THE ROLES OF MICROFINANCE BANK IN NIGERIA
This study examines the roles of microfinance banks in Nigeria. The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban, low-income earners. The informal financial institutions generally have limited outreach due primarily to paucity of loanable funds. In order to enhance the flow of financial services to Nigerian rural areas, Government has, in the past, initiated a series of publicly-financed micro/rural credit programmes and policies targetted at the poor. In this research work, three microfinance banks and three small scale enterprises were used as a case study and the data were obtained through the administration of questionnaires to the branches of the company in Lagos, Edo and Delta States. Hypotheses formulated were tested using t-test statistical method. Our findings show that microfinance banks have significant impact on economic growth and development in Nigeria and good accounting system has impact on the growth of microfinance banks. Our finding also reveals that funds available to Micro finance banks are not easily accessible by Nigerians in rural areas. So, there is need to develop a regulatory and supervisory framework for the operations of MFIs in Nigeria and Government should also improve on the state of infrastructural facilities to reduce the transactional costs associated with the administration of micro credit in the country.
1.0 GENERAL INTRODUCTION
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their assets to factors of production, especially through credit facilities.
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.
Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products.
The smallness of loans advanced and or savings collected,
(ii) The absence of asset-based collateral, and
(iii) Simplicity of operations.
In Nigeria, the formal financial system provides services to about 35% of the economically active population while the remaining 65% are excluded from access to financial services. This 65% are often served by the informal financial sector, through Non-Governmental Organization (NGO)-microfinance institutions, moneylenders, friends, relatives, and credit unions. The non-regulation of the activities of some of these institutions has serious implications for the Central Bank of Nigeria’s (CBN’s) ability to exercise one aspect of its mandate of promoting monetary stability and a sound financial system.
Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium scale business controlled the economy of Europe. The industrial revolution changed the status and introduced mass production. The twin oil shocks during the 1970s undermined the mass production model, which triggered an unexpected reappraisal of the role and importance of small and medium sized enterprises in the global economy. Findings by economists over the years show that small firm and entrepreneurship play a much more important role in economic growth and development.
Many economies, developed and developing have come to realize the value of SMEs. They are seen to be characterized by dynamism, innovations, efficiency, and their small size allows for faster decision-making process. Governments all over the world have realized the importance of these categories of companies and have formulated comprehensive public policies to encourage, support and fund the establishment of SMEs.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam Mohammed Hayatu Deen, titled “Stakeholders Roles and the Development Benefits in a Virile Small Enterprise Sector”, pointed out that the small business operation are propelled by the dynamic theory, which makes them efficient and prone to constant change. He gave a comparative statistics using nine (9) developed countries on how SMEs create employment, increase job growth; induce change, innovation and competition.
The challenges facing SMEs in many developing countries are monumental. The most worrying among the challenges is funding. Most SMEs are not very attractive prospects for banks, as they want to minimize their risk profile.
This was the framework on which the concept of micro-finance bank system was created. Up to the time the idea of micro finance bank was introduced in Nigeria, the bank of the rural dwellers who are mainly subsistence farmers and small producers and also, the urban low income group, was the necessary capital to improve their productive capacity or to start something doing, recognizing this fact, the federal government of Nigeria, developed different policies and programmes aimed at making credit available to these group of people.
1.1 STATEMENT OF RESEARCH PROBLEM
Much is expected from the government to provide basic social and infrastructural facilities to assist small businesses. Nigeria’s economic terrain is varying constraining with focus being concentrated on the big firms which are constantly down-sizing. Business people that fall in the SME category have frequently accused the banks of providing funding to only their cronies and favoured companies. But the banks have denied such allegations saying that many of the SMEs cannot meet up with bank’s requirements. Hence, Micro finance bank that has the ability and capacity has taken it as a challenge to meeting the need of these SMEs in the Nigeria economy. This study tends to answer the following questions:
What are impact of microfinance on economic growth and development in Nigeria?
Does microfinance actually create employment opportunities to the citizen of Nigeria?
Is there availability of funds to SMEs by micro finance banks?
Does funds available to microfinance easily accessed by Nigerians?
Does microfinance lack modern banking technology?
Does microfinance offer low interest rate?
1.2 OBJECTIVE OF THE STUDY
The study is aimed at examining the ways by which micro finance banks and other source of finance can finance small and medium enterprises and also the numerous impacts on these micro finance banks to the Nigerian economy. And also create a level of awareness on the available sources of fund. These includes
To find out the significant impact of microfinance institutions on the economy.
To find out the extent to which microfinance can provide funds to the low income earners and small scale enterprises.
To determine the interest rates offered by the microfinance.
To find out the level of awareness of the roles of microfinance to its teeming customers.
To find out if the microfinance bank is deploying modern technology in carrying out its operations.
1.3 SCOPE OF THE STUDY
The study shall focus on some selected microfinance banks and small and medium scale enterprises in Benin City. Questionnaires and personal interviews will be conducted to ascertain the awareness of the relevance of microfinance banks to the Nigeria economy.
1.4 SIGNIFICANCE OF THE STUDY
This study will help to know how important Micro finance banks are to the development of the nation and to identify sources of fund available to SMEs and to create awareness among SMEs.
It will also help to know how SMEs are the engine room for the development of any economy because they form the bulk of business activities in a growing economy like that of Nigeria.
The study shall aid the following:
1.How Micro finance banks has helped in the employment generation, rural development, economic growth and industrialization.
2.How microfinance can be implemented to eradicate poverty through the provision of microfinance and skill acquisition development for income generation.
3.How to use microfinance to build community capacities for wealth creation among enterprising poor people and to promote sustainable livelihood by strengthening rural responsive banking methodology.
4.It can improve the socio-economic conditions of rural dwellers and small scale enterprises.
5.It will assist the government to know the contribution of microfinance bank on economy.
1.5 STATEMENT OF HYPOTHESIS
The following formulated hypothesis shall be tested:
Ho:Microfinance banks do not have significant impact on economic growth and development in Nigeria.
H1:Microfinance banks have significant impact on economic growth and development in Nigeria.
H0:Funds available to Micro finance banks are not easily accessible by Nigerians in rural areas.
H1:Funds available to Micro finance banks are easily accessible by Nigerians in rural areas.
Ho:Good accounting system does not have impact on the growth of microfinance banks.
H1:Good accounting system has impact on the growth of microfinance banks.
1.6 LIMITATIONS OF THE STUDY
The limitation in the course of carrying out this research work will include;
Time: The time available for completion of the study is short considering the scope of the study.
Getting Information: Most financial institutions restrict access to its important document and it will affect the accuracy of the study.
The Response Rate: The response of some Micro finance banks and financial institution will affect the study, as some of them will not cooperate.
Anyanwu, C.M. (2004), “Microfinance Institutions in Nigeria: Policy, Practice and Potentials”. Paper Presented at the G24 Workshop on “Constraints to Growth in Sub Saharan Africa,” Pretoria, South Africa.
Central Bank of Nigeria, Abuja (2005), “Microfinance Policy, Regulatory and Supervisory Framework for Nigeria”.
Goldberg, N. (2005). “Measuring the Impact of Microfinance: Taking Stock of What We Know,” Grameen Foundation USA publication series.
Oaikhenan, H.E. and Udegbuman, R.I. (2004), “Modern Statistics for Economics and Business”, Benin City, Henans Publishers.
Ofili, J.S. (2003), “How to Formulate and write a research proposal and a long essay”, Benin City, Muffi Books.