CHAPTER
ONE
INTRODUCTION
1.1: BACKGROND OF
THE STUDY
A robust
economic growth cannot be achieved without putting in place well focused programme
to reduce poverty through empowering the people by increasing their access to
factors of production.
The
latent capacity of the poor for entrepreneurship would be significantly
enhanced 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. Micro-financing has
existed for years before the introduction of conventional banking in Nigeria
and the later part of nineteenth century. (Ekot, 2008)
The
traditional Nigerian society has a system of group savings and assistance to
one another. The practice was that a group of people who had needs for some
form of capital or lump sum to execute a particular project which they could
not raise adequate savings on their own, usually come together to form a
savings group. The group may be named after the leader who is usually the
initiator of the venture. The traditional microfinance institutions provide
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access to credit for the rural and urban low-income
earners. These are mainly the informal self-help groups such as Isusu,women
association like one obtainable during popular August meetings,
Umu-ada
progressive women association. Other providers of microfinance
services include savings collectors and co-operatives.
(CBN brief, 2005)
The unwillingness and inability of the formal financial
institutions is to provide financial services to the urban and rural poor,
coupled with unsustainability of government sponsored development financial
schemes, contributed to the increase in number of private sector led micro
finance in Nigeria. Thus, before the emergence of microfinance institutions,
informal microfinance activities flourished all over the country. The Central
Bank of
Nigeria (CBN) as at end of December 2009 gave an approval
to 840 microfinance banks to begin operation in the country. (CBN briefs,
2008-2009)
Microfinance banking is about providing financial services
to the economically active poor and low income household, who are traditionally
not served by the conventional financial institutions.
These services include credit savings, micro-leasing,
micro-insurance and payment transfers to enable them engage in income generating
activities. (Asemota, 2002)
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However, the microfinance policy launched on 15th December 2005 defined the framework
for the delivery of these financial services on a sustainable basis to the
micro, small and medium enterprises (MSMES) through privately owned
microfinance banks.
The Non-governmental Organizations or Microfinance
institutions
(NGO-MFIS) are also expected to transform to microfinance
banks. (Dinye, 2006)
Existing Community banks and NGO-MFIS that want to convert
and transform respectively to a microfinance bank but do not have the required
minimum capital base can increase the share capital by capital injection,
merger and acquisition. These would not only enhance monetary stability but
also expand the financial infrastructural development of the country to meet
the national financial system and provide stimulus for growth and development
(Benson, 1985). 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. The establishment of microfinance banks has become imperative to
serve the following purposes:
Improve, diversified and create a dependable financial
service to the active poor, low-income earners in a timely and competitive
manner that would enable them to undertake and develop long-
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term,
sustainable entrepreneurial activities, mobilize savings for intermediation,
create employment opportunities and increase the productivity of active poor
and income earners in the country. Thus increasing their individual household
income and capacity standard of living, enhance organized and systematic but
focused participation of the poor in the social-economic development and
resource allocation process. It will also provide veritable avenues for the
administration of the micro credit programme of government and high net worth
individual on non-resource basis. This policy ensures that state government
shall delegate an amount of not less than 10% of their annual budgets for
on-lending activities of microfinance banks in favour of their residents and
render payment services such as salaries, pension for various tiers of
government (Luck,2011).
1.2: STATEMENT OF
PROBLEM
Nigeria
consists of different classes of individuals, who are either enterprising or
industrial low class that account for over half of the population who do not
have access to formal banking services. Savings have continued to grow at a
very low rate particularly in the rural areas of Nigeria. One of the problems
brought to bear is the inability of rural dwellers to channel their savings
into banks. Most rural people keep their resources under their pillows. This
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method of keeping savings is risky because it might be
stolen, lost or wasted in extravagant spending. Moreover, returns which would
have accrued to the depositors in form of interest are forfeited.
The contribution of government to alleviate poverty
through the establishment of microfinance banks appears a little progress.
Inspite of the establishment of microfinance banks, it was observed that most
people are not able to obtain loan. This is attributed to a number of
challenges such as the high level of interest rate, lack of collaterals
required by the commercial banks before loans can be granted which necessitated
the establishment of Microfinance to address these economic imbalances. If the
banking industry continue to meet the demands of Nigerians especially the rural
poor, this shows that there is a gap which need to be filled and this can be
done through the contribution of government by establishing more microfinance
banks in Nigeria to help in alleviation of poverty.
Another problem observed is the inability of prospective
borrowers of most microfinance banks to repay their loans as at when due. This
may be attributed to high rate of poverty in the country. The high rate of
poverty is noticeable in such area such as unemployment, high rate of inflation,
non-payment of salaries, mismanagement of loan granted to rural dwellers,
infrastructural
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deficiencies,
such as power, road network, etc. and all kinds of political, economic and
bureaucratic bottlenecks.. Also Nigerian economy consists of individuals who
feed from hand to mouth. The loans when granted are channeled to other areas
such as feeding, payment of bills, school fees, hospital bills and others
instead of using it for the intended business purpose.
1.3: OBJECTIVES OF
THE STUDY
The broad
objective of this study is to find out the role of microfinance banks as a
palliative in the alleviation of poverty in
Nigeria.
They are as follows:
1.
To
find out the rate at which rural dwellers deposit their money in microfinance
banks rather than putting it under pillows.
2.
To
find the contribution of government in alleviation of poverty through the
establishment of microfinance banks.
3.
To
find out the rate at which rural dwellers are able to repay their loans.
1.4: RESEARCH
HYPOTHESIS
The
following hypotheses have been developed around which this
research
would revolve:
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H0: The rate at which rural dwellers deposit money in
microfinance bank is low than they keep under their pillows.
H1: The rate at which rural dwellers deposit money in
microfinance banks is high than they keep under their pillows.
H0: The government has not assisted microfinance meet the
needs of rural dwellers and communities.
H1: The government has assisted microfinance meet the needs of
rural dwellers and communities
H0: Microfinance borrowers react
negatively towards loan repayment. H1: Microfinance borrowers react positively
towards loan repayment.
1.5: RESEARCH
QUESTIONS
1.
What
is the rate at which rural dwellers deposit their money in microfinance banks
rather than putting it under their pillow?
2.
What
is the contribution of government in alleviation of poverty through the
establishment of microfinance banks in Nigeria?
3.
Why
do most Microfinance borrowers react negatively towards loan repayment?
1.6 : SIGNIFICANCE
OF THE STUDY
This
study will benefit the following groups:
a.
Government; The
findings of this
study will be
useful to
government
in that it will help them to know the importance of
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MFI
thereby knowing ways of improving the quality of their services. The result of
the study will also bring out the areas that need improvement and make
suggestions for improving on them.
b.
Owners; It
will also be
useful to those
planning to open
Microfinance
banks to know the usefulness of microfinance banks as catalyst or stimulus for
poverty alleviation in rural settings as way of developing rural banking.
c.
Scholars;
Students also will find it very useful in some research work on project issues
by boosting their knowledge about microfinance banks in the alleviation of
poverty. Those who need referencing material materials on role of micro
financing in alleviating poverty will find this study useful.
1.7 : SCOPE OF THE
STUDY
The research on the role of
microfinance banks in poverty alleviation which requires a thorough analysis of
the Oha
Microfinance Bank, Ogui Road branch in Enugu State.
1.8: LIMITATIONS OF
THE STUDY
In the course of this research work,
the researcher encountered different problems such as:
1.
Inadequate
finance: As a student, financial difficulties limit the
researcher
from studying the activities of all banks and also limit
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enough
in transporting and facts findings.
2.
Time
constraint: There was no time to conduct an enormous research.
3.
Inability
to get access to some Microfinance banks to get more information about their
records and some other useful information about the work also limit the
research data collections.
4.
Environmental
constraint: The environment in which the research work was written restricted
the researcher from going out and so the researcher was faced with the problems
of how to reach out the field of research and coordinate activities as planned.
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