This project is aimed at determining the problems and prospect of microfinance banking in Nigeria taking Uchi Microfinance Bank, Auchi as a focal point. Its basic objective is to know the problems and prospects of setting up a bank in rural areas and also to know how the microfinance bank can mobilize savings from rural dwellers. The major problem of the microfinance bank is shortage of funds and inability to honour sight cheques. The work conducted also used questionnaire to gather data from respondents to elicit their response on the problems and prospects of Uchi Microfinance Bank, Auchi. In conclusion, Microfinance Banks are set up to serve the rural farmers, businessmen and women engaged in various trades and also they are not expected to have branches in the same place. The directors and managers of microfinance bank should show were exemplary leadership which in turn will in still much confidence in the microfinance banking system.


Title Page                                                                 i

Certification                                                     ii

Dedication                                                       iii

Acknowledgements                                          iv

Abstract                                                           vi

Table of Contents                                             vii

Chapter One: Introduction                            1

1.1      Background to the Study                                         1

1.2      Statement of the Problems                               2

1.3      Objectives of the Study                                    3

1.4      Significance of the Study                                         4

1.5      Scope and Limitation of the Study                   5     

1.6      Definition of Terms                                          5

Chapter Two: Review of Related Literature  8

2.1      Introduction                                                     8

2.2      Functions of Microfinance Bank                      11

2.3      Objectives of Microfinance Bank                      13

2.4      Management Structure for Microfinance

Banks in Nigeria                                              14

2.5      Banking Relationship between Microfinance

Bank and Commercial Bank of Nigeria            19

2.6      The Role of Central Bank of Nigeria                         20

2.7      Problems and Prospects of Uchi

Microfinance Bank                                          21

2.8      Summary                                                                 26

Chapter Three: Research Method and Design 29

3.1      Introduction                                                     29

3.2      Research Design                                              31

3.3      Sampling Selection Procedure                         31

3.4      Questionnaire Design                                      32

3.5      Data Collection Method and Analysis              32

3.6      Summary                                                         33

Chapter Four: Data Presentation, Analysis

and Interpretation                                                 34

4.1   Introduction                                                     34

4.2   Data Presentation                                            34

4.3   Data Analysis                                                   41

4.4   Hypothesis Testing                                          45

4.5   Summary of Findings                                      47

Chapter Five: Summary of Findings, Conclusion

and Recommendations                                          49

5.1   Summary                                                         49   

5.2   Conclusion                                                      50

5.3   Recommendations                                           51

References                                                       54

Appendix                                                         55

Questionnaire                                                  56





1.1      Background to the Study

The search for the establishment of Uchi Community Bank now known as the Uchi Microfinance Bank started in February 1993 through which the Otaru-in-Council and other important dignitaries in Auchi.

After much work have been the requirement of the National Board of Community Banks were meet and the bank was to be established with an initial capital of N2,000,000 only. On the 1st June, 1995 and it was later converted to Microfinance Bank in the name of Auchi Microfinance Bank Ltd, Auchi in December, 2008.

The bank was established for the sole purpose of bringing banks to the grassroot level and for the rural dwellers to be able to meet up with certain duties that should be carried out in terms of business.

The Microfinance Bank Auchi provides money for the rural dwellers for agricultural practice and also for commerce and industry or trading business in Auchi from time immemorial they have been engaged in some form of informal but viable and functional local credit mobilization system. These system serve their purpose very well various names given to these informal credit scheme are “adashi isusu, drift collection etc.

This system of saving could not help them in terms of giving out credit loans, safe keeping of valuables and given advice to customers on investment matters. All these brought about the establishment of Uchi Microfinance Bank, Auchi so as to bring banking system to the rural dwellers. And they operate various account such as savings, current and fixed deposit account.

1.2      Statement of Problems

i.            Are Microfinance Banks meeting the credit need of rural dwellers?

ii.          Are they sufficiently capitalized?

iii.        What are the difficulties normally encountered by rural dwellers when they ask for facility?

iv.         Are Microfinance Banks impacting the economy of their host community?

v.           What are the constraint of Microfinance Bank in the performance of their duties?

1.3      Objectives of the Study

The objective of this study is to know the following:

i.            Know the problem and prospect of setting up a bank in rural areas.

ii.          Know how rural banking have been able to meet the need of the people through their lending policies to finance project such as agriculture, small scale industries etc.

iii.        Know how the role of rural banking is playing in the achievement of economic development of the country.

iv.         Know how the Microfinance Bank can mobilize saving from rural dwellers.


1.4      Significance of the Study

This study will serve as a means of appraising the Microfinance Banking scheme in order to determine if the aims and objectives of the setting up the Microfinance Bank are met or not. This work will serve as a means of creating the much needed awareness of the intention of establishing a rural bank through their function. This work will serve as a remainder to other financial institution of the need to extend their activities to the rural areas rather than concentrating only in urban centres.

To enhance the researcher’s knowledge about the problem facing Microfinance Banks in Nigeria.

1.5      Scope and Limitation of the Study

This study is limited to Microfinance Banks with special reference to Auchi Microfinance Bank. This study is intended to examine the problem and prospect of Auchi Microfinance Bank. The bank is located at No. 40 Otaru Road, Opposite Universal Store, Auchi, Edo State.

As usual the most research works of these nature problem encountered include bureaucratic bottlenecks, unwillingness of bank official to grant me audience, unwillingness of the bank manager to divulge certain information which are personal to the bank. Also in adequate textbook, journals on the subject “Microfinance Banking” as a problem.  

1.6      Statement of Hypothesis

Ho:  Uchi Microfinance Bank cannot meet the credit needs of its customers.

Hi:   Uchi Microfinance Bank meet the credit needs of its customers.

1.7      Definition of Terms

It is important to express some of the term used in the work in a more simplified manner to avoid ambiguity and ease understanding.


A general name used for all types of credit facilities provided by the bank to its customers.



Section 73 of the Bill of Exchange Act 1882 defines a cheque as a bill of exchange draw on a banker payable on demand.

        Microfinance Bank

This is a financial institution established to cater for the saving and credit need of smalls scale producer, bankers, farmers etc throughout the country.

        Bank Distress

This is a phenomena which involves poor liquidity, poor earning and gross inability to meet payment and maturity obligation of deposit when hey fall due.


This is a party authorized to payout the money (banker).


A loan is an advance given to a customer faced repayment period and interest rate are specified at the beginning.


This is the party to whom money should be paid.

        Rural Bank

As the name implies is a bank carrying out its activities in the rural areas.

        Rural Dwellers

Group of persons staying in the rural areas.


It is an item of tangible nature which the bank may as for on which the borrower will obtain.

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