CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people and increasing their access to factors of production, especially credit. The latent capacity of poor for entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income, and create wealth thereby ensuring rapid and sustainable economic growth and development. Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institution (Iweala, 2005).

The impact of microfinance banks in the economic growth and development of a state cannot be overemphasized. The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, “Ajo” in Nigeria, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia, as well as numerous savings clubs and burial societies found all over the world (Bamisile, 2006). Formal credit and savings institutions for the poor have also been around for decades, providing customers who were traditionally neglected by Commercial banks as a way to obtain financial services through cooperatives and development finance institutions. According to Bamisile (2006), Microfinance is about providing financial services to the poor who are not served by the conventional formal financial institutions (e.g. commercial banks). It is about extending the frontiers of financial service provision. The provision of such financial services requires innovative delivery channels and methodologies. Bruno, Squire and Ravallion (1995) indicated that there are ample evidences that policies designed to foster economic growth significantly reduce poverty but that policies aimed significantly at economic development are important. For example, program that provide credit and build human capital try to eliminate the causes of poverty; it is therefore relative to the establishment of microfinance banks a strategy for Nigeria economic development. According to Muktaras sited in Yayah (2011), credit has been recognized as an essential tool for promoting small and medium enterprises (SMEs). Over the years, several traditional microfinance institution, such as self-help groups, Esusu, and rotating savings and credit associations (ROSCA) have been set up to provide credit to both the rural and urban dweller in Plateau State. When the civilian administration came into office on 29th of May 1999, it paid attention to poverty reduction. This was based on the fact that robust economic growth cannot be achieved without putting in place well focused program to reduce poverty through empowering the people by increasing their access to factor of production, especially credit.

            The study focuses on the strategic management of microfinance banks in terms of economic development in Nigerian. Microfinance is a way of reducing poverty and devising strategies coupled with efficient management of microfinance banks will impact the poor in accessing small amount of credit at a reasonable interest rate thereby giving the economically active poor an opportunity to set up their own business. Many studies have shown that poor people are trustworthy with the repayment of loans (Yahaya, Osemene, and Abdulraheem 2011).

1.2       STATEMENT OF THE PROBLEM

This researcher work will be focused on closing the following gaps that affects the development of microfinance on the Nigerian economy:

1.      The negative factor that affects financing on the Nigerian economy?

2.      The factors that infers the positive impact of the microfinance to the Nigerian economy?

3.      The factors that reduces the enhancement of the microfinance to the financial sector of the economy?

4.      The factors that causes the little or no support of the medium and small scale enterprise of the economy by the financial sector of Nigeria.  

1.3       OBJECTIVES OF THE STUDY

The broad objective of this study is to empirically investigate the impact of micro-finance banks on the Nigerian economic development of Nigeria. The specific objectives are to:

1.         Determine the factors affecting economic financing in Nigeria.

2.         Examine the role played by micro-finance banks in the development of the Nigerian economy.

3.         Outline the ways and processes microfinance activities have being enhanced in order to contribute to the economic growth of the Nigerian financial sector.

4.         Proffer recommendations on how the Nigerian financial sector should render support to the medium and small enterprises.       

1.4       STATEMENT OF RESEARCH QUESTIONS

Based on the problems that this research will solve, the following relevant questions will be asked;

1.         What are the factors affecting economic financing in Nigeria?

2.         What role microfinance has to play in the development of each sector in the Nigerian economy?

3.         What are the factors that reduces the enhancement of micro- finance contribution to the financial sector of the economy?

4.         What support is rendered to poor small and medium enterprises by the Nigerian financial sector?

1.5       STATEMENT OF HYPOTHESIS  

Hypothesis is a conjectural statement of the relationship between two or more variables. It is always in a declarative sentence and relates either generally or specifically, variables to variables. (E. C. Osuala 1990 Pg 45).

Hypothesis could be null or alternative; it is constructed in such a way that when the null hypothesis (Ho) is accepted, the alternative hypothesis (H1) is rejected and vice-versa. The formulated hypothesis for this research work is given thus;

Ho: Microfinance has not contributed significantly to the growth of the Nigerian economy.

H1: Microfinance has contributed significantly to the growth of the Nigerian economy.

1.6       SCOPE OF STUDY

The Nigerian economy has undergone numerous structural changes before the period of this study especially in its financial sector. This research work therefore covers activities of microfinance in Nigeria in terms of population. For ease of study, the activities of microfinance in Plateau is covered. The rationale behind the selection is to see if the microfinance banks have a role to play in the economy.

1.7       SIGNIFICANCE OF THE STUDY

Despite the restricted operations of microfinance banks in providing some financial services which includes; foreign exchange transactions, international corporate finance, international electronic fund transfer, cheque clearing activities. It is not precluded from aspiring to having a national coverage, subject to meeting the prudential requirements.

This study will lead to the discovery of the orderly spread and coverage of microfinance banks in the State. It also recognises the current financial landscape of Nigeria skewed against Micro, Small and Medium Enterprises (MSMEs) in terms of access to financial services.

This study will also serve as an eye opener to the poor by introducing them to the procedures of generating funds for their businesses and the requirements of microfinance banks, hence addressing and correcting the imbalance between the poor and rich.

In conclusion, the study recognizes the role of public sector microfinance banks, and poverty alleviation agencies such as the National poverty Eradication programs (NAPEP) in the development of the sub-sector. It will add to existing literature and as reference material for research purpose.   

1.8       DEFINATION OF KEY TERMS

MICROFINANCE BANK: A microfinance bank (MFB) unless otherwise stated, shall be construed to mean any company licensed to carry on the business of providing microfinance services such as savings, loans. Domestic fund transfer and other financial services that are needed by the economically active, poor, micro, small and medium enterprises needed to conduct or expand their businesses.

MICROFINANCE: It refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients.

MICRO CREDIT: It refers to a small loan to a client made by a bank or other institutions. Micro credit can be offered often without collateral, to an individual or through group lending.

MICROFINACE CLIENT: These are low income persons that do not have access to formal financial institutions. They are typically self-employed, often household-based entrepreneurs.

POOR PERSON: A poor person is any who has meagre means of sustenance or livelihood and whose total income during a year is less than the minimum taxable limit set out in the law relating to income tax.

MICRO-ENTERPRISE: A micro-enterprise is a business that requires micro credit or loans to operate. The scope of economic activities of micro- enterprise typically includes primarily production and crafts, value added processing and distributed trades.

MFBs: Microfinance Banks.

REFERENCES

Atonko, B., Ekundaya, K. & Agabi, C. (2010). When Fraudsters Over Microfinance Banks. Daily Trust, 01 May, 2010.

Central Bank of Nigeria (2005). “Microfinance Policy, Regulatory and Supervisory Framework for Nigeria” CBN Publication, December.

Drodje, G. (2010). “Nigeria: Microfinance banks should take responsibility for the state of the Sector” Accessed from http://microfinanceafrica.net/tag/problmes-with microfinance-in-nigeria/ 

Iweala, O. N. (2005). “The Role of Government in Microfinance Development in Nigeria.”           CBN Proceeding of Seminar in Microfinance Policy, Regulatory Supervisory Framework

for Nigeria.

Odoko, F. O. (2008). Beyond Finance: Strategies for Poverty Reduction in Nigeria.                                  Central Bank of Nigeria Bullion, 31(1), 35-36.

Yahaya, K. A, Osemene, O. F. & Abdulraheem, A. (2011).  Effectiveness of Microfinance Banks            in Alleviating Poverty in Kwara State Nigeria. Global Journal of Management and

            Business Research Volume 11 Issue 4 Version 1.0 Double Blind Peer Reviewed

            International Research Journal Publisher, USA.