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THE IMPACT OF MICROFINANCE BANKING IN RURAL DEVELOPMENT (A CASE STUDY OF ETSAKO WEST LOCAL GOVERNMENT, EDO STATE)
This project work examines the bank institution to rural economic in Etsako West Local Government in Edo State. Microfinance bank has long been recognized to play an important role in the economic development of rural area in Etsako West Local Government. The aim of mobilization and allocation of savings for productive, provision of structure for monetary management and serve as the basic for managing liquidity. The descriptive research method was used for this study. Data was collected making use of a structured questionnaire. The findings revealed that there is also absence of security needs to protect the bank properties. Based on the findings, the study recommends that the bank should train manpower and the government should provide infrastructural facilities. This project work concludes that economic policy is important in the rural area in recovery and transition into a competitive economy.
TABLE OF CONTENTS
Title Page i
Table of Contents vii
Chapter One: Introduction
1.1 Background to the Study 1
1.2 Statement of Problem 3
1.3 Research Questions 3
1.4 Objectives of the Study 4
1.5 Statement of Hypotheses 4
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Limitations of the Study 6
1.9 Definitions of Terms 7
Chapter Two: Review of Related Literature
2.1 Introduction 12
2.2 The Development of Microfinance Bank in Nigeria 13
2.3 Need for Microfinance Banking 16
2.4 The Role of Microfinance Banking 17
2.5 Development of Community Infrastructure 21
2.6 Mortgage Bank 25
2.7 Community Investors 27
2.8 Socio-Economic Life or Rural Banking Areas 28
2.9 Problems of Microfinance Bank 29
2.10 Change Issues in Agriculture Rural Development and
Rural Finance 34
2.11 Defining Microfinance (MF) 37
2.12 Implication for Development Strategies 40
2.13 The Concept of Microfinance 44
2.14 Microfinance Products and Services for SMEs
2.15 Tenets of Sustainable Microfinance 53
2.16 Linking Microfinance to Rural Entrepreneur 53
2.17 The Rural Entrepreneurs and their Demand for
Financial Services 55
2.18 Rural Entrepreneurs in Commodity Production and
Chapter Three: Research Method and Design
3.1 Introduction 62
3.2 Research Design 62
3.3 Description of Population of the Study 62
3.4 Sample Size 63
3.5 Sampling Technique 63
3.6 Sources of Data Collection 63
3.7 Method of Data Presentation 64
3.8 Method of Data Analysis 64
Chapter Four: Data Presentation, Analysis and Interpretation
4.1 Introduction 65
4.2 Presentation of Data 65
4.3 Data Analysis 65
4.4 Testing of Hypothesis 85
Chapter Five: Summary of Findings, Conclusion
5.1 Introduction 89
5.2 Summary of Findings 89
5.3 Conclusion 90
5.4 Recommendations 91
Appendix I 94
Appendix II 95
1.1 Background to the Study
The ideal of micro-finance banking become necessary due to the inability of the conventional banking schemes to mobilize the dormant funds in rural area and channel them into needy factor. Besides, small business and the rural farmers needed to inculcate banking culture. Their idle funds needed to be mobilized for onward lending to the productive sector hence the need for micro – finance banks arose.
Much effort have been made in the past by successive government to involve rural dwellers in Nigeria in modern banking practice the extend credit to them in terms that are easily attainable earlier on, in obedience to the Central Bank directive the commercial banks opened braches in many communities.
In spite of opening of such branches, it was not possible to make banking attractive to Rural dwellers. This was because banking operations even in the rural braches have continued to be complex, cumbersome and too complicated for the level of education and enlightenment at the rural people participation therefore, was not just possible.
In Nigeria, according to Ezike (1981) the main objective of rural banking is to effectively mobilize saving in the rural area and bring credit close and within the reach of the long-credit starved farmer.
However, like the previous schemes, aimed at small business in the rural and small business in the rural/urban areas and farmers to mention but a few. The rural banking scheme has failed to accomplish its set objectives of providing for the rural people in particular. Against the background, this study is designed to X-ray the role of micro finance banking in the socio-economic development of Nigeria (Arural) with a focus on Rural micro finance bank Arural Edo State.
1.2 Statement of Problem
The banking industry is quite a risky business and a lot of fears is being exercised in establishing bank branches in rural areas because of inadequate security and fear incurring losses in the course of their operations.
There is a problem associated with the non-provision of loans to rural farmers. The problem of rural-urban drift lack of employment opportunities, inaccessibility of infrastructure, road, electricity, potable water, telephone services, among other which for a long time have been denied the rural communication.
1.3 Research Questions
· How does microfinance bank reduce poverty in the community?
· What is the function of microfinance bank toward women and other disadvantaged population groups?
· What does microfinance bank does towards the activities of business in the community?
· Is micro finance bank a base for the development of the rural infrastructure?
1.4 Objectives of the Study
· To ascertain how microfinance banks help to reduce poverty in the community.
· To find out the function of microfinance bank towards women and other disadvantaged population groups.
· To find out what microfinance bank does towards the activities of business in the community.
· To find out if microfinance bank serves as a base for the development of the rural infrastructure.
1.5 Statement of Hypotheses
In doing this study, the researcher has adopted the following hypothesis designed to accomplish the objective of the study.
HI: Micro finance bank does not provide for the needs of the people.
Ho: Micro finance banks provides for the needs of the people.
Ho: Microfinance bank does not assist in the employment of the people.
HI: Microfinance bank assists in the employment of the people.
Ho: Microfinance banks are not a base for development of the rural infrastructure.
HI: Microfinance bank is a base for the development of the rural infrastructure.
Ho: Microfinance bank does not help in the provision of soft loan to assist the rural dwellers.
Hi: Microfinance banks help in the provision of soft loan to assist the rural dwellers.
1.6 Significance of the Study
Microfinance banking service has become relevant instruments for the socio-economic development of our rural areas. Rural Micro-finance banks occupy a pride of place like the economic activities of the rural people.
Significantly, this study will contribute to the existing literature for information and reference.
Also, it will enable management of banks know the problems of rural banking and hence be able to take effective decision about them.
The study will also serve as a source of information for those who will embark on a similar research.
1.7 Scope of the Study
This study is limited to the services of the micro finance bank in Nigeria with a focus on Rural Micro finance bank, Arural Etsako West Local Government Area of Edo State.
1.8 Limitation of the Study
The framework os this study is limited due to time constraints and the financial involvement in carrying out a detailed and thorough extensive work on the impact of microfinance banking in rural development.
Perhaps, the greatest limitation of this work stemmed from the limited available secondary data at the researcher’s disposal.
Ignorance and low literacy level among the Nigerian public, as well as suspicious among them greatly limited my data gathering especially during random sample interview carried out. This low awareness and lack of orientation limited this study.
Also, was the dearth of data in this field, as the library could not supply all data needed, and even most of the books catalogued were not in the shelf, and even if found there irrelevant and pertinent pages have been torn out, and of course most of the books were outdated.
1.9 Definition of Terms
In this research, the researcher made use of some technical but related terms for case of understanding and application the following functional definition have been giving.
· Micro Finance Bank: Bank is seen as self sustaining finance institution, owned and managed by a community for the purpose providing credit banking and other financial services to its member largely on they basis self recognition and credit works.
· Deposit: Money kept in a bank not to be withdrawn without notices on which interest is payable.
· Credit: A payment made to somebody on trust on the ground that such money will be repaid as at when due.
· DFRRI: The Directorate of Food, Road and Rural Infrastructure.
· Interest Rate: This can be defined as the rate at which the commercial banks lend money to the public.
· Savings: An amount or a sum of money deposited in the bank on which interest is payable which also can be written by depositor at will.
· CBN: Central banks of Nigerian.
· Interest Risk: The risk borne by a lender that interest rate an economy will raise causing a fall in capital value of the loan.
· Cash Flow Statement: It is financial information which shows the cash inflow and out of an enterprise in a give accounting year or a reporting period but include inflow rising for change in cash as a result of the purchasing and liquidation of cash equivalent.
· Discounting Cash Flow Techniques: This is use to ensure comparability of cash flow accruing at different times.
· Financial Bank: That part of organization risk that arise from using capital, partly finance by capital financial risk together with business risk made up total risk.
· Coupon Risk: This is the rate of interest pardon the nominal value of retained securities, unless the securities have a market value capital to their nominal value the actual yield will not equal to coupon rate.
· Bad and Doubtful Debt: Portion of loan and advance granted by banks that are considered uncollected because they are not operating to schedule.
· Credit Management: The whole system of credit control, which aims at ensuring good quality loan asset for bank at all times.
· Classified Balance: This is the customer is total habit less value of any security held which recoverable and the accumulated interest charges from the time the account was classified or in bad debt category.
· Business Risk: That part of business organization risk which arises from it commercial activities business risk together with financial risk makes up total risk.
· Correlation: The extent to which variation in the value of one variable are associated with variation in that of another variable. For example it is generally true that the return from any particular asset are corrected with return from the generally.
· Annuity: A series of constant cash flows receivable for a specified number of years.
· Accounting Rate of Return: The net accounting profit from a particular project expressed as percentage of the book value of the asset invested in the project.
· Equity: The risk bearing portion of the long-term capital of a business organization for a company it is the share capital and reserve.