CHAPTER ONE
INTRODUCTION
1.1: BACKGROND OF THE STUDY
A robust economic growth cannot be achieved without putting in
place well focused programme to reduce poverty through
empowering the people by increasing their access to factors of
production.
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 be more
self-reliant, increase employment opportunities, enhance
household income and create wealth. Micro-financing has existed
for years before the introduction of conventional banking in
Nigeria and the later part of nineteenth century. (Ekot, 2008)
The traditional Nigerian society has a system of group savings and
assistance to one another. The practice was that a group of people
who had needs for some form of capital or lump sum to execute a
particular project which they could not raise adequate savings on
their own, usually come together to form a savings group. The
group may be named after the leader who is usually the initiator of
the venture. The traditional microfinance institutions provide
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access to credit for the rural and urban low-income earners. These
are mainly the informal self-help groups such as Isusu,women
association like one obtainable during popular August meetings,
Umu-ada progressive women association. Other providers of
microfinance services include savings collectors and co-operatives.
(CBN brief, 2005)
The unwillingness and inability of the formal financial institutions
is to provide financial services to the urban and rural poor,
coupled with unsustainability of government sponsored
development financial schemes, contributed to the increase in
number of private sector led micro finance in Nigeria. Thus, before
the emergence of microfinance institutions, informal microfinance
activities flourished all over the country. The Central Bank of
Nigeria (CBN) as at end of December 2009 gave an approval to 840
microfinance banks to begin operation in the country. (CBN briefs,
2008-2009)
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)
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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
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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: STATEMENT OF PROBLEM
Nigeria consists of different classes of individuals, who are either
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 resources under their pillows. This
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method of keeping savings 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
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deficiencies, such as power, road network, etc. and all kinds of
political, economic and bureaucratic bottlenecks.. Also Nigerian
economy consists of individuals who feed from hand to mouth.
The loans when granted are channeled to other areas such as
feeding, payment of bills, school fees, hospital bills and others
instead of using it for the intended business purpose.
1.3: OBJECTIVES OF THE STUDY
The broad objective of this study is to find out the role of
microfinance banks as a palliative in the alleviation of poverty in
Nigeria. They are as follows:
1. To find out the rate at which rural dwellers deposit their money in
microfinance banks rather than putting it under pillows.
2. To find the contribution of government in alleviation of poverty
through the establishment of microfinance banks.
3. To find out the rate at which rural dwellers are able to repay their
loans.
1.4: RESEARCH HYPOTHESIS
The following hypotheses have been developed around which this
research would revolve:
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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.
1.5: RESEARCH QUESTIONS
1. What is the rate at which rural dwellers deposit their money in
microfinance banks rather than putting it under their pillow?
2. What is the contribution of government in alleviation of poverty
through the establishment of microfinance banks in Nigeria?
3. Why do most Microfinance borrowers react negatively towards loan
repayment?
1.6 : SIGNIFICANCE OF THE STUDY
This study will benefit the following groups:
a. Government; The findings of this study will be useful to
government in that it will help them to know the importance of
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MFI thereby knowing ways of improving the quality of their
services. The result of the study will also bring out the areas that
need improvement and make suggestions for improving on them.
b. Owners; It will also be useful to those planning to open
Microfinance banks to know the usefulness of microfinance banks
as catalyst or stimulus for poverty alleviation in rural settings as
way of developing rural banking.
c. Scholars; Students also will find it very useful in some research
work on project issues by boosting their knowledge about
microfinance banks in the alleviation of poverty. Those who need
referencing material materials on role of micro financing in
alleviating poverty will find this study useful.
1.7 : SCOPE OF THE STUDY
The research on the role of microfinance banks in poverty
alleviation which requires a thorough analysis of the Oha
Microfinance Bank, Ogui Road branch in Enugu State.
1.8: LIMITATIONS OF THE STUDY
In the course of this research work, the researcher encountered
different problems such as:
1. Inadequate finance: As a student, financial difficulties limit the
researcher from studying the activities of all banks and also limit
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the volume of data collection; e.g. the funds available will not be
enough in transporting and facts findings.
2. Time constraint: There was no time to conduct an enormous
research.
3. Inability to get access to some Microfinance banks to get more
information about their records and some other useful information
about the work also limit the research data collections.
4. Environmental constraint: The environment in which the research
work was written restricted the researcher from going out and so
the researcher was faced with the problems of how to reach out
the field of research and coordinate activities as planned.
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