An introduction to the Discount House in Nigeria

An introduction to the milltraction shack in NigeriaIn selecting an industry, the drop House, a sub arena of the Nigerian financial sector was selected because they are ludicrous in their receive special way in that they offer unique financial services which put them in almost the same pedestal as the regular banks in Nigeria but they are not banks. They could alike be referred to as specialised banks.In carrying out an analysis of its competitiveness, the PESTLE model was use to analyse how the implication House sub sector is affected by environmental factors while the Porters Five Forces was used to analyse the various threats and disputes that beset the snub House sub sector.Discount bases are specialised financial Institutions created by the primal Bank of Nigeria (CBN), to assist its management of liquidity in the parsimoniousness (Consolidated Discount hold, 2009). They are composite but specialised financial services solution provider (Associated Discount House Limited, 2009) whose primary function is to provide safe and secured dead investment opportunities within 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 ceremonial and the informal sub sectors. The formal sub sector comprises of the regulatory bodies, money market, capital market, foreign exchange markets, insurance companies, brokerage firms, deposit money banks (DMBs), culture finance and another(prenominal) financial institutions. As at the end of March 2010, in that respect were 24 deposit money banks(DMBs), 5discount houses(DHs), 941 microfinance banks(MFBs), 107 finance companies(FCs), 101 primary owe institutions(PMIs), 13 pension fund administrators(PFAs), 5 pension fund custodians(PFCs), 1 stock exchange, 1 commodity exchange, 1621 bureau-de-change operators(BDCs), 690 securities brokerage firms, 5 development 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 there is a weak relationship between the informal sub sector and the formal sub sector (financial stability report, 2010)Discount House Sub SectorOver followDiscount Houses in Nigeria were first established in 1993. They were authorize to commence operations with on the dot three discount houses as players. Their number later increased to five and their foundation rout out be linked to slap-up Britain, which is worldwidely regarded as the origin of discount houses. These institutions evolved to provide a link between the banks and the Bank of England by serving as a channel for the piece of banks funds as well as providing access to the Bank of England as a lender of last resort (Chartered Institute of Bankers of Nigeria, ) and in like trend discount houses in Nigeria are to act as intermediaries or mediators between the Central Bank of Ni geria and other licensed banks in Nigeria in Open food market Operations transactions (Revised Guidelines for Discount Houses, 2004).There are five discount houses in Nigeria wholly owned by consortiums of banks and other financial institutions as allowed in the Discount House guidelines 2004 by the Central 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. They are presently not listed in the Nigerian Stock Exchange.The Discount House sub sector is highly monitored, guided and regulated by the Central Bank of Nigeria and the Securities and Exchange Com mission of Nigeria requiring of them their daily, weekly, quarterly, semi-annual and annual reports showing the state of their affairs.Their daily ope discerning 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 clip (Revised Guidelines for Discount Houses, 2004).By this a balance is maintained in the economy thereby guarding liquidity. Apart from this function, the discount houses also facilitate the issuance and sale of pathetic term government securities, provide discount/re-discount facilities for treasury bills, government securities and other eligible financial instruments, 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 worldwide and domestic.The global frugal environment shows that the global economic crisis appeared to have eased off in the latter part of 2009 but general optimism is organism re inductd with pessimism of a double dip recession, as fears grow that governments and policy makers around the world might be forced (due to pressure or mistakes) to subscribe to monetary and fiscal props, too soon. So even though developed economies are gradually beginning to come out of the general recession, the situation is as tho delicate (First Securities Discount House, 2009).In emerging market economies, growth has been robust but swellingary pressures are strong and on the rise. The negative impact of the policy-making 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 about 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 burden 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 impact on interest and lending rates. It has been a herculean task trying to bring down the inflation rate to a single digit 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 still has a determination to heighten further as a resolution 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 Mone tary Policy 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 Deposit 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 year 2011, giving a generally good outlook to the Nigerian economy. This projection arose as a subject of the scene for a perk up in the oil sector and also the increasing emphasis on the development and improvement of the other sectors in the economy (Central Bank of Nigeria communiqu No 75, 2011).Finally on the political scene, the year 2011 being an election year for Nigeria, there are a lot uncertainties associated with the electoral dish ou t 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 risks with lower reserves and high spending-currency devaluation possible and that Inflation will remain over 10% with implications for demand, input cost 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 standing hence, there is strong aspiration among the services providers which have led to innovation, efficiency and the upgrade of competitive advantage by the players. The provision of specialised personalised services allowable within the image of the discount house guidelines. Example is the personal pension plan developed by Consolidated Discount Limited which was created as a way of prepa ring clients to be less vulnerable to loss of earning capacity after retirement (Consolidated Discount Limited, 2009).Also Associated Discount House Limited in conjunction with the Debt Management speckle (DMO) of Nigeria organized an awareness seminar on 12 February, 2009 to enkindle the interest of retail investors both(prenominal) local, international and in the diasporas in Federal Government of Nigeria Bonds (Associated Discount House Limited, 2009).Opportunities In The Discount House Sub- SectorWithout get aheadsaying, there are opportunities in Discount Houses businesses (if not many) which gives them an edge over banks and other specialised banks.As previous inferred, discount houses are allowed to offer certain unique financial services which puts them almost in the same stand as banks and even much more(prenominal) but they cannot be referred to as banks and one of the reasons is because there is minimum paid up capital imposed on the regular banks which amounts to N2 5,000,000,000.00(Twenty five billion naira) sole(prenominal) 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 prescribed 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 brand-new areas of business and kick upstairs their earnability (Kakawa Discount House, 2009).Discount Houses have sizable support from the Central Bank of Nigeria as they often have 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 benefit 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 unique 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 witness the safety of their funds, but with the return of orderliness and calm, discount houses patronage by banks reduced. Rather, the interbank and foreign exchange markets seem to have provided more attractive trading options for the banks, to the loss of the discount houses.Licensing of additional discoun t 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, following the initial boom from the year of operations of 1993 where total asset stood at N9,600,000,000.00(Nine billion, sixer hundred 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 expansion (Chartered Institute of Bankers of Nigeria, 2010).Finally, from the inception, discount houses had the exclusive set to conduct Open Market Operations transactions (OMO). Open Market Operations (OMO) is an indirect mon etary 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.ConclusionIn 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 enough to keep a balanced financial sector and the economy as a whole.In the light of the fact that the Central Bank of Nigeria as 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 output which should encourage new players to participate.Part 2StrategyOver billetStra tegy is a plan or blueprint of what an face intends to procure and how to go about it. Artto, Kujala, Dietrich and Martinsuo (2008) define schema as a firms goal to attain a desired position in its competitive outside(a) environment. This is in line with Kenneth Andrew (1987) school of thought that views scheme from the corporate angle where he views corporate strategy as the nature of decisions a company takes which reveals its short and long term goals, how it plans to go about achieving these goals and how its outcome will affect all stakeholders and community at large. There is a popular belief that an government 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 large-minded to change. Usually this behaviour leads them to a decline and the only way it can regain its position is through strategy or change in strategy. This try 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 improve and thinking differently and telephone calls that a good strategy means doing something different from every other person. however there are pitfalls to strategy as Mintzberg (1994) puts frontwards the question is a climate conduciveto strategic planning necessarily one conducive to effective strategic thinking and acting? He claims that there are underlying issues which affects the ability of plans to make head way and emphasizes that these issues are neither technical nor analytical but rather human (Abel and Hammond cited in Mintzberg, 1994). But Smith and Reese (1999) argue that as long as there is a fit or alignment between ope acute elements and business then there should be no pitfalls where he defines fit as the degree to which ope intelligent elements match the business strategy.Alternative Approaches to StrategySimilarities and DifferencesThere are various preliminaryes to strategy but Whittington (2000) classifies strategy into four approaches the Classical, Evolutionary, Processualist and Systemic. He further analyses each approach as followsThe classical approach sees strategy as a process of rational deliberation, calculation and analysis, intended to achieve long-term benefit and that good planning is what it takes to master internal and external environments.The Evolutionary approach analyses strategy from the point of view that rational long term planning is often irrelevant and that strategies that turn out to be successful only turn out so because it was inevitable.The Processualist approach sees long term planning as basically pointless, but they are not so doubtful 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 th ink 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 favorable system in which they operate. Meaning the demographic setting of the organizations environment needs to be taken into consideration when strategizing.In analyzing the similarities 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 profit maximization as the natural outcome of strategy-making. This he made in reference from the point of view of their end result which is profit or return on capital. These approaches associate profitability with strategy and confide the higher the level of strategy employed, the higher and give out the profit generated. This view is divided 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 foothold 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 motorbus is able to perform and that investing in long term strategies 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 str ategies with seemingly superiority 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 overall performance of the organisation but it is something that is do for the corporate image. His view is supported 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 similar 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 be 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 tha t has profound implications on competitive outcomes.. and strategy should contain 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 follow by an organization without necessarily having to change after its initial usage.ConclusionStrategy can be seen as a means of avoiding perhaps costly and prejudicial warfare (University of Leicester, 200990) and it is quite clear that all the approaches of strategy have their own benefits even though they are similar and also dissimilar in their own unique ways. Therefore which ever method adopted 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 in the lead adoption.