1.0 Introduction
1.1 General Overview of the Problems
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by in creasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhance through the provision of microfinance services to enable them engage in economic activities and be more self — reliant; increase employment opportunities, enhance household income and create wealth. Microfinance is about providing financial services to the conventional financial institute. Three features distinguish microfinance from other formal financial products. These are:
- The smallness of loans advanced and or savings collected.
- The absence of asset — based collateral.
- Simplicity of operations.
In Nigeria, the formal financial services to about 35% of the economically active population while the remaining 65% are excluded from access to financial services.
This 65% are often served by the informal financial sector, through non — governmental organization (NGO) — microfinance institutions money lender, friends, relatives and credit unions. The non-regulation of the activities some of these institutions has serious implication for the central bank of Nigeria (CBN) ability to exercise one aspect of its mandate of promoting monetary stability and a sound financial system.
A microfinance policy which recognize the existing informal institution and brings them within the supervisory preview of the CBN would not only enhance monetary stability, but also expand financial infrastructure of the country to meet the financial requirements of the micro, small and medium enterprises (MSME). Such an institution would create a vibrant microfinance sub sector that would adequately integrated into the mainstream of the financial system and provide the stimulus for growth and development. It would also harmonize operating standards and provide a strategic platform for the evolution of microfinance institution, promote appropriate regulation, supervision and adoption of best practices.
In the circumstances, an appropriate policy has become necessary to develop a long — term suitable microfinance sub — sector. The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban, Low — income earners. They are mainly of the informal self — help groups (SHGS) or Rotating savings and credit Associations (MOSCAS) types others providers of microfinance services include savings collection and co-operative societies. The informal financial institutions generally have limited outreach due. Primarily to paucity and loanable funds.
In order to enhance the flow of financial services to Nigeria rural areas government has in the past, initiated a series of publicity financed micro/rural credit programmes and policies targeted at the poor. Notable among such programmes were the rural banking programmes. Sectorial allocation of credits, a concessionary interest rate and the agricultural credit Grantee (ACGs). Other institutional arrangements were the establishment of the Nigerian agricultural and co-operative Bank limited (NACB), the Nigerian Agricultural insurance corporation (NAIC), the peoples Bank of Nigeria (PBN), the community Banks (CBS), and the family Economic Advancement programme (FEAP).
In 2000, government merged the NACB with the PBN and FEAP to from the Nigerian Agricultural co-operative and Rural Development Bank limited (NACRDB) to enhance the provision of finance to the agricultural sector. It also created the National Poverty Eradication programme (NAPEP) with the alleviate poverty. Microfinance services, particularly, those sponsored by government have adopted the traditional supply led subsidized credit approach mainly directed to the agricultural sector and non — farm activities, such as trading, tailoring, weaving, blacksmithing, agro-processing and transportation, Although the services have resulted in an increase level of credit disbursement and gains in agricultural production and other activities, the effects were short — lived, due to the unsustainable nature of the programmes.
Since the 1980's, non — governmental organization (NGOs) have emerged in Nigeria to champion the cause of the micro and rural entrepreneurs, with a shift from the supply — led approach to a demand — driven strategy. The member of NGOs involvement microfinance activities has increased significantly in recent times due largely to the inability of the formal financed sector to provide services needed by low income groups and the poor, and the declining support from development partners amongst others. They are generally registered under the trusteeship Act as the sole package or part of their funds from grants, fees, interest on loans and contributions from their members, however, they have limited outreach due largely, to unsustainable sources of funds.
For the rural areas to develop and prosper it became necessary for the various communities lacking banking services to have banks that could adequately cater for their needs. More so, to encourage the development and raise the economy of the rural dwellers. It is against this review that the federal government decided in December 15, 2005 by president Olusegun Obasanjo inaugurated the microfinance policy to introduce microfinance banking into the banking system.
According to the CBN deputy governor (financial sector surveillance), Mr. Tunde Lemo, said that microfinance banks would be private sector driven and all would be required to be well capitalized, technically sound, and oriented towards lending based on the cash flow and character of clients. He further said that all licensed community, prior to the approval of the policy, shall transform to microfinance banks licensed to operate in a local government on meeting the prescribed new capital and other conversion requirements within a period of 24 months from the date of approval of the policy.
The struggle to give the nation's poor unfettered access to credit was one of the targets of Obasanjo's administration for accelerated macroeconomic growth, as he revealed that 65% percent of Nigerians were excluded from the formal system and had no access o credit within which to do business. The performance of a specific macro-finance institution in Nigeria has been low over the years.
1.2 Statement of Problems
This research study is designed to investigate the problems of microfinance banks in Nigeria as well as their prospects. To achieve this, the study looks at the pet falls community banks in the past which lead to the emergency of microfinance banks in providing financial services to the poor who are not traditionally served by the conventional financial institutions.
It will also seek to highlight the prospects of microfinance banks in development of the rural and urban sectors of the society. It will also seek to cover the majority of the poor but economically active population thereby cheating millions of jobs and reducing poverty. This will also mobilize domestic saving and promote the banking culture among rural dwellers benefit from such banking institutions?
1.3 Objectives of the Study
The main objective of this study is to examine the performance microfinance banks in the urban and rural communities and how they affect the lives of the people in that area. This can be seen as follows:
- Provide diversified, affordable and dependable financial services to the active manner that would enable them to undertake and develop long-term sustainable enterpremurial activities.
- Mobilize savings for intermediation and increase the productivity of the active poor in the country thereby increasing their individual household.
- Create employment opportunities and increase the productivity of the active poor in the country thereby increasing their individual household.
- Enhance organize, systematic and focused participation of the poor in the social-economic development and resources allocation process.
- Provide veritable avenues for the administration of the microfinance programme of government and high net worth individuals on a non-resource case basis.
- Render payment services, such as various salaries, gratitude's, and persons for various tiers of government.
1.4 Research of Hypothesis
This study examines the relationship between the problems and prospects of microfinance credit in Nigeria. This relationship can be captured in the hypothesis for formulation below:
- H1: There is no problem as regards to given loans to the customs by microfinance banks.
- H2: There is a problem of smooth running of microfinance banks.
1.5 Significance of the Study
The significance of this study cannot be over emphasized. It is expected that a number of people and microfinance banks would benefit from it.
- The findings will be used to re-shape the financial sector of micro financing.
- It will also assist the government to modify practices necessary for wealthy banking practice in the urban and rural communities where microfinance banks operates and encourage rural banking habits as well as re-introduce confidence in customers.
- It is expected to serve as a manual to management and staff of microfinance banks in Nigeria.
1.6 Scope of the Study
This study will cover the problems and prospects of microfinance bank in Nigeria. Emphasis will be placed on those that operate in the rural areas and how they will be contributing to rural transformation. For the purpose of this study be looking at the microfinance bank in Ikeduru Local Government area of Imo State.
1.7 Limitation of Study
Several factors posed constraints to this research work during the conduct of my research.
- I was not satisfied with the behaviour and unco-operative attitudes of staff of CBN in supplying the needed material especially materials.
- Some of the printed questions were misplaced or not returned to me. It's also worthy to mention that the school library department lacks the needed secondary data on this topic which made me to result to the internet, of which you and I knows browsing through the internet cost a lot of money. Due to financial constraint which as a student I am facing I was unable to travel to other places in search of important materials such as the CBN branch in Port Harcourt as well as visiting of the other microfinance banks.
- I did not find it easily getting the bank officers to listen to my interviews question, talk of answering them.
- Those who were willing to give me audience out of sympathy told me that they were not going deep to considering the implication of revealing the bank secrets.
1.8 Definition of Terms
This section tends to deals with some acronyms which are used for easy apprehension and clarity of the words some of these acronyms which were used are as follows:
Intermediation:
This process where a financial institution strives to bridge the gap between deficit unit and surplus unit.
CAMA:
Companies and allied matters Act.
CBN:
Central Bank of Nigeria.
MFBs:
Microfinance bank's
NACRDB:
Nigerian agricultural co-operative and rural development.
NEEDs:
National Economic Empowerment and development strategy.
NGO:
Non governmental organization.
NMFCC: National microfinance consultative committee.
ROSCAs:
Rotating of savings and credit Associations.
ACG:
Agricultural credit guarantee.
PBN:
Peoples Bank of Nigeria.
Ikeduru:
One of the 14 local government areas in Imo state.
NACB:
Nigerian Agricultural co-operative Bank.
SME:
Micro, small and medium enterprises.
CAC:
Cooperate Affairs Commission.
NDIC:
Nigeria Deposit insurance corporation
NDE:
National Directorate of Employment.
FEAP:
Family Economic Advancement programme.
SHGs:
Self — Help Groups
CBs:
Community banks
