CHAPTER ONE

Introduction

1.1 Background of the Study

Economists have long recognized the fact that financial markets in general and baking in particular play a vital role in the efficient function and development of any economy. Some of the recent research that examine the relationship between bank, financial markets and the macro economy have their origin in the early work by Cameron (1967), goldsmith (1969), Mckinnon (1973), and show (1973).  These authors highlight the fact that financial market affect, and in turns are affected by economic growth. They argued that well developed financial markets are necessary for the overall economic development of less developed countries.

In addition, a theoretical literature the nature of the correlation between the baking sector and economic growth has developed. It suggests that, the financial system could impact real economic performance by affecting the composition of saving (Bencivenga and Smith 2001), proving information (Green Wood and Jovanvic 2000), and affecting the scope for credit rationing (Bencivenga Smith 2003), Boyd and Smith 2002, 2001). However, most of the theoretical literature on the relationship between intermediation and growth consider competitive baking system.

The truth of baking institution all over the world collection and credit creation, there are difference in the operational modes, legal requirement, organizational set up, extent of regulation and types of institution available in the economy.

Robust economy growth cannot be achieved without putting well focused programmers to reduce poverty through empowering the people by increasing their access to factor of production especially credit. 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 the more self-reliant, increase their employment opportunity, enhance their household income and create wealth for them.

Microfinance is about providing financial service to the poor who are traditionally not served by conventional financial institutional three features distinguish microfinance from other conventional and formal financials product these are:

i.       The absences of adjust based collateral

ii.     The smallness of loan advanced and saving collects

iii.  Simplicity of operation

In this work our attention will be on microfinance banking policy which represents an institutional attempt at modernizing the system of credit provision to people at grassroots. An appropriate study will be done to examine its peculiar problems and contributes towards Nigeria’s economic growth and development, thus, micro finance: constitutes and serve as a means for capital formation. According to Todaro capital formation is one of the three significant factors for economic growth.

Moreover the Work will substantially evaluate the parameter used to measure economic growth and development such as what happens to employment generation, poverty reduction and income in-equality.

1.2 Statement of the Problems

The problems to meet the credit needs of the small-scale businesses and rural men were the major setback and challenges of economic growth. This was perceived from the difficulties and instigation faced by commercial banks in meeting the credit need by common men, with other attempt made by different government and nongovernmental organization through different programmers’ in trying to take care of the surplus funds of the community channeled them into a more productive and profitable venture.

In order to enhance the flow of financial service to Nigeria rural poor and small-scale enterprises, government has in the past initiated a series of publicly financial micro/rural credit programmers and policies targets at the poor, notably among such programmers were rural banking programmers, sectored allocation, cooperative banking, people, and community banks etc. on the other hand since 1980’s NGO have emerged in Nigeria to champion the course of the micro and rural enterprises.

Attempts by government through supply driven creation of financing institution and instrument have failed, due to restrictive regulatory and supervisory procedures among other factors the poor brutalization of such scheme and programmed. Community banks were designed but their low capital base and isolated mode of elation have not enabled them to make meaningful contributions to micro financing.

The micro finance banks being established in line with policy framework shall be adequately capitalized appropriately regulated and supervised to the need of financing micro enterprises of the economy.

Virtually, what is preferred for Nigeria microfinance gap is to S have a well organized system that minimize the existed microfinance problem and contribute immensely to growth and development, so this work aims at examining the most recent developed micro finance banking system in terms of the problem and significant contribution, so as to see whether the most appropriate micro financial institutions in Nigeria is realize and it problem are minimized.

1.3 Research Objectives

It has been found that the operations of previous microfinance programmers in the economy is associated with some problems it was just of recent, a programme’ was designed to bridge the gap of the existed huge untapped potential for financial intermediation at the micro and rural levels of the Nigerian economy’s, thus the objective of the study are:

i.                   The study objects to assess the capital strength of the microfinance bank within the new policy framework.

ii.                 To examine the operational mode of the microfinance bank show its direction and unique features different from the previous existed repetition.

iii.              The study aims to measure the extent to which microfinance banks has contribute to reduction in economic problems such as unemployment, poverty reduction, inflation and income inequality etc.

iv.              To critically examine the role played by government and other stakeholder for successful microfinance banking of practice.

v.                 To critically examine the problems/challenges that the banks and customers faces in micro finances banks.

vi.              The study object to, examine whether or not the saving habit have been inculcated to Nigerian common men’s.

vii.            The study objects to, pin point and highlight recommendable, prospect of an ideal microfinance banking business in Nigeria.

viii.         The study aims at finding the microfinance bank services outreach

1.4 Research Questions

                   i.            Is there any adequate capital strength for the microfinance banks

                 ii.            How you unique is the micro finance banking system is from the previous existed banking repetition (community banks).

              iii.            Is there significant contribution of microfinance banks to poverty reduce, increase in economic activities and income and employment generation, saving, investment in the future, guard against emergencies and shocks, better investment in health, nutrition and education. etc

              iv.            Is there any practicable microfinance policy framework and significant role played by government and other stakeholders?

                 v.            What are the microfinance banking problems?

              vi.            To what extent is saving habit introduce.

            vii.            Could the study propose and recommends on microfinance banking practices.

1.5 Significance of the Study

This research work will be justifiable based on its implication and application. It is the significant of the work to measure the implication level so the finding, so that, the result will indicate the extent (high moderate and low) of microfinance bank contribution to economic growth as well as the extent (high, moderate and low) of the problems that incapacitated microfinance via resources mobilization and location into productive and profitable economic activities.

While on the application, it will have given the necessary required information frame work upon which policy and decision markers will focus for a more judicious decision making, more so to .microfinance client on what to followed and or avoid when enhancing their micro enterprises units while on part of researchers and other educational practioners it gives them a direction of testing and proven the finding and this is significantly based on the limitation beyond this ‘study.

1.6 Delimitation of the Study

The boundaries of the study include the period of investigation, the environment in which the research data were collected. The period is only confined to the microfinance banking practice of one year while the environment of research data that comprise of freedom microfinance bank unit, other bank customers and unhanning.

1.7 Limitations of the Study

The limiting factors that reduce the adequacy of the researcher include lime constraint, respondent attitude, availability of data and financial problems. This is basically discussed below.

Time Constraints and Availability of Data

Taking into cognizes, the short journey of microfinance banking properties will not gives a most required information as well as taking one unit bank as a case study is also not enough to give them more ‘coherent data required to make depict the clear picture of the research.

Respondent attitude

This is normally face as a result of linguistic problems associated with respondent some lack of adequate time to respond and some not willing to revealed their secrete etc.

Financial problems

This very research is also confronted with its financial problems. which inhibit its limited scope, for which it would have vary its scope to comprise more microfinance banks. So as to have more compressive out comes.

1.8 Operational Definition of Terms

For the purpose of clarity, the following term and definition shall use in the applicable chapter of this research.

1.     Microfinance Bank

A microfinance bank (MFB) Unless otherwise stated, shall be construed to means any company licensed to carry on the business of microfinance services, such as saving, loans domestic funds transfer and other financial service that are needed by the economically active poor micro, small and medium enterprises to conduct or expand their businesses as defined by the CBN guidelines.

2.      Micro finance client

A client of an MFB is who generally possessed the following characteristic shall quality as a micro finance client.

i.                   Has a monthly income of not more than twice of the monthly per capital income of Nigeria or minimum wage which over is higher.

ii.                 ii. Has a total productive asset (including those arising from loans, but excluding the cost of land) of not more than five hundred thousand Naira (500.000,00)

iii.              Is not a regular employee of any organizations? Aged between or and 60 year.

3.     Poor Person

A poor person shall be define as one ;‘ho has meager means of sustenance or livelihood, and whore total income during a year is less than the minimum taxable limit set out in the law relation to income

4.      Micro Enterprise

Micro enterprise is a business that requires microcredit loan to create the operation and management are often built around the sole owner or micro entrepreneur provides employment’ for a few people, tropically are immediate family mentor and does not often, require normal registration to start. The management and accounting requirements of the business are usually very simple and flexible, generality, micro entrepreneur work informally, without business influence or formal records of their activities or earnings. The scope of economic activities of micro enterprise topically include primary production and craft value-added processing and distribution trade.

5.      Micro loan

A micro loan is a facility granted to an individual borrower or a group’s borrower whose principal source of income is derived from the business activities involving the production or sale is goods and Services. The maximum principal amount shall not exceed (N500.000.00) five hundred thousand naira or as maybe received from time to time by the CI3N Generally a micro loan is granted or the proctors of micro enterprise such as peasant farmer artisans, fishermen rural women, senior citizen, salaries and !non salaries worker in the formal and informal sectors. The said loan so usually unsecured but typically granted on the basis of the charter and the combined cash flow of the business and household ordinary, the tenure of micro loan is use days (6 month). However, in the case of crops with a longer gestation paned maximum tenure of twelve month shall be prepared micro loan may require joint and several guaranteed of one or more persons. The repayment may be on a daily, weekly, bimonthly or monthly basis. In accountancy with the amortization schedule in the loan contract.