angle where he views corporate strategy as the nature of decisions a company takes which reveals its short and recollective term goals, how it plans to go about achieving these goals and how its issuing will affect all stakeholders and community at large. There is a popular belief that an geological formation that fails to plan or strategise, plans to fail and Goold (1996) goes on further to share his own view when he says that matured businesses can easily become staid and resistant to change. Usually this behaviour demands them to a decline and the only way it can regain its position is through strategy or change in strategy. This resolve usually involve the pursuit, accomplishment, and maintenance of competitive advantage in its industry (Varadarajan and Clark cited in Morgana and Strong, 2003).Whittington (200110) summarises it all when he says strategy is all about thinking better and thinking take issueently and claims that a good strategy means doing something different from every other person. But there are pitfalls to strategy as Mintzberg (1994) puts forth the question is a temper conduciveto strategic training necessarily one conducive to in effect(p) strategic thinking and acting? He claims that there are fundamental issues which affects the ability of plans to make head way and emphasizes that these issues are neither adept nor analytical but rath er human (Abel and Hammond cited in Mintzberg, 1994). But metal turner and Reese (1999) argue that as long as there is a harmonize or alignment between ope logical elements and business then there should be no pitfalls where he defines fit as the degree to which ope a stinge elements match the business strategy.Alternative Approaches to StrategySimilarities and DifferencesThere are various admittancees to strategy but Whittington (2000) classifies strategy into four approaches the Classical, Evolutionary, Processualist and Systemic. He further analyses individually approach as followsThe undefiled approach sees strategy as a process of rational deliberation, calculation and analysis, intended to achieve long-term get ahead and that good preparation is what it takes to master internal and external environments.The Evolutionary approach analyses strategy from the point of view that rational long term formulation is often irrelevant and that strategies that turn out to be success ful only turn out so because it was inevitable.The Processualist approach sees long term provision as basically pointless, but they are not so in question(predicate) or cynical about the fate of businesses that do not take full advantage of environmental opportunities as they do not their see inability or failure to think up and strategise is going to lead to any serious competitive disadvantage.Finally the Systemic approach to strategy sees organizations strategic planning as basically being influenced and controlled by the kindly system in which they operate. Meaning the demographic setting of the organizations environment needs to be taken into consideration when strategizing.In analyzing the akin(predicate)ities and differences of these approaches, their style or processes and their end result is paramount.In comparing the classical and evolutionary approaches to strategy, Whittington (20012) posits emolument maximisation as the natural outcome of strategy-making. This he made in generator from the point of view of their end result which is profit or return on capital. These approaches associate profitability with strategy and believe the higher the level of strategy employed, the higher and better the profit generated. This view is shared by (Friedman and Baumol cited in Vining and Meredith, 2000) where they argue that the only appropriate goal or strategy in any organisation is to maximize profit and that any other goal is considered inappropriate.As much the classical and evolutionary approaches are similar in terms of profit maximization being their goal they differ in style and processes. The classical approach adopts a style of rational planning (Whittington, 200011) whereas the evolutionary approach lacks confidence in rational planning where they argue that no matter the level or intensity of strategy, the outcome is usually driven by market dictates and how well a passenger vehicle is able to perform and that investing in long term strate gies can be counter productive (Whittington, 2000 19).In this instance, the evolutionary approach can be compared with the Processualist approach to strategy in that they also do not believe in rational planning. This view is shared by Peppard 1995, who argues that in a claim to gaining competitive advantage, management develop strategies with seemingly favorable position above others which is just a way of them being seen to be doing something and not necessarily hope to achieve anything by their strategies. By this claim, peppard tries to show that rational planning is just an act which is not necessarily relevant to the general performance of the organisation but it is something that is done for the corporate image. His view is back up by Cyert and March ( cited in Whittington 200022) who argue that firms can plan in such a way that major strategy sessions could be cut off and yet still deliver just enough to keep everyone satisfied.Although the processualist approach is simil ar to the evolutionary approach in terms of processes and style, that where all their similarity ends because in terms of outcome.The Processualist approach can be compared with the systemic approach of strategy whose school of thought sees not only profit maximization but other outcomes as a an end result of strategy (Whittington 2000 21 27). Werther Jr and Chandler (2005) argue that firms are continuously appraised in terms of both the financial and social benefits that result from their corporate actions or strategies. The systemic approach proposes that firms differ according to the social and economic systems in which they are embedded (Whittington, 200027) thereby viewing strategy as being guided and controlled by the environmental forces in which they operate. In the same spirit, the processualist advice against striving after unattainable ideal of rational fluid action, but to accept and work with the world as it is (Whittington, 200021).Finally, the systemic approach can b e compared with the classical approach in that they both believe in rational planning and do retain faith in the capacity of organizations to plan forward and to act effectively within their environment(Whittington 200026). This view is shared by Casadesus-Masanell and Ricart, (2010) when they opined that strategy is a high-order choice that has profound implications on competitive outcomes.. and strategy should stop over provisions against a range of environmental contingencies, whether they take place or not and Stallwood (1996) maintains that strategy is necessary but insists that whatever strategy is used must be appropriate and simple enough for it to become select by an organization without necessarily having to change after its initial usage.ConclusionStrategy can be seen as a means of avoiding perhaps dearly-won and damaging warfare (University of Leicester, 200990) and it is quite clear that all the approaches of strategy have their own benefits even though they are simi lar and also variant in their own unique ways. Therefore which ever method choose should be seen to add to an organizations performance and must be duly analysed and deliberated on ensuring it is in alignment with the organizations goals and objectives before adoption.