TABLE OF CONTENTS
CHAPTER ONE
1.0 Introduction
1.1 Historical Background of Microfinance Banks In Nigeria
1.2 Objectives
1.3
Research Questions
1.4
Research Hypothesis
1.5 Significant Of the Study
1.6 Scope and Limitation
1.7 Definition of Terms
CHAPTER TWO
LITERATURE REVIEW
2.1 Justification For The Existence Of
Microfinance Banks In Nigeria
2.2 The Microfinance Policy
2.3 Policy Objectives
2.4 Regulatory Frame Work
2.5 Microfinance Market
2.6 Challenges Of Microfinance Banks In
Nigeria
2.7 Success Imperatives For Mfbs In Nigeria
2.8 Commercial
Banks In Microfinance
2.9 Non-Governmental
Organization (Ngos) In Micro Finance
2.10 Challenges
Of Ngos In Microfinance Banks
2.11 Benefits Of Ngos In Microfinance Banks
2.12 Hard
Times For Microfinance Banks In Nigeria
2.13 Conclusion
CHAPTER
3
METHODOLOGY
3.1 Introduction
3.2 Research Philosophy
3.3 Research Strategy
3.4 Research
Approach
3.5 Quantitative and Qualitative Data
3.6 Primary Data
3.9 Ethical
Issues
CHAPTER 4
DATA
PRESENTATION AND ANALYSIS
4.0
Introduction
4.1 Analysis
on Questionnaire (Primary Data)
4.3
Customer Base, Savings Deposit, Profits,
Loss, Total Assets and Micro Loans
CHAPTER 5
FINDINGS, DISCUSSION AND CONCLUSION
5.1 FINDINGS
5.2 DISCUSSIONS
5.3 RECOMMENDATIONS
5.4 CONCLUSION
APPENDIX
CHAPTER ONE
1.0 INTRODUCTION
It is a fact that robust economic growth cannot be achieved without putting
in place well focused programmes to reduce poverty through empowering the
people by increasing their access to factors of production, especially credit.
The latent capacity of the 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 (Iweala,
2005).
The above is a plus for the
impact of microfinance banks in the economic activity of Nigeria. The
third world nations, amongst which is Nigeria, have the highest number of poor
people in the world and the relevance of microfinance banks in combating the poverty
level cannot be over-emphasized. The poverty profile of Nigeria is not only
alarming but equally appalling. Having earned several billion dollars from oil
revenue in many years, the country should have no business with poverty. The
World Bank Poverty Assessment Report in 1999 shows that 65% of Nigerians live
below the absolute poverty line. With one of the lowest GDP growth rates and
per capital income, the poor in Nigeria seem to face a grim and uncertain
future (Utomi, 2000).
It is important to note that the Nigerian Economy has been
besieged by a number of challenges since the 1980s, leaving a high number of
its citizens impoverished. For instance, the absence of adequate credit
facilities to the poor, despite the efforts of microfinance banks; perpetuates
the cycle of poverty.
What therefore is Microfinancing?
Micro financing is the provision of financial services to
poor and low income householdswithout access to formal financial institutions
(Conroy, 2003). Microfinance is about providing
financial services to the poor who are traditionally notserved by the
conventional financial institutions. Three features distinguish microfinance
from other formal financial products. These are: (i) the smallness of loans advanced
and/or savings collected,(ii) the absence of asset-based collateral, and (iii)
simplicity of operations(Ogbunaka, 2003).
Indeed, the proliferation of microfinance banks in Nigeria
has expanded access to credit facilities to the poor and influenced the average
citizen’s activity in the economy; still there are still a larger pool of poor
traders and small business owners who are still uncared for. However, several
factors are in favor of the microfinance institutions in Nigeria and even the
possible overthrow of conventional banks in making credit available on retail
basis, but this is subject to the capacity of these microfinance banks to
combat the dialectics of the Nigerian economy.
1.1 HISTORICAL BACKGROUND OF MICROFINANCE BANKS
IN NIGERIA
It is
important to mention that across Africa, daily deposit
collection is a financial institution on West African markets and we can trace
this back to about about fifty years ago. It is called ajo/ esusuamong
the Yoruba of Nigeria, anagosusuin Ghana, nagoin Ivory Coast (nagooranago=
Nigerian), yesyesin Southern Togo, jojumaamong the Kotokoli in
central Togo. The deposit collector may serve anything between 200 and 600
clients a day. From each he collects a fixed amount which is then registered on
a printed card. By the end of the month he returns the total, keeping the
amount of one daily deposit as a collector's fee (Bascom, 1952).
Since independence, successive governments in Nigeria have
made several attempts to integrate Nigeria’s rural economy into the mainstream
of the financial system and, in so doing, inculcate banking culture at the
grassroots (Imam, 1999). In the earlier
years several thrift activities and lending groups existed in Nigeria. The most
popular indigenous method of savings is called Esusu-Yoruba, Hausa- Adashi,
Ibo- Otutu, Edo- Osusu and it helps to meet short-term and long-term expenses.
It is popular with the wage-earning and non-wage earning small income groups.
This indigenous system of saving prevails everywhere in Nigeria and is of
particular interest to the market women, farmers, petty traders, craftsmen,
unions, social clubs, civil servants and teachers (D.O. Ogunyemi, 1967).
The esusu, one of the economic
institutions of the Yoruba of Nigeria, has elements which resemble a credit
union, an insurance scheme and a savings club. The esusu is a foundation to
which a group of individual makes fixed contributions of money at fixed
intervals, the total amount contributed by the entire group is assigned to each
of the members in rotation -in form of Micro finance (The Journal of the Royal
Anthropological Institute of Great Britain and Ireland, 1952). The 1990s saw
significant growth in the number of clients per esusu/ susu collector, and
growth in the size of individual deposits (Aryeetey and Udry, 1952).
The microfinance movement began in
earnest in the early 1980s in places like Bangladesh and Bolivia and has, over
the last 20 years, captured the interest of multilateral donor agencies and
private sector bankers. (EnuguForum, 2006). The informal associations that
operate traditional microfinance in various forms are found in all the rural
communities in Nigeria (Otuet al, 2003), and also in the urban areas.Our
definition of informal finance in Africa pulls in such schemes as the operations
of moneylenders; part-time moneylenders such as estate owners, traders, grain
millers, smallholder farmers, employers, relations and friends; mobile bankers
generally known as susuoresusucollectors in West Africa; credit
unions; co-operative societies; etc. These been observed in both urban and
rural areas.
Interestingly, however, most surveys of
enterprise finance in Africa often indicate that start-ups of micro businesses
in most African countries are primarily funded by such sources as landlords, neighbours,
friends and relations, though they seldom lend large amounts on an individual
basis (RPED, 1993). Moneylenders have been known to be significant commercial
lenders, often lending from surplus incomes earned from farming or trading.
Other informal units usually take the form of groups or associations that take
deposits from members and provide varying forms of financial services to those
members and sometimes to others.
What is current however
is the effort of governments in Nigeria to modernize micro-financing in rural
and urban communities to improve the productive capacity of the rural and urban
poor, enhance their economic standing which alleviates the level of the
national economy?
After failed trials in
Directorate of Food, Road and Rural Infrastructure (DFRRI), Rural Banking by
commercial Banks and even People’s Bank programme, the government of the
Federal Republic of Nigeria took the bull by the horns by enacting legislation
for the establishment of community banks (now microfinance institution). To
complement government efforts, over the years, lots of NGOs have formally been
licensed to operate as micro finance institutions. Some existing NGO
microfinance institutions were transformed and Universal Banks were encouraged
to engage in microfinance services of recent, microfinance banks regulation and
supervisory guidelines were inaugurated (Iganiga, 2005).
Public Opinions on Microfinance Banks
The Perception
of stakeholders on the impact of Microfinance banks in Nigeria varies and their
stands also differ. Below are excerpts of their positions on Microfinanace
issues in the country.
According to
Mr. Rodgers Nwoke who is the Chairman of National Association of Microfinance
Banks FCT Chapter and also the CEO of Hasal Microfinance Bank, the sector has
witnessed several improvements since its inception and believes more grounds
will be covered in combating the poverty level in the country. Nwoke, however,
complained of non-availability of trained staffers for microfinance banks as it
remains a new field in the country and failure of people to refund borrowed
money (Microfinance Africa: Hasal Boss Predicts Better days for Microfinance
banks; Sept 6, 2010).
Sanusi Lamido
Sanusi, Governor, Central Bank of Nigeria has assured that the end of the
universal banking would usher in a boom to the businesses of other financial
institutions (Microfinance Africa: End of Universal Banking will boost other
financial institutions; August 25, 2010).
Commenting on
the development, Marthias Omeh, president, National Association of Microfinance
Bank (NAMB), end of Universal banking means that banks will hands off other
subsidiaries because there has been agitation for commercial banks that run
microfinance to hands off and allow microfinance banks to do the micro banking.
The Chairman of Lagos State chapter of
National Association of Microfinance Banks, Mr. David Adenekan, confirmed that
strategic consultations among key operators in the microfinance industry are
going on. “I can confirm to you that there are plans for mergers and
acquisitions among microfinance bank operators in the country. But so far, the
discussions are voluntary, we are not compelled by any authority to do so yet,”
he told The Nation in a telephone interview on 20th
September, 2010.
Also, a management official of Seed
Microfinance Bank, who prefers anonymity, confirmed the new moves by operators
to consummate mergers and acquisitions plans. “We are working on this plan to
enable us play bigger in the market,” he said.
Adenekan explained that with N20
million minimum capitals, many of the banks are finding it difficult to meet
their financial obligations to customers. He said a merger of three or four
banks in this category will speed up the banks’operational and liquidity
positions for greater efficiency. The liquidity problem in the industry, which
has resulted to the inability of the banks to pay customers, was also worsened
by rising loan default.
Aside insider loan abuse, managers of
microfinance banks have also been accused by the Central Bank of Nigeria (CBN)
of perpetrating false statements used by customers for travel visa to foreign
countries. There were also accusations of cheque diversion leveled against
these managers.
Director of Other Financial
Institutions Supervision Department (OFISD) at the CBN, O.A. Fabanwo, said: “We
have seen cases where banks give forged statement of accounts to their
customers and other visa seeking persons. We will henceforth sack any CEO or
staff found to be involved in this fraudulent practice,” he said.
He said managers and staff of
microfinance banks who specialize on such acts will henceforth lose their jobs.
The practice which has reached a crisis point was drawn to the attention of the
apex bank especially, by the British High Commission.
Fabanwo said the apex bank had
investigated many cases brought before it especially from the British High
Commission and that henceforth, where such cases are established, the chief
executive officer of the bank and the staff involved will be sanctioned. “We will
begin to sanction MDs on this especially if they fail to take necessary
measures needed to safeguard the integrity of the industry,” he said.
He noted that series of complaints have
equally been lodged concerning using the MFBs as clearing house for fraudulent
cheques emanating from parastatals, companies and agencies. He advised
the banks to be cautious in handling third-party cheques as to ensure that
credits are given to the right beneficiaries.
He advised management of the banks to
ensure that all official documents are retrieved from all staff leaving the
company and that henceforth, all correspondence to the embassies be
countersigned by the MD. He said the same measure applies to Primary Mortgage
Institutions (PMIs). Already, as part of security building process, the CBN has
requested and obtained the specimen signatures of all authorized signatories in
both MFBs and PMIs. Another issue that has been brought to the attention of
OFISD is the increasing number of fraudulent third party cheques being cleared
in MFBs.
In recent times, MFBs have been riddled
with problems ranging from insider abuse, embezzlement and other fraudulent
transactions that affected public confidence in their operations. Following
series of reforms by the CBN aimed at strengthening the operations of the
banks, some ray of hope have returned. MFBs recently received a boost after a
N60 billion secured funds were released to the industry. The funds secured by
Africa Capital and Business Support Limited, (ACBS) in partnership with Suisse
Bank of London will allow MFBs in the country to access long term debt funds of
up to 10 years.
The CBN
Governor said Microfinance banks in the country has performed at less than
optimal and that CBN was carrying out a systematic review of the current microfinance
policy with a view to making it add more value to the economy. He also said the
chief executive officers of microfinance banks in the country would be made to
undergo examination in order to determine their level of professional
competence, adding that those found wanting would be relieved of their
positions.
1.2 OBJECTIVES
The research work aims to;
Ø Appraise
the relevance of microfinance banks to the Nigerian Economy
Ø Open
up on what microfinance banks has done to contribute to rural transformation
Ø The
Angle from which the microfinance institution has been able to enhance service
delivery
Ø Look
at how microfinance bank has been able to reduce unemployment; thereby enhance
reduction in social ills
Ø Compare
generally microfinance bank with a commercial based bank and another without(an
autonomous MFB)
Ø
1.3 RESEARCH QUESTIONS
At this point it is necessary to draw from our research topic questions
on which the research work is based. These questions are highlighted below
1
Of what relevance is micro credit to the
Nigeria economy
2
Is micro financing really needed in this
country
3
Since introduction into the Nigeria
economy, what are the positive indicators
4
Do we have appropriate expertise to handle
the scheme of micro financing
5
How vibrant is our financial status and
practice that will aid the growth of Microfinance bank
6
To what extent has Microfinance Bank been
able to tackle poverty level in the country
7
1.4
RESEARCH HYPOTHESIS
The hypothesis captures two questions or statements (null hypothesis) on
which research would be carried out
The statements are:
Relevance of microfinance banks to the Nigerian Economy cannot be over
emphasized
Ø A
Microfinance bank with a Commercial Bank link thrives better than an autonomous
Microfinance bank
Ø Our
level of growth and development can build a strong MFB sector
Ø MFBs
have been able to reduce the poverty level in the country
Ø Expertise
are available in Nigeria to handle the scheming of Microfinance policy
Ø There
are so many positive indicators since the emergence of microfinance banks in
Nigeria
1.5 SIGNIFICANT OF THE STUDY
In recent time micro finance bank have experienced so many short falls:
with the collapse of several micro finance bank and revocation of licenses of
over 234 microfinance bank in 2010. Despite this microfinance bank still
continue to survive and have contributed in no little way in providing credit
facilities to the poor. This research work is especially involve with the
impact of Microfinance bank in the Nigerian economy especially in the area of
combating poverty level not and provision of employment not withstanding
several challenges faced by the microfinance bank.
1.6 SCOPE AND LIMITATION
The dissertation case study is major MFBs that are located within the
Lagos Metropolis. It is important to note that at this stage, the MFBs are of
two types; Conventional or independent MFBs and the Commercial bank linked
MFBs.Because of time constraint and due to the fact that the project work is
solely academic the researcher is limited to carry out the work within this
limits.
1.7 DEFINITION OF TERMS
1
MFI: microfinance institution
2
MFBs: microfinance banks
3
Conventional banks: traditional banks
4
Autonomous bank: independent banks
5
CBN: central bank of Nigeria
6
GDP: GROSS DOMESTIC PRODUCT
7
PER CAPITAL INCOME: Income per head
8
Unserved Market; population not yet catered for
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