The role of microfinance banks in the alleviation of poverty in nigeria. ( a case study of oha microfinance bank ogui road branch, enugu state)

Thesis Overview

<p> </p><div><b><p><b>INTRODUCTION</b></p><p><b></b></p><b><p><b>1.1:</b>&nbsp; &nbsp; &nbsp;<b>BACKGROND<br>OF THE STUDY</b></p><p><b></b></p><b><p>A<br>robust economic growth cannot be achieved without putting in place well focused<br>programme to reduce poverty through empowering the people by increasing their<br>access to factors of production.</p><p>The<br>latent capacity of the poor for entrepreneurship would be significantly enhanced<br>through the provision of microfinance services to enable them engage in<br>economic activities and be more self-reliant, increase employment<br>opportunities, enhance household income and create wealth. Micro-financing has<br>existed for years before the introduction of conventional banking in Nigeria<br>and the later part of nineteenth century. (Ekot, 2008)</p><p>The<br>traditional Nigerian society has a system of group savings and assistance to<br>one another. The practice was that a group of people who had needs for some<br>form of capital or lump sum to execute a particular project which they could<br>not raise adequate savings on their own, usually come together to form a<br>savings group. The group may be named after the leader who is usually the<br>initiator of the venture. The traditional microfinance institutions provide</p><p>11</p></b></b></b></div><b><b><b><div><p>access<br>to credit for the rural and urban low-income earners. These are mainly the<br>informal self-help groups such as <i>Isusu,women</i><br>association like one obtainable during popular August meetings,</p><p><i>Umu</i>–<i>ada progressive </i>women<br>association. Other providers ofmicrofinance<br>services include savings collectors and co-operatives.</p><p>(CBN brief, 2005)</p><p>The<br>unwillingness and inability of the formal financial institutions is to provide<br>financial services to the urban and rural poor, coupled with unsustainability<br>of government sponsored development financial schemes, contributed to the<br>increase in number of private sector led micro finance in Nigeria. Thus, before<br>the emergence of microfinance institutions, informal microfinance activities<br>flourished all over the country. The Central Bank of</p><p>Nigeria<br>(CBN) as at end of December 2009 gave an approval to 840 microfinance banks to<br>begin operation in the country. (CBN briefs, 2008-2009)</p><p>Microfinance<br>banking is about providing financial services to the economically active poor<br>and low income household, who are traditionally not served by the conventional<br>financial institutions.</p><p>These<br>services include credit savings, micro-leasing, micro-insurance and payment<br>transfers to enable them engage in income generating activities. (Asemota,<br>2002)</p><p>12</p></div><div><p>However,<br>the microfinance policy launched on 15th<br>December 2005 defined the framework for the delivery of these financial<br>services on a sustainable basis to the micro, small and medium enterprises<br>(MSMES) through privately owned microfinance banks.</p><p>The Non-governmental Organizations or Microfinance<br>institutions</p><p>(NGO-MFIS)<br>are also expected to transform to microfinance banks. (Dinye, 2006)</p><p>Existing<br>Community banks and NGO-MFIS that want to convert and transform respectively to<br>a microfinance bank but do not have the required minimum capital base can<br>increase the share capital by capital injection, merger and acquisition. These<br>would not only enhance monetary stability but also expand the financial<br>infrastructural development of the country to meet the national financial<br>system and provide stimulus for growth and development</p><p>(Benson,<br>1985). It would also harmonize operating standards and provide a strategic<br>platform for the evolution of microfinance institution, promote appropriate<br>regulation, supervision and adoption of best practices. The establishment of<br>microfinance banks has become imperative to serve the following purposes:</p><p>Improve,<br>diversified and create a dependable financial service to the active poor,<br>low-income earners in a timely and competitive manner that would enable them to<br>undertake and develop long-</p><p>13</p></div><div><p>term,<br>sustainable entrepreneurial activities, mobilize savings for intermediation,<br>create employment opportunities and increase the productivity of active poor<br>and income earners in the country. Thus increasing their individual household<br>income and capacity standard of living, enhance organized and systematic but<br>focused participation of the poor in the social-economic development and<br>resource allocation process. It will also provide veritable avenues for the<br>administration of the micro credit programme of government and high net worth<br>individual on non-resource basis. This policy ensures that state government<br>shall delegate an amount of not less than 10% of their annual budgets for<br>on-lending activities of microfinance banks in favour of their residents and<br>render payment services such as salaries, pension for various tiers of<br>government (Luck,2011).</p><p><b>1.2:</b>&nbsp; &nbsp; &nbsp;<b>STATEMENT<br>OF PROBLEM</b></p><p><b></b></p><b><p>Nigeria<br>consists of different classes of individuals, who are either enterprising or<br>industrial low class that account for over half of the population who do not<br>have access to formal banking services. Savings have continued to grow at a<br>very low rate particularly in the rural areas of Nigeria. One of the problems<br>brought to bear is the inability of rural dwellers to channel their savings<br>into banks. Most rural people keep their resources under their pillows. This</p><p>14</p></b></div><b><div><p>method<br>of keeping savings is risky because it might be stolen, lost or wasted in<br>extravagant spending. Moreover, returns which would have accrued to the<br>depositors in form of interest are forfeited.</p><p>The<br>contribution of government to alleviate poverty through the establishment of<br>microfinance banks appears a little progress. Inspite of the establishment of<br>microfinance banks, it was observed that most people are not able to obtain<br>loan. This is attributed to a number of challenges such as the high level of<br>interest rate, lack of collaterals required by the commercial banks before<br>loans can be granted which necessitated the establishment of Microfinance to<br>address these economic imbalances. If the banking industry continue to meet the<br>demands of Nigerians especially the rural poor, this shows that there is a gap<br>which need to be filled and this can be done through the contribution of<br>government by establishing more microfinance banks in Nigeria to help in<br>alleviation of poverty.</p><p>Another<br>problem observed is the inability of prospective borrowers of most microfinance<br>banks to repay their loans as at when due. This may be attributed to high rate<br>of poverty in the country. The high rate of poverty is noticeable in such area<br>such as unemployment, high rate of inflation, non-payment of salaries, mismanagement<br>of loan granted to rural dwellers, infrastructural</p><p>15</p></div><div><p>deficiencies,<br>such as power, road network, etc. and all kinds of political, economic and<br>bureaucratic bottlenecks.. Also Nigerian economy consists of individuals who<br>feed from hand to mouth. The loans when granted are channeled to other areas<br>such as feeding, payment of bills, school fees, hospital bills and others<br>instead of using it for the intended business purpose.</p><p><b>1.3:</b>&nbsp; &nbsp; &nbsp;<b>OBJECTIVES<br>OF THE STUDY</b></p><p><b></b></p><b><p>The<br>broad objective of this study is to find out the role of microfinance banks as<br>a palliative in the alleviation of poverty in</p><p>Nigeria. They are as follows:</p><p>1. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>To find out the rate at which rural dwellers deposit their<br>money in microfinance banks rather than putting it under pillows.</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>To find the contribution of government in alleviation of<br>poverty through the establishment of microfinance banks.</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>To find out the rate at which rural dwellers are able to<br>repay their loans.</p><p><b>1.4:</b>&nbsp; &nbsp; &nbsp;<b>RESEARCH<br>HYPOTHESIS</b></p><p><b></b></p><b><p>The following hypotheses have been<br>developed around which this</p><p>research would revolve:</p><p>16</p></b></b></div><b><b><div><p>H0: &nbsp; &nbsp; The rate at which rural dwellers<br>deposit money in microfinance bank is low than they keep under their pillows.</p><p>H1: &nbsp; &nbsp; The rate at which rural dwellers<br>deposit money in microfinance banks is high than they keep under their pillows.</p><p>H0: &nbsp; &nbsp; The government has not assisted<br>microfinance meet the needs of rural dwellers and communities.</p><p>H1: &nbsp; &nbsp; The government has assisted<br>microfinance meet the needs of rural dwellers and communities</p><p>H0:<br>Microfinance borrowers react negatively towards loan repayment. H1:<br>Microfinance borrowers react positively towards loan repayment.</p><p><b>1.5:</b>&nbsp; &nbsp; &nbsp;<b>RESEARCH<br>QUESTIONS</b></p><p><b></b></p><b><p>1. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>What is the rate at which rural dwellers deposit their<br>money in microfinance banks rather than putting it under their pillow?</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>What is the contribution of government in alleviation of<br>poverty through the establishment of microfinance banks in Nigeria?</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; <br>Why do most Microfinance borrowers react negatively<br>towards loan repayment?</p><p><b>1.6<br>: SIGNIFICANCE OF THE STUDY</b></p><p><b></b></p><b><p>This study will benefit the<br>following groups:</p><p>a. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Government; The <br>findings of this <br>study will be <br>useful to</p><p>government in that it will help<br>them to know the importance of</p><p>17</p></b></b></div><b><b><div><p>MFI<br>thereby knowing ways of improving the quality of their services. The result of<br>the study will also bring out the areas that need improvement and make<br>suggestions for improving on them.</p><p>b. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Owners; It <br>will also be <br>useful to those <br>planning to open</p><p>Microfinance<br>banks to know the usefulness of microfinance banks as catalyst or stimulus for<br>poverty alleviation in rural settings as way of developing rural banking.</p><p>c. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>Scholars; Students also will find it very useful in some<br>research work on project issues by boosting their knowledge about microfinance<br>banks in the alleviation of poverty. Those who need referencing material<br>materials on role of micro financing in alleviating poverty will find this<br>study useful.</p><p><b>1.7<br>: SCOPE OF THE STUDY</b></p><p><b></b></p><b><p>The<br>research on the role of microfinance banks in poverty alleviation which<br>requires a thorough analysis of the Oha</p><p>Microfinance<br>Bank, Ogui Road branch in Enugu State.</p><p><b>1.8:</b>&nbsp; &nbsp; &nbsp;<b>LIMITATIONS<br>OF THE STUDY</b></p><p><b></b></p><b><p>In the<br>course of this research work, the researcher encountered different problems<br>such as:</p><p><b>1. &nbsp; &nbsp; &nbsp; &nbsp; <br></b>Inadequate<br>finance: As a student, financial difficulties limit the<b></b></p><b><p><b></b></p><b><p>researcher from studying the<br>activities of all banks and also limit</p><p>18</p></b></b></b></b></div><b><b><b><p>the<br>volume of data collection; e.g. the funds available will not be</p><p>enough in transporting and facts<br>findings.</p><p><b>2. &nbsp; &nbsp; &nbsp; &nbsp; <br></b>Time constraint: There was no time to conduct an enormous<br>research.<b></b></p><b><p><b></b></p><b><p><b>3. &nbsp; &nbsp; &nbsp; &nbsp; <br></b>Inability to get access to some Microfinance banks to get<br>more information about their records and some other useful information about<br>the work also limit the research data collections.<b></b></p><b><p><b></b></p><b></b></b></b></b></b></b></b></b></b></b></b></b></b></b></b><br> <br><p></p>