ABSTRACT
The study examined the impact of microfinance banking on grassroots saving mobilization in Nigeria. Survey method was adopted using primary data collected from microfinance banks in Enugu State. Techniques of analysis used chi-square to test the research hypothesis of this study. From the result of the hypothesis tested, the study made the following findings, that microfinance institutions plays significant impact on grassroot savings mobilization and that attitudes of commercial banks to microcredit scheme is unfavourable, thus, the study concludes that microfinance banking has a significant impact on savings mobilization in Nigeria, the study made the following recommendations that policies be made to help improve the performance of microfinance institutions in Nigeria
TABLE OF CONTENT
Title page
i
Declaration
ii
Certification
iii
Dedication iv
Acknowledgement
v
Table of
content
vi
List of tables
ix
Abstract
xi
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of Problem 4
1.3 Research Objective 4
1.4 Research Questions 5
1.5 Statement of Hypotheses 5
1.6 significance of the Study 5
1.7 Limitation of the Study 6
1.8 Scope of the Study 6
1.9 Definition of Terms 7
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1. Conceptual
Framework 9
2.1. 2 Credit Needs Of
The Poor 9
2.1.3 Concept Of
Micro-Credit And Micro-Finance 10
2.1.4. Microfinance
Banking In Nigeria 12
2.1.5. Deposit
Mobilization And Promotion Of Saving Culture 14
2.1.6 Objectives And
Goals Of Microfinance Banks 15
2.1.7 Microfinance And
Socio-Economic Activities 16
2.1.8 Microfinance Institutions And Key Factors That
Influence The Decision To Save: 18
2.1.9 Savings Service Of Microfinance Institution Benefit 19
2.2 Theoretical Literature 21
2.2.1 Keynesian Theory Of Consumption 21
2.2. 2 Friedman Permanent Income Theory 21
2.3 Empirical Literature 21
CHAPTER
THREE
RESEARCH
DESIGN AND METHODOLOGY
3.1 Research Design 25
3.2 Population Of The Study 25
3.3 Sample Size Determination 26
3.4 Nature And Sources Of Data 26
3.5 Reliability Of Instrument 26
3.6 Nature Of The Questionnaires 27
3.7 Model Specification 27
3.8 Questionnaire Distribution And Return 27
3.9 Method Of
Data Analysis 28
CHAPTER
FOUR
4.1 Analysis Of The Questionnaires 29
4.2 Analysis Of Research Questions 31
4.3 Test Of Hypothesis 32
4.4 Discussion of findings 39
CHAPTER
FIVE
SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary Of Findings. 40
5.2 Conclusion 40
5.3 Recommendations 41
References 42
LIST
OF TABLES
Table 3.1 Questionnaires Distribution 28
Table
4.5a is re-arranged according to the levels of staff of microfinance
institutions 32
Table
4.9b is re-arranged to reflect only the levels of staff of microfinance
institutions 35
Table
4.7c is re-arranged to reflect only the levels of staff of microfinance
institutions 37
Table 4.1 Classifications of Staff According To
Their Levels 49
Table 4.2 Period of Services In The Institution 49
Table 4.3 Importance of Micro-Credit 50
Table 4.4 Determinations of Micro-Credit Supply 50
Table 4.5: The Impact of Microfinance on Grassroot
Savings Mobilization In Nigeria 51
Table 4.6 Adequacy of Micro-Credit Fund 51
Table 4.7 Attitudes of Commercial Banks To
Microcredit Provision 52
Table 4.8: Availability of Microfinance Institutions 52
Table 4.9 Implementation of Micro-Credit Policies In
Nigeria 53
Table 4.10 Public Efforts In Microfinance In Nigeria 53
APPENDIX
Appendix A 46
Appendix B 47
Appendix C 49
Appendix D 50
Appendix E 51
Appendix F 52
Appendix G 53
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The need to extend banking facilities to the rural areas of
Nigeria started with the rural banking scheme in the 1970s, and up to the
1980s. However, by the end of the 1980s, it became clear that the conventional
banks were no longer willing to open more rural branches; this was simply
because such branches were mostly unviable.
Opening them therefore ran contrary to the profit objective
of the owners. The banks also have preference for big trading companies that
operate large volume and value accounts, in confronting this challenge, Nigeria
government, like most other countries of the world have adopted the concept of
micro financing as a means of mobilizing deposits in the rural areas. This is
in addition to offering a broad range of other financial services to low income
individuals, groups, and their microenterprises. Such deposits are also to be
used mainly in providing credit to rural dwellers. It is believed that by
extending credit to rural dwellers, serves as a major contribution to achieving
the Millennium Development Goal (MDG) of reducing poverty by half by the year,
2015 The rural areas in Nigeria are predominantly under banked. This is perhaps
due to the perceived low level of income that arise from the sparse economic
activities that take place in these areas. Thus, being mainly profit-oriented,
conventional banks find it unattractive establishing in the rural places. As a
consequence, rural dwellers also find it difficult patronising banks even for
the most basic reason of opening mere deposit accounts.
Equally, many low income earners merely save for the short
term as a means of smoothing out consumption during periods of low business
activity. The reports also show the many ways in which poor households rely on
financial instruments not only for investment and entrepreneurship purposes,
but also for consumption smoothing and easing the unpredictability of daily
life (Odell, 2010) they also guard against the temptation of spending excess
income during their individual boom periods in agriculture, and other cottage
industries. All these help in reducing swings in consumption. Just like the
savers, the poor also borrow mostly to finance consumption needs. Traditionally,
and even up till today, conventional banks have not provided financial services
to low-income customers. The lending conditions have been mostly stringent such
that customers with little or no security find it difficult and oftentimes
impossible to borrow. Even in the area of deposit mobilization, the situation
is nearly the same, as banks raise their minimum deposit per customers, which
low income earners or rural dwellers may not be able to provide at once.
The above results from the argument by conventional banks
that managing several small accounts is more expensive than the management of
one big account. The argument seems plausible because the fixed cost of
processing loans of any size is considerable just as cases of loan default
become more common with larger number of borrowing accounts. The same line of
reasoning applies to savings account as paper works per depositor are nearly
the same irrespective of the amount involved. Yet, rural development depends
more on small loans for cottage activities than a cartel of borrowers
concentrated in few capital-intensive industries and located in major cities
around the world. Also, availability of savings that can be converted to
investment is needed by poor nations for development. Hence, not only are most
rural dwellers poor, they are poor because no facility exist for them to save
the little they have or raise at any point in time; they cannot save because
banks whether conventional or micro are non-existent; and because they are not
nearby or available, They consume all their income, which also make them poor.
Owing to the poverty of rural dwellers, microfinance banks
will equally find their operations difficult, considering the role of savings
deposit in lending and as a veritable source of capital. This point is shared
by Reddy (2007), that savings mobilized from local depositors will ultimately
be the largest source of capital for microfinance. Indeed, for him, many
microfinance institutions have a mandatory savings rate, such that for larger
loans, some microfinance institutions often require borrowers to deposit up to
five percent of the loan back into a savings account. The precursor to grassroots
development, community banks- were introduced into the financial system in
1991. Designed to complement operations of the existing conventional banks,
problems started arising as more of those banks became licensed.
Equally, majority of them ventured into activities that were
not related to their areas of core
competence. Many of the banks thereafter became unviable and
therefore unsafe for rural dwellers.
The resulting problem led to a rethinking of the idea by the
government.
Thus, following the launching of the Microfinance Policy
Regulatory and Supervisory Framework for Nigeria in 2005, more than eight
hundred and sixty six microfinance banks have been licensed to operate by the
Central Bank of Nigeria (CBN) up to date (Nigeria Deposit Insurance
Corporation, (ND1C) 201 I). However, this number compares unfavourably with
Indonesia whose microfinance sector is one of the largest in the world. As at
June 2006, Indonesia is said to have an estimated one thousand, nine hundred
and fifty-five microfinance institutions, some of which are more than one
hundred years old (Ovia,2007). If microfinance is successful by a measure of
any of its aims in Nigeria, including raising incomes, promoting
entrepreneurship, advancing loans, engaging in domestic funds transfer, and
encouraging savings, then over time, impact assessment especially in the area
of effects on savings mobilization can be gauged.
Conducting research over the activities of a few microfinance
institutions in Nigeria may not necessarily confirm that microfinance is
successful on the basis of deposit mobilization. This is even more important
because microfinance institutions around the world serve different types of
customers. They also operate in diverse economic environments that are both
rural and urban. Given this heterogeneity, a specific study based on only one
performance index, such as deposit mobilization, that cut across all
microfinance institutions may be of greater relevance.
1.2 Statement of the
Problem
There exists a huge unutilized funds for financial
intermediation at the micro and rural levels of the Nigeria economy. Attempts
by governments in the past to fill this gap through the creation of financing
institutions have failed. This is due to the poor capitalization and
restrictive regulatory and supervisory procedures. The community banks were
primarily designed to fill the gap, but some conventional banks which regarded
them as competitors frustrated their efforts by discriminating against their
payment instruments such as cheques and demand drafts. The inability of
commercial banks to provide financial services to low income people or
micro-enterprises due to lack of acceptable collateral by and their proximity
to beneficiaries have not really helped in their roles of mobilization of fund
for micro-credit scheme in the country. Microfinance banking scheme has not
been able to prove its relevance in charting a new path for the economic
development of the poor or rural people. The global economic meltdown is one of
such challenges which have caused some of the microfinance institutions that
could not cope to close shop. It becomes necessary to examine if microfinance
banking has any impact on grassroot savings mobilization in Nigeria, which this
study intends to address.1.3 Research Objectives
The general objective of this study
is to examine the impact of microfinance banking on grassroot savings
mobilization in Nigeria.
However, the specific objectives are
to:
i determine the specific roles
performed by microfinance institutions in Nigeria.
ii. investigate the level of
implementation of micro-credit scheme in Nigeria.
iii. evaluate the problems and
challenges facing microfinance in Nigeria.
iv. ascertain the need for
establishment of micro-credit institutions in Nigeria.
v. examine policies that
would facilitate the linkage of informal and formal financial services
providers to micro-credit users.
1.4 Research
Questions
For the purpose of this research work, the researcher deems it necessary
to ask the following research questions:
i. To what extent do
microfinance institutions play their roles in mobilization of micro-credit
fund?
ii. Have micro-finance banks
policies any impact on grassroot savings mobilization in Nigeria?
iii.
Are micro-finance banks in Nigeria faced with challenges
Nigeria?
iv. Why are the establishments
of micro-finance banks necessary in Nigeria?
v.
What policies would facilitate the linkage of informal and
formal financial services providers to micro-credit users?
1.5 In line with the research objectives and research questions a number of
hypotheses were formulated in their null form to enable the researcher to test
the validity or otherwise of the information obtained from the research work.
i. Ho.1: Microfinance
institutions do not play significant role in mobilization of fund for micro credit
scheme
ii. Ho.2: The implementation
of microfinance policies in has no significant effect on grassroot savings
mobilization.
iii.
Ho.3: The attitude of commercial banks as regards to
micro-credit scheme in Nigeria has no significant effect on Grassroot saving
mobilization in Nigeria
1.6 Significance of the Study
The study
will be of benefit to:
i. The study will be
beneficial to students, researchers and academics as it will be instrumental to
proper formulation of research questions and hypotheses to guide their study.
ii. This
study will be of immense value to the economic policy makers to enable them
formulate policies that will affect the lives of populace.
iii. The work will be of great assistance to financial
institutions in the sense that it will create awareness on their role
concerning grassroot savings mobilization of fund for economic growth.
1.7 Limitations of the Study
i. Time
meant for this study shared among other things which include; attending
lectures,, attending churches, doing course assignments, playing football, etc.
This resulted to the inability of the researcher to produce or work this extent
of work.
ii. More data meant to be generated through browsing were
hampered due to poor network or network
failure.
This resulted to not going beyond this extent of work.
The scope of this study covers the impact of microfinance banks
on grassroot savings mobilization in
Nigeria, with MFBs in Enugu state as the study area
1.9 Definition of Terms
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