ABSTRACT
Study shows the roles of the
microfinance banks in the alleviation of poverty in Nigeria. The researcher
revealed that the rate at which low income earner deposit their money at home
rather than in microfinance banks is high. Data were collected January to February
2017. The main source of data collection was questionnaires and interviewed.
The chi-square (x²) method was used for testing of hypotheses. Responses to the
questionnaires were analyzed using percentage method of analysis. Based on the
findings of this study, an attempt on the role of micro financing as stimulus
to poverty alleviation in Nigeria may lack adequate knowledge of various
financial transactions available and how the rural dwellers can access them. In
conclusion, it hoped that the recommendation will help the microfinance banks
to strengthen its weakness for better and effective services in order to
achieve its sets of goals and socio-economic advancement for the alleviation of
poverty in Nigeria and also Based on the results gotten, The study ended by
giving recommendations that were considered necessary for microfinance bank in
the alleviation of poverty in Nigeria.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1
Background
of the study-------- -----------------------------------9
1.2
BRIEF HISTORY OF
MICROFINANCE BANKS IN NIGERIA… 11
1.3 Statement of
problems------------------- -----------------------------13
1.4 Objectives of the
study-------------------------------------------------14
1.5 Research
Hypothesis---------------------------------------------------15
1.6 Research
questions---------------------------------------------------- 15
1.7 Significance of the study-----------------------------------------------15
1.8 Scope of the study----------------------------------------------- 16
CHAPTER TWO: LITERATURE REVIEW
2.1
Microfinance bank in Nigeria
…………………….........................……..19
2.2. the challenges of microfinance bank in
Nigeria…………….........20
2.3
names of some microfinance bank in Nigeria…………...................23
2.4.
Distinctive feature of business of microfinance………………..….29
2.4.1credit
risk study………………………........................................................30
2.4.2use
of security……………………………………..........................................30
2.4.3credit
authorization and monitoring……………………………..30
2.4.4
Controlling debit………………………………………………..30
2.4.5gradually
increasing lending……………………………………..30
2.4.6group
lending…………………………………………………….30
2.5
micro finance institution…………………………………………..30
2.5.1diversion
of microfinace fund……………………………………31
2.5.2
indequate finance……………………………………………….31
2.5.3 unfavorable frequent change in government
policies………31
2.5.4
high risk and mounting loan losses………………………………….31
2.5.5
low capacity and low technical skill on microfinance…………31
2.6
procedures for obtaining fund from microfinance bank………. 31
2.7
activities of informal microfinance institution in financing small business………………………………………………………………………....………32
2.8
Different between microfinance bank and institution……………33
2.9
roles microfinace bank in socio economic development of rural community……………………………………………………………….....…………..33
2.10 the
role of microfinace bank in nigeria economy………………37
2.10.1 credit delivery……………………………………………………………37
2.10.2
Boosting small scale enterprises…………………………………37
2.10.3
employment generation…………………………………………………22
2.10.4
improvement in skill acquisition ……………………………………22
2.10.5
facilitate poverty alleviation…………………………………………..22
CHAPTER THREE: RESEARCH
METHODOLOGY
3.1 Research
Design---------------------------------------------------------40
3.2 Sources of data
collection---------------------------------------------40
3.3 Methods of data
collection---------------------------------------------41
3.3.1 Primary
data-----------------------------------------------------------41
3.4 Determination of population
size-----------------------------------41
3.5 Determination of sample size----------------------------------------41
3.6 Sample
procedures------------------------------------------------------42
3.7 Method of data
analysis-----------------------------------------------43
3.8 Decision rule-------------------------------------------------------------43
CHAPTER FOUR: DATA PRESENTATION
AND ANALYSIS
4.1 Data
presentation-------------------------------------------------------44
4.2 Summary of
responses-------------------------------------------------44
4.3 Test of
hypothesis-------------------------------------------------------45
CHAPTER FIVE: SUMMARY OF
FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary of
Findings---------------------------------------------------55
5.2 Conclusion----------------------------------------------------------------56
5.3
Recommendations------------------------------------------------------56
REFERENCE
--------------------------------------------------------58
APPENDIX A------------------------------------------------------------------60
CHAPTER ONE
INTRODUCTION
1.1: BACKGROUND OF THE STUDY
Microfinance
refers to an array of financial services, including loans, savings and insurance,
available to poor entrepreneurs and small business owners who have no
collateral and wouldn't otherwise qualify for a standard bank loan. Most often,
microloans are given to those living in still-developing countries who are
working in a variety of different trades, including carpentry, fishing and
transportation.
Microloans
typically are not more than several hundred naira. Examples of uses include
money for tools to start work in construction, or makeup and other supplies
needed to become a cosmetologist. Because they are the ones that commonly use
their profits to provide for their families with things like food, clothing,
shelter and education, women currently comprise roughly two-thirds of all
microfinance clients. The goal of micro financing is to provide individuals
with money to invest in themselves or their business to help get them out of
poverty. When providing loans, micro financing institutions do not require
collateral, but do insist that the loan is repaid within six months to a year.
A
microfinance bank is one devoted to extending small loans, referred to as
microloans, to individuals, businesses, and organizations in low-income
regions, including under-developed countries where small amounts of money can
go a long way. Some financial institutions are devoted entirely to
microfinance, while others are part of larger companies, such as global
investment banks. Ultimately, this type of bank provides credit to those who
would otherwise be unable to access this form of capital. These loans foster
the development of small businesses and provide tools to entrepreneurs to
follow their dreams, all in an attempt to alleviate global poverty in vulnerable regions.
Microfinance is a source of financial services for entrepreneurs and small businesses lacking
access to banking and related
services. The two main mechanisms for the delivery of financial services to
such clients are relationship-based banking for individual entrepreneurs and
small businesses; and group-based models, where several entrepreneurs come
together to apply for loans and other services as a group. In some regions, for
example Southern Africa, microfinance is used to describe the supply of
financial services to low-income employees, which is closer to the retail
finance model prevalent in mainstream banking.
Microfinance is a type of banking service that
is provided to unemployed or low-income individuals, or groups who otherwise
have no other access to financial services. Ultimately, the goal of microfinance
is to give low-income people an opportunity to become self-sufficient by
providing a way to save money, borrow money and get insurance.
The term microfinance refers to a range of
financial products including microloans, microsavings and microinsurance
products that microfinance institutions (MFI's) offer to their clients. While
most entrepreneurs and small business owners have a wealth of knowledge and
ideas for their businesses, very few of them have the right amount of capital
to support these ideas. That is exactly why receiving a microloan is an ideal
option for startups or businesses that need less money than a conventional bank
would lend.
A microloan (also called micro-credit), as its
name suggests, is a loan of a small amount primarily to help SME's (small to
medium sized enterprises), entrepreneurs, and private individuals to finance
their business demands or private investments. A microloan, in banking terms,
usually refers to loans that usually range between ₦15,000 to ₦2,000,000 and is
offered by banks as well as microfinance institutions around Nigeria.
The
word "micro" literally means small and finance also mean investment
orsupport, therefore microfinance can be
defined literally as small investment orsupport. Microfinance can be defined as the practice of offering
small, collateral freeloans to member of
co-operatives who otherwise would not have access tothecapital
necessary to begin small business or other income generating activities.
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)
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.
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 BRIEF HISTORY OF MICROFINANCE BANKS IN NIGERIA
Microfinance banking came into
existence in 2005 with the introduction of the microfinance policy by the past
CBN governor Professor Chukwuma Soludo. This policy was induced by the
internationally commended influence of microfinance in assisting the working
population to leave the poverty level thereby resulting in substantial
reduction in poverty. Consequently, microfinance banking was established with
the anticipation that with time, it would assist in dropping poverty level in
the country. Therefore, as indicated in section 4:2:1 of the microfinance
policy, the policy objective includes catering for the majority of the poor but
working population by the year 2020 thus establishing lots of jobs and
decreasing poverty. To attain this, the CBN established and licensed
Microfinance banks, which substituted community banks. It is essential to state
that there are more than nine hundred (900) microfinance banks in Nigeria today
which are regulated by the Central Bank of Nigeria (CBN 2005).
As already noted microfinance
banks were founded because of the perceived deficiencies in the existing
financing schemes for the poor and small businesses. They were licenced to
begin operations in 2007 and existing community banks and NGO microfinance
institutions that met the conditions spelt out by CBN for licencing were
allowed to transmute into microfinance banks.
To qualify for a microfinance
license an existing community bank was required to increase its paid-up capital
from N5m to N20m. Unlike the community banking policy framework which
compulsorily confined all community banks to unit banking, the microfinance
banking guideline permitted the branching of microfinance banks within a state.
For the microfinance banks intending to open branches within a state their paid-up
capital was put at N1 billion. Another point of divergence between the
community banks and their microfinance successors is in those which the
regulatory guideline allows to own them. In addition to individuals, group of
individuals, community development associations, private corporate entities
which could own community banks, foreign investors and commercial banks,
foreign investors could also own microfinance banks.
These changes in the policy
framework establishing microfinance were due to the perceived failure of the
existing microfinance framework.( ADEYEMI K.S 2008) captured this thus,
“despite decades of public provision and direction of provision of microcredit,
policy orientation, and the entry of new players, the supply of microcredit is
still inadequate”. He identified some of the challenges which microfinance
institutions face that impinge on their ability to perform to include;
undercapitalization, inefficient management and regulatory and supervisory
loopholes. To these,(MOHAMMED AD 2009) added usurious interest rates and poor
outreach. Further buttressing the challenges facing microfinance banks,(
NWANYANWU O.J 2011) identified diversion of funds, inadequate finance, and
frequent changes in government policies, heavy transaction costs, huge loan
losses, low capacity and low technical skill in the industry as impediments to
the growth of this subsector. These challenges many of which contributed to the
failure of previous microfinance schemes are still bedeviling the microfinance
banking scheme in Nigeria. The next section discusses some of them.
1.3 : STATEMENT OF PROBLEM
The country of study which is
Nigeria consists of different classes of individuals, who are either small
scale business, 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 money at
home.Themethod of keeping money at home 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
deficiencies, such as power,
road network, etc. and all kinds of political, economic and bureaucratic
bottlenecks.
1.4: OBJECTIVES OF THE STUDY
The general objective of this
study was to know the role of
microfinance bank in poverty alleviation in Nigeria.
The specific objectives of this
research work were as follows:
1. To determine the effect of
financial services of MFBs on the growth of SMEs.
2 To examine the impact of non-financial
services of MFBs on performance of SMEs.
3 To find the contribution of government in
alleviation of poverty through the
establishment of microfinance banks
4 To find
out the rate at which rural dwellers are able to repay their loans.
5.To find out the rate at which
rural dwellers deposit their money in microfinance banks rather than putting it.
1.5: RESEARCH HYPOTHESIS
The following hypotheses have
been developed around which this research would revolve:
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.
1.6: RESEARCH QUESTIONS
1 Why do
most people that collect loan in microfinance bank don’t like to pay back or
react negatively?
2 What is the contribution of
government in alleviation of poverty through the establishment of microfinance
banks in Nigeria?
3 What is the rate at which
rural dwellers deposit their money in microfinance banks rather than putting it
at home?
1.7 : SIGNIFICANCE OF THE STUDY
The significance of this study
cannot be overemphasized, considering the fact that rapid development of the
SMEs sector will contribute
immensely to the development of any nation. A major barrier to this rapid
development is the dearth of both debt and equity financing. Accessing finance
has been identified as a key element for SMEs to succeed in their drive to
build productive capacity, to compete, to create jobs and to contribute to
poverty alleviation in developing countries. Thus, this study is significant to
the extent that it determines the contributions that MFBs have had on the SMEs.
Furthermore, this study is of
immense benefit to government as it would aid in the fine-tuning ofpolicies
that are intended to boost the SME sector through Micro Banking. The study also
adds to the existingbody of knowledge available to students and other
researchers.
1.8 : SCOPE OF THE STUDY
The research on the role of
microfinance banks in poverty alleviation which requires a thorough analysis of
the Babcock Microfinance
Bank.
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