Chapter One — 1.1 Background to the Study

Over the past decade, the relationship between peer-to-peer lending and financial stability of the banking sector has become a subject of considerable debate among scholars and industry practitioners alike, particularly within the context of the Nigerian Capital Market where operating conditions differ markedly from more developed markets.

Within the context of the Nigerian Capital Market, this relationship carries particular significance. Organizations in this setting operate under a distinct combination of economic, regulatory, and market conditions that may amplify or dampen the effect of peer-to-peer lending on financial stability of the banking sector, making a context-specific inquiry both timely and necessary.

1.2 Statement of the Problem

While peer-to-peer lending is widely discussed in policy and industry circles, empirical evidence on its actual effect on financial stability of the banking sector within the Nigerian Capital Market remains sparse and, in places, contradictory. This lack of localized, rigorous evidence makes it difficult for decision-makers to know with confidence whether current approaches to peer-to-peer lending are helping or hindering financial stability of the banking sector — a gap this study sets out to close.

1.3 Objectives of the Study

1. To examine the effect of Peer-to-Peer Lending on financial stability of the banking sector in the Nigerian Capital Market.
2. To assess the extent to which peer-to-peer lending influences financial stability of the banking sector within the study area.
3. To identify the challenges associated with peer-to-peer lending in relation to financial stability of the banking sector.
4. To recommend strategies for optimizing peer-to-peer lending in order to improve financial stability of the banking sector.

1.4 Research Questions

1. What is the effect of peer-to-peer lending on financial stability of the banking sector in the Nigerian Capital Market?
2. To what extent does peer-to-peer lending influence financial stability of the banking sector within the study area?
3. What challenges are associated with peer-to-peer lending in relation to financial stability of the banking sector?
4. What strategies can be adopted to optimize peer-to-peer lending in order to improve financial stability of the banking sector?

1.5 Significance of the Study

This study is significant to a range of stakeholders. For policymakers and regulators, the findings offer evidence to guide the design of frameworks that support healthier outcomes around financial stability of the banking sector. For managers and practitioners within the Nigerian Capital Market, the study provides practical insight into how peer-to-peer lending can be better managed. Finally, it contributes to the academic literature on finance / banking by extending existing knowledge into a specific empirical context, and offers a reference point for future researchers.

1.6 Scope of the Study

The study is limited to an examination of Peer-to-Peer Lending and its relationship with financial stability of the banking sector within the context of the Nigerian Capital Market. It reflects a clearly defined scope of analysis and relies on data and perspectives available within that scope; generalizing the findings beyond this specific context should therefore be done with appropriate caution.