IMPACT OF MICROFINANCE BANK IN THE DEVELOPMENT OF NIGERIAN ECONOMY


Content

TABLE OF CONTENTS

 

CHAPTER ONE

1.0      Introduction

1.1      Historical Background of Microfinance Banks In Nigeria

1.2      Objectives

1.3      Research Questions

1.4      Research Hypothesis        

1.5      Significant Of the Study

1.6      Scope and Limitation

1.7      Definition of Terms

 

CHAPTER  TWO

LITERATURE  REVIEW

2.1       Justification For The Existence Of Microfinance Banks In Nigeria

2.2       The Microfinance Policy

2.3       Policy Objectives

2.4       Regulatory Frame Work

2.5       Microfinance Market

2.6       Challenges Of Microfinance Banks In Nigeria

2.7       Success Imperatives For Mfbs In Nigeria

2.8       Commercial Banks In Microfinance

2.9       Non-Governmental Organization (Ngos) In Micro Finance

2.10     Challenges Of Ngos In Microfinance Banks

 

2.11     Benefits Of Ngos In Microfinance Banks

2.12     Hard Times For Microfinance Banks In Nigeria

2.13     Conclusion

 

 

CHAPTER 3

METHODOLOGY

3.1       Introduction

3.2       Research Philosophy

3.3       Research Strategy

3.4       Research Approach

3.5       Quantitative and Qualitative Data

3.6       Primary Data

3.9       Ethical Issues

 

 

CHAPTER 4

DATA PRESENTATION AND ANALYSIS

4.0            Introduction

4.1      Analysis on Questionnaire (Primary Data)

4.3      Customer Base, Savings Deposit, Profits, Loss, Total Assets and Micro Loans

 

CHAPTER 5

FINDINGS, DISCUSSION AND CONCLUSION

5.1       FINDINGS

5.2       DISCUSSIONS

5.3       RECOMMENDATIONS

5.4       CONCLUSION

            APPENDIX

 

 

 

 

 

 

CHAPTER ONE

1.0       INTRODUCTION

It is a fact that robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent  capacity of  the poor for entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income, and create wealth (Iweala, 2005).

 

The above is a plus for the impact of microfinance banks in the economic activity of Nigeria. The third world nations, amongst which is Nigeria, have the highest number of poor people in the world and the relevance of microfinance banks in combating the poverty level cannot be over-emphasized. The poverty profile of Nigeria is not only alarming but equally appalling. Having earned several billion dollars from oil revenue in many years, the country should have no business with poverty. The World Bank Poverty Assessment Report in 1999 shows that 65% of Nigerians live below the absolute poverty line. With one of the lowest GDP growth rates and per capital income, the poor in Nigeria seem to face a grim and uncertain future (Utomi, 2000).

It is important to note that the Nigerian Economy has been besieged by a number of challenges since the 1980s, leaving a high number of its citizens impoverished. For instance, the absence of adequate credit facilities to the poor, despite the efforts of microfinance banks; perpetuates the cycle of poverty.

What therefore is Microfinancing?

Micro financing is the provision of financial services to poor and low income householdswithout access to formal financial institutions (Conroy, 2003). Microfinance is about providing financial services to the poor who are traditionally notserved by the conventional financial institutions. Three features distinguish microfinance from other formal financial products. These are: (i) the smallness of loans advanced and/or savings collected,(ii) the absence of asset-based collateral, and (iii) simplicity of operations(Ogbunaka, 2003).

Indeed, the proliferation of microfinance banks in Nigeria has expanded access to credit facilities to the poor and influenced the average citizen’s activity in the economy; still there are still a larger pool of poor traders and small business owners who are still uncared for. However, several factors are in favor of the microfinance institutions in Nigeria and even the possible overthrow of conventional banks in making credit available on retail basis, but this is subject to the capacity of these microfinance banks to combat the dialectics of the Nigerian economy.

 

1.1   HISTORICAL BACKGROUND OF MICROFINANCE BANKS IN NIGERIA

It is important to mention that across Africa, daily deposit collection is a financial institution on West African markets and we can trace this back to about about fifty years ago. It is called ajo/ esusuamong the Yoruba of Nigeria, anagosusuin Ghana, nagoin Ivory Coast (nagooranago= Nigerian), yesyesin Southern Togo, jojumaamong the Kotokoli in central Togo. The deposit collector may serve anything between 200 and 600 clients a day. From each he collects a fixed amount which is then registered on a printed card. By the end of the month he returns the total, keeping the amount of one daily deposit as a collector's fee (Bascom, 1952).

 

Since independence, successive governments in Nigeria have made several attempts to integrate Nigeria’s rural economy into the mainstream of the financial system and, in so doing, inculcate banking culture at the grassroots (Imam, 1999).  In the earlier years several thrift activities and lending groups existed in Nigeria. The most popular indigenous method of savings is called Esusu-Yoruba, Hausa- Adashi, Ibo- Otutu, Edo- Osusu and it helps to meet short-term and long-term expenses. It is popular with the wage-earning and non-wage earning small income groups. This indigenous system of saving prevails everywhere in Nigeria and is of particular interest to the market women, farmers, petty traders, craftsmen, unions, social clubs, civil servants and teachers (D.O. Ogunyemi, 1967).

The esusu, one of the economic institutions of the Yoruba of Nigeria, has elements which resemble a credit union, an insurance scheme and a savings club. The esusu is a foundation to which a group of individual makes fixed contributions of money at fixed intervals, the total amount contributed by the entire group is assigned to each of the members in rotation -in form of Micro finance (The Journal of the Royal Anthropological Institute of Great Britain and Ireland, 1952). The 1990s saw significant growth in the number of clients per esusu/ susu collector, and growth in the size of individual deposits (Aryeetey and Udry, 1952).

 

The microfinance movement began in earnest in the early 1980s in places like Bangladesh and Bolivia and has, over the last 20 years, captured the interest of multilateral donor agencies and private sector bankers. (EnuguForum, 2006). The informal associations that operate traditional microfinance in various forms are found in all the rural communities in Nigeria (Otuet al, 2003), and also in the urban areas.Our definition of informal finance in Africa pulls in such schemes as the operations of moneylenders; part-time moneylenders such as estate owners, traders, grain millers, smallholder farmers, employers, relations and friends; mobile bankers generally known as susuoresusucollectors in West Africa; credit unions; co-operative societies; etc. These been observed in both urban and rural areas.

 

Interestingly, however, most surveys of enterprise finance in Africa often indicate that start-ups of micro businesses in most African countries are primarily funded by such sources as landlords, neighbours, friends and relations, though they seldom lend large amounts on an individual basis (RPED, 1993). Moneylenders have been known to be significant commercial lenders, often lending from surplus incomes earned from farming or trading. Other informal units usually take the form of groups or associations that take deposits from members and provide varying forms of financial services to those members and sometimes to others.

 

What is current however is the effort of governments in Nigeria to modernize micro-financing in rural and urban communities to improve the productive capacity of the rural and urban poor, enhance their economic standing which alleviates the level of the national economy?

 

After failed trials in Directorate of Food, Road and Rural Infrastructure (DFRRI), Rural Banking by commercial Banks and even People’s Bank programme, the government of the Federal Republic of Nigeria took the bull by the horns by enacting legislation for the establishment of community banks (now microfinance institution). To complement government efforts, over the years, lots of NGOs have formally been licensed to operate as micro finance institutions. Some existing NGO microfinance institutions were transformed and Universal Banks were encouraged to engage in microfinance services of recent, microfinance banks regulation and supervisory guidelines were inaugurated (Iganiga, 2005).

 

Public Opinions on Microfinance Banks

The Perception of stakeholders on the impact of Microfinance banks in Nigeria varies and their stands also differ. Below are excerpts of their positions on Microfinanace issues in the country.

According to Mr. Rodgers Nwoke who is the Chairman of National Association of Microfinance Banks FCT Chapter and also the CEO of Hasal Microfinance Bank, the sector has witnessed several improvements since its inception and believes more grounds will be covered in combating the poverty level in the country. Nwoke, however, complained of non-availability of trained staffers for microfinance banks as it remains a new field in the country and failure of people to refund borrowed money (Microfinance Africa: Hasal Boss Predicts Better days for Microfinance banks; Sept 6, 2010).

Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria has assured that the end of the universal banking would usher in a boom to the businesses of other financial institutions (Microfinance Africa: End of Universal Banking will boost other financial institutions; August 25, 2010).

Commenting on the development, Marthias Omeh, president, National Association of Microfinance Bank (NAMB), end of Universal banking means that banks will hands off other subsidiaries because there has been agitation for commercial banks that run microfinance to hands off and allow microfinance banks to do the micro banking.

The Chairman of Lagos State chapter of National Association of Microfinance Banks, Mr. David Adenekan, confirmed that strategic consultations among key operators in the microfinance industry are going on. “I can confirm to you that there are plans for mergers and acquisitions among microfinance bank operators in the country. But so far, the discussions are voluntary, we are not compelled by any authority to do so yet,” he told The Nation in a telephone interview on 20th September, 2010.

 Also, a management official of Seed Microfinance Bank, who prefers anonymity, confirmed the new moves by operators to consummate mergers and acquisitions plans. “We are working on this plan to enable us play bigger in the market,” he said.

Adenekan explained that with N20 million minimum capitals, many of the banks are finding it difficult to meet their financial obligations to customers. He said a merger of three or four banks in this category will speed up the banks’operational and liquidity positions for greater efficiency. The liquidity problem in the industry, which has resulted to the inability of the banks to pay customers, was also worsened by rising loan default.

Aside insider loan abuse, managers of microfinance banks have also been accused by the Central Bank of Nigeria (CBN) of perpetrating false statements used by customers for travel visa to foreign countries. There were also accusations of cheque diversion leveled against these managers.

Director of Other Financial Institutions Supervision Department (OFISD) at the CBN, O.A. Fabanwo, said: “We have seen cases where banks give forged statement of accounts to their customers and other visa seeking persons. We will henceforth sack any CEO or staff found to be involved in this fraudulent practice,” he said.

He said managers and staff of microfinance banks who specialize on such acts will henceforth lose their jobs. The practice which has reached a crisis point was drawn to the attention of the apex bank especially, by the British High Commission.

Fabanwo said the apex bank had investigated many cases brought before it especially from the British High Commission and that henceforth, where such cases are established, the chief executive officer of the bank and the staff involved will be sanctioned. “We will begin to sanction MDs on this especially if they fail to take necessary measures needed to safeguard the integrity of the industry,” he said.

He noted that series of complaints have equally been lodged concerning using the MFBs as clearing house for fraudulent cheques emanating from parastatals, companies and agencies. He advised the banks to be cautious in handling third-party cheques as to ensure that credits are given to the right beneficiaries.

He advised management of the banks to ensure that all official documents are retrieved from all staff leaving the company and that henceforth, all correspondence to the embassies be countersigned by the MD. He said the same measure applies to Primary Mortgage Institutions (PMIs). Already, as part of security building process, the CBN has requested and obtained the specimen signatures of all authorized signatories in both MFBs and PMIs. Another issue that has been brought to the attention of OFISD is the increasing number of fraudulent third party cheques being cleared in MFBs.

In recent times, MFBs have been riddled with problems ranging from insider abuse, embezzlement and other fraudulent transactions that affected public confidence in their operations. Following series of reforms by the CBN aimed at strengthening the operations of the banks, some ray of hope have returned. MFBs recently received a boost after a N60 billion secured funds were released to the industry. The funds secured by Africa Capital and Business Support Limited, (ACBS) in partnership with Suisse Bank of London will allow MFBs in the country to access long term debt funds of up to 10 years.

The CBN Governor said Microfinance banks in the country has performed at less than optimal and that CBN was carrying out a systematic review of the current microfinance policy with a view to making it add more value to the economy. He also said the chief executive officers of microfinance banks in the country would be made to undergo examination in order to determine their level of professional competence, adding that those found wanting would be relieved of their positions.

 

 1.2                         OBJECTIVES

The research work aims to;

Ø  Appraise the relevance of microfinance banks to the Nigerian Economy

Ø  Open up on what microfinance banks has done to contribute to rural transformation

Ø  The Angle from which the microfinance institution has been able to enhance service delivery

Ø  Look at how microfinance bank has been able to reduce unemployment; thereby enhance reduction in social ills

Ø  Compare generally microfinance bank with a commercial based bank and another without(an autonomous MFB)

Ø   

1.3             RESEARCH QUESTIONS

At this point it is necessary to draw from our research topic questions on which the research work is based. These questions are highlighted below

1                    Of what relevance is micro credit to the Nigeria economy

2                    Is micro financing really needed in this country

3                    Since introduction into the Nigeria economy, what are the positive indicators

4                    Do we have appropriate expertise to handle the scheme of micro financing

5                    How vibrant is our financial status and practice that will aid the growth of Microfinance bank

6                    To what extent has Microfinance Bank been able to tackle poverty level in the country

7                     1.4             RESEARCH HYPOTHESIS           

The hypothesis captures two questions or statements (null hypothesis) on which research would be carried out

The statements are:

Relevance of microfinance banks to the Nigerian Economy cannot be over emphasized

Ø  A Microfinance bank with a Commercial Bank link thrives better than an autonomous Microfinance bank

Ø  Our level of growth and development can build a strong MFB sector

Ø  MFBs have been able to reduce the poverty level in the country

Ø  Expertise are available in Nigeria to handle the scheming of Microfinance policy

Ø  There are so many positive indicators since the emergence of microfinance banks in Nigeria

1.5              SIGNIFICANT OF THE STUDY

 

In recent time micro finance bank have experienced so many short falls: with the collapse of several micro finance bank and revocation of licenses of over 234 microfinance bank in 2010. Despite this microfinance bank still continue to survive and have contributed in no little way in providing credit facilities to the poor. This research work is especially involve with the impact of Microfinance bank in the Nigerian economy especially in the area of combating poverty level not and provision of employment not withstanding several challenges faced by the microfinance bank.

 

 

 

1.6                  SCOPE AND LIMITATION

The dissertation case study is major MFBs that are located within the Lagos Metropolis. It is important to note that at this stage, the MFBs are of two types; Conventional or independent MFBs and the Commercial bank linked MFBs.Because of time constraint and due to the fact that the project work is solely academic the researcher is limited to carry out the work within this limits.

 

1.7     DEFINITION OF TERMS

1                    MFI: microfinance institution

2                    MFBs: microfinance banks

3                    Conventional banks: traditional banks

4                    Autonomous bank: independent banks

5                    CBN: central bank of Nigeria

6                    GDP: GROSS DOMESTIC PRODUCT

7                    PER CAPITAL INCOME: Income per head

8                    Unserved Market; population not yet catered for

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