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Product Category: Projects

Product Code: 00000736

No of Pages: 61

No of Chapters: 5

File Format: Microsoft Word

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The aim of this project work is directed toward the identification and analysis of the functional impacts of the microfinance banks on the grass-root economic development in Nigeria. This idea by the government was mooted to cater for the financial needs of people at the lower rung of the ladder in the society as aptly put forward by the Governor of Central Bank of Nigerian (CBN), Professor Charles Soludo.


Relative Literature and previous works on banking industry in Nigeria were reviewed. Also brought to the purview of this research work was the CBN policy pronouncement in July 2004, of 1,150 percent increase in paid up capital of banks from N2billion to N25 billion with the main objective to reform, consolidate and strengthen the banking system so as to stem the systemic distress that continued to plaque the sector, and also to reposition the Nigeria banking system to compete favourably with foreign banks.


In the light of the probing questions raised, the research instrument used to get data on the peculiar impacts of microfinance banks were the personal interview, questionnaire administration as well as observation.


The data and information collected were analyzed and subjected to chi-square tests.

The result of the findings showed that Microfinance should be seen as the needed solution for the eradication of poverty. From this study, however, it was as well discovered that Microfinance of poverty could actually be used to speed up 'the economic development at the grass-root level.


The research probed deeply to expose the likely bureaucratic bottle-neck that could hinder the operation of microfinance and various factors were outlined in their degree of severity.


In quest to keep the programme functional in the midst of all odds, measures that could be adopted to enhance the better performance and growth of microfinance banks as well as improving the standard ethical behaviour of their employees were suggested.



CONTENT                                                                   PAGE

Title Page





Table of Content



1.1            Background of the study

1.2            Statement of the Problems

1.3            The Objectives of the Study

1.4            The Significance of the study

1.5            The Scope and Limitation of the Study

1.6            Research Questions

1.7            Research Hypotheses



2.1     The Evolution of Commercial Banking in Nigeria

2.2     CBN'S Financial Consolidation Schemes

2.3     Transitional Arrangement for conversion To Microfinance Bank

2.4    Overview of Microfinance Activities in Nigeria





3.1     Descriptive research method

3.2     Area of Study

3.3     Research instruments

3.4     Sample and Sampling Technique

3.5     Research instruments

3.6     Method of Data Collection

3.7     Method of Data Analysis





4.1     Data Presentation and Analysis

4.2     Test of Hypothesis





5.1     Summary of Findings

5.2     Recommendation

5.3     Conclusion










The Federal Government through the Central Bank of Nigeria (CBN) in a bid to tackle the problem of poverty eradication univeiled a Microfinance scheme. Many economists applauded the decision, saying if there are no bureaucratic bottle-necks in its implementation, the move may just be the needed medication to wipe out poverty, at least reasonably.


Viewing microfinance scheme as a business solution to global poverty, the World Bank says it is about small loans that help poor people who wish to start or expand their small business but, are not able to get banks to lend to them. That is, micro­credit is about the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. In developing countries especially, micro-credit enables very poor people to engage in self-employment projects that generate income.


The CBN categorically said that microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. It said three features distinguish microfinance from other formal financial products. These are:

§  The smallness of loans advanced and or savings collected

§  The absence of asset-based collateral

§  The simplicity of operations

It is a well-known fact that microfinance holds enormous potential for national economic growth by supporting the economic activities of poor people, and thus contributing to poverty alleviation.


In Nigeria, the formal financial system provides services to about 35 percent of the economically active population while the remaining 65 percent are excluded from access to financial services. This 65 percent are often served by the informal financial sector, through Non-government Organisation (NGO), Microfinance Institutions, money lenders, friends, relatives and credit unions.


In Asia, the Asian Development Bank (ADB) is actively involved in microfinance. About 90 percent of the 180 million poor households in the region still lack access to institutional financial service. ADB, through its Microfinance Development strategy, aims to ensure permanent access to institutional financial services for the regions poor people and their small businesses.


To achieve this objectives, ADB focused on creating a microfinance friendly policy environment, developing financial infrastructure, building viable retail institutions, supporting pro-poor innovations supporting ; social intermediation.


Providing the poor with improved facilities to save and to have better access to credit and insurance helps them manage risk, build assets, increase income, and enjoy a better life.


The Microfinance Institution (MFIs) and other Financial Institutions (OFLs) providing microfinance services have expanded their outreach from a few thousand clients in the 1970s to over 10 million in the late 1990s. The development in microfinance in the Region have set in motion a prove of change from an activity that was entirely subsidy dependent to one that can be a viable business.


The snag for the project in Nigeria is that can it succeed like it did in other countries because of some peculiar reasons?



The factors that necessitated the establishment of Microfinance Banks are:

1.      The problem encountered by the government to activate and transform the rural communities economically

2.      The problem of the inability of people at the grass-root to provide for the needed collateral for credit facilities

3.      The problem of inadequate banking facilities and fear of theft in the rural communities.

4.      The problem of finding alternative way to change and replace the rude and informal banking of the people by a modern banking system

5.      The desire by the government to eradicate poverty and also to accelerate the grass-root economic development



The main objective of this research work include:

1.      To examine how the establishment of microfinance banks have improved the lot of small scale business at the grass-root.

2.      To determine what impact the establishment of microfinance banks have on the banking habits of the grass-root people in the communities.

3.      To identify the major constrains that may hinder the microfinance banks from achieving the purpose for which it was introduced to the banking industry in Nigeria.

4.      To assess to what extent the establishment of microfinance banks have helped to reduce the level of poverty and also help in economic development of the rural communities.



Significantly, the study of the; microfinance banks provides the means of entries into business ventures for new group of individuals who might be wishing to set up such banks in their locality with a minimum capital of N200 million for IMFBs Licensed to operate as a unit bank, or a minimum capital of N1 Billion for IMFBs Licensed to operate in a state.


The study of Microfinance banks will also expose the recent novelty, innovation and cost-saving operation strategies as different from the orthodox commercial banking operations.


The study is also relevant because its grass-root operation has afforded the market men and women, petty traders and majority of our illiterate population access to banking facilities and also helped them to cultivate banking habit.

The study is also significant because the establishment of microfinance banks in the rural area has helped to bring the much needed infrastructural facilities to the rural areas for growth and development thereby reducing rural-urban migration.


The study is also relevant because it helps to assess the extent at which the establishment of the microfinance banks has helped to alleviate the poverty of the people at the grassroots.


The study of microfinance banks is significant as it helps in the formulation of appropriate economic policy to enhance welfare of the grass-root people.



The study focuses on the functional impacts of microfinance banks on the grass-root economic development. Many factors are responsible for the limitation of this study.


The first one being time constraint. The time allocated for this project is so short. In fact, a project of this magnitude supposed to have been given out to students right from the first semester and not when we have gone half way in our final preparation towards our examination in the second semester.


The second factor being finance and cost of writing materials for the project. As a result of serious devaluation of naira which raises the exchange rate to as high as N125 to $ 1 and N223 to £1. Cost of writing materials therefore correspondently goes up beyond the reach of many students at the time of writing this project.


The third factor and again one of the most crucial inhibiting constraints was the paucity of information on my project topic as a result of relative newness of the microfinance banks in the banking industry. Many of them have not operated for one year and their annual reports have not been published.


Many of the beneficiaries of the microfinance banks have very lukewarm attitude towards our; research efforts. Many though the research is intended to probe into their personal b business rather than the banking operation, therefore, refused to co-operate fully with us.


However, the research is able to collect enough research information on the topic that worth writing. Further replication for this research in other area should however take note of all these shortcomings and prepare adequately and guide against their occurrence.



1.      Does Microfinance hold enormous potentials for grass­root economic development?

2.      Is Microfinance a catalyst to poverty eradication In Nigeria?

3.      To what extent has increased capital base protect the trust the public place in financial institution?

4.      Is good character a better surety for loans repayment in absence of collateral.



This study will attempt to test the following hypotheses

1.      Ho: Microfinance is not a catalyst to poverty eradication in  Nigeria

Hi: Microfinance is a catalyst to poverty eradication in Nigeria

2.      H0: Microfinance does not hold potential for grass-root economic development.

Hi: Microfinance holds potentials for grass-root economic Development.



This project work is divided into five chapters.


Chapter one deals with the introduction which centers on the background of the study, statement of the problems, objective of the study, the relevance of the study, the scope and limitation of the study, research question, research hypotheses and the organization of the work.


Chapter two examines the literature review which focuses on the evolution of commercial banks, the CBN recent financial consolidation scheme, transitional arrangement for conversion to Microfinance Banks, overview of Microfinance activities in Nigeria.


Chapter three deals with the research methodology.


Chapter four centers on the presentation of data and analysis.


Chapter five contains summary of findings, recommendations and conclusion.

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