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.
TABLE OF CONTENTS
Table of Content
of the Study
Significance of the study
The Scope and
Limitation of the Study
TWO: LITERATURE REVIEW
2.1 The Evolution
of Commercial Banking in Nigeria
Financial Consolidation Schemes
2.3 Transitional Arrangement for conversion To Microfinance Bank
2.4 Overview of
Microfinance Activities in Nigeria
3.2 Area of
and Sampling Technique
of Data Collection
of Data Analysis
OF DATA AND ANALYSIS
Presentation and Analysis
4.2 Test of
RECOMMENDATION AND CONCLUSION
1.1 BACKGROUND OF THE STUDY
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
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?
1.2 STATEMENT OF THE PROBLEMS
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
5. The desire by the government to eradicate
poverty and also to accelerate the grass-root economic development
1.3 THE OBJECTIVE OF THE STUDY
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
2. To determine what impact the establishment
of microfinance banks have on the banking habits of the grass-root people in
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.
1.4 THE SIGNIFICANCE OF THE STUDY
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
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
1.5 THE SCOPE AND LIMITATION OF THE STUDY
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
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
1.6 RESEARCH QUESTIONS
1. Does Microfinance hold enormous potentials
for grassroot economic development?
Microfinance a catalyst to poverty eradication In Nigeria?
3. To what extent has increased capital base
protect the trust the public place in financial
4. Is good character a better surety for
loans repayment in absence of collateral.
1.7 RESEARCH HYPOTHESES
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
2. H0: Microfinance does not hold potential
for grass-root economic development.
Hi: Microfinance holds potentials for grass-root economic
1.8 THE ORGANISATION OF THE WORK
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
Chapter five contains summary of findings, recommendations