The Contribution Of Micro-Finance Banks To The Economic Well Being Of Rural Dweller

Project and Seminar Topics with material for Banking and Finance

Project and Seminar Topics with material for Banking and Finance


The purpose of this study is to identify the contribution of microfinance bank to the economic wellbeing of rural dweller using Alheri Microfinance Bank Limited as a case study. The establishment of the Micro-finance bank with their peculiar characteristics that enables their customers to make the savings and to obtain loan with little or no collateral is a booster to the scarcity of funds for investment among the poor, especially in the rural area. In strict sense, the micro-finance banks are not banks at all, since their operations are abbreviations to what is obtained in convectional banks, as regards rules and regulations guiding banks, their duties in general and their profit orientation altitude. The role of micro-finance banks in Nigeria to the rural dwellers is nothing to write home about and those who intend to set up micro-finance banking business in future. In addition, the findings from this research study shows that microfinance banks have not identified themselves adequately with rural dwellers, cooperative societies and export financing to transform in the Nigeria economy into meaningful development this area should not be neglected to commercial banks and traditional money lenders in terms of financing and investments.

Chapter One

1.0 Introduction

1.1 Background to the Study

The federal government of Nigeria in the 1990 budget speech decided to establish micro-finance in order to stretch its programme of grass-roots economic development. The aim of this study is to make a research on the contribution of microfinance banks to the economic well being of rural dwellers in Nigeria.

The micro-finance bank scheme which has started years ago received recognition as social economic venture designed to address poverty and aimed at motivating and encouraging the rural dwellers to improve their standard of living through proper use and management of resources generated in their communities.

Alheri microfinance bank was the first micro–finance bank in Kaduna State. The project took off in the country with a mandate from the presidency to improve the lost of people through credit facilities devoid of conventional banking bottle necks and its operating capital boss supplied by unfired community.

This community provides the building for the operation and the management staff a well ass the board and the trustee. The idea is that when such collective money is given out as loans, there won’t be much difficult in recovering it back as at when due.

Micro finance bank has evolved as an economic development approach intended to benefit low income women and men in the rural areas. The term refers to the provision of financial services to low – income earners, including the self – employed. Financial services generally include savings and credit; however, some microfinance organizations also provide insurance and payment service.

Microfinance banking is not simply banking, it is a development tool.

Micro finance activities usually involve:

  • Small loans, typically for working capital.
  • Informal appraisal of borrowers and investments.
  • Collateral substitutes, such as group guarantees or compulsory savings.
  • Access to repeat and longer loans, based on repayment performance
  • Streamlined loan disbursement and monitoring
  • Secure savings products

Although some Microfinance banks provide enterprise development services, such as skills training and health care, these are not generally included in the definition of micro finance.

Microfinance banks can be non governmental organizations savings and loan cooperation’s, credit unions, government banks, commercial banks, or non bank financial institutions. Micro finance bank clients are typically self employed low income entrepreneurs in both urban and rural areas. Clients are often traders, street vendors, small farmers, service providers (hairdressers, rickshaw drivers) and artisans and small procedures, such as blacksmiths and seamstress. Usually their activities provide a stable source of income (often from more than one activity). Although they are poor, they are generally not considered to be the poorest of the poor.

Money lenders and relating savings and credit associations are informal microfinance providers and important sources of financial intermediation.

1.2 Objectives of the Study

The general objective of this study is to determine the contribution of microfinance bank to the economic wellbeing of rural dwellers:

  1. To reveal the contribution of micro-finance banks on rural dwellers and benefit of Alheri microfinance Bank Limited, Kaduna to the people of Kaduna and its entire environment.
  2. To determine the extent to which accessibility to micro credit has increased the household income of rural dwellers in Kaduna metropolis.
  3. To examine the contribution of micro finance bank on asset acquisition and saving of rural dwellers in Kaduna.

1.3 Statement of the Problem

The major problem necessitating this study arose from the Central Bank of Nigeria’s laws, regulation, supervision and central placed over the activities of micro finance banks which are:

  1. These relive the micro finance and every micro finance bank is accepted with respect to their proper books of account and it must be submitted to the National Board not later than 28 days.
  2. Another problem can be seen in its books and affairs because it is a fully fledged banks, it books and affairs are subject to continuous examinations by Central Bank working through natural board for micro finance banks.
  3. Equally, not later than four months after the end of its financial year, each micro finance bank must submit to the National Board and exhibit prominently to the view of all members of the micro finance banks balance sheet and profit and loss account

1.4 Statement of Research Hypothesis

The following hypotheses serve as a basis of the questions to be answered for the study.

Ho: There is a significant relationship between micro-finance bank and the economic development of rural of dweller.

H1: There is no significant relationship between micro-finance bank and the economic development of rural of dweller.

1.5 Scope of the Study

With available data on microfinance banking on rural dweller, the case study will focus its attention on the management system of Alheri Microfinance Bank Limited, Kaduna and suggest wages by which the micro-finance banking system can be improved.

1.6 Limitation of the Study

This research work shall be limited to the contribution of micro-finance banks to the economic wellbeing of rural dwellers.

The following are the limitation that hinders the study of this research work;

Financial Constraints:

There are not enough funds to fuel the study of this research work. The researcher has access to a very little source of fund.

Time Constraints:

Due to the limited time available to carry out this research work, it is not possible to carry out the research extensively as anticipated by the researcher.

1.7 Definition of Terms

Micro Finance:

A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance


A financial establishment that invests money deposited by customers, pays it out when required, makes loans at interest, and exchanges.


This means a characteristic of the countryside rather than the town.


This refers to the something that is given in order to help achieve or provide something.

Rural Dwellers:

These are people living in rural areas.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary of Findings

This evaluated the impact of microfinance banks on the beneficiaries in Kaduna State. The activities offered in the MFBs in the study include Small Loans, Large Loan, Savings Opportunities, Insurance, Money Transfer and Foreign Exchange. The study reveals also that there is a significant difference (in terms of income, business expansion and improved profit) in the number of businesses who use microfinance products than those that did not use Microfinance Credit. The major challenge faced by microfinance operators is the Growing incidence of loan while inflexibility of Microfinance banks to small borrowers is the major challenge of borrowers.

Microfinance is an instrument that under the right conditions fits the need of a broad range of population thus bringing about economic development. Empirical indications are that the target users are middle class persons (public liability companies, state government and local government salaries earners). There are people in this group (middle class) who were excluded from using of microfinance product because they are not salary earners nor in a co-operative or government approved group.

5.2 Conclusion and policy implications

This study has provided an insight into the activities and role of microfinance banks and its ability to bring about economic growth. It is concluded that microfinance bank is a vital instrument for economic growth when properly restructured.

It was concluded that there is a need to restructure the product offered by microfinance bank and there is a need to increase they operations size for the banks (operators). It is concluded that the new reviewed microfinance policy framework when fully implemented will increase the capacity of microfinance banks to meet their target objectives.
Also, it is observed that interest rate is neither market demand nor policy determined but based on negotiation skill of the customer and nature of business intended. This has endangered professionalism on the part of the operator.

This study concluded that the policy framework be reviewed so that the constraints and barriers in accessing micro-credit for enterprise development by micro entrepreneur be handled. These constraints and barriers can be summarized as internal constraints and barriers, social cultural constraints, and non-supportive policy constraints.

The internal constraints are those factors that are inert to the micro entrepreneurs, such as lack of mental access in which they do not believe in micro credits and MFBs due largely to ignorance, fear of the consequence of default, and the myth that “bank facilities are meant only for the rich”. These barriers and constraints are largely cultivated by environmental reinforcements planted and nurtured by the myths surrounding conventional banking. More-so, repayment should include a grace period with reasonable schedule instead of weekly payment period that is commonly found among the microfinance banks in Nigeria.

5.3 Recommendations

This study has made the following recommendations:

i. Product design issues: incorporating approaches into microfinance banks that are tailored towards clients needs can increase positive impact and avoid inflexibility on the part of the operators. (Ironically the design activities of microfinance banks often serve a limit the horizon of a number of the middle class and confine them to low return activities. The study suggests that greater flexibility in loan size and repayment schedules could significantly increase the impact of microfinance.)

  1. Microfinance product should be combined with other development tools to affect its effectiveness. Reversing the down ward spiral which enhances economic development will require a comprehensive approach. Isolating individual development target would be mistaken, since sustained progress in any one area depends on advances in all area of economic development (UNICEF, 1999).
  2. A review of the existing microfinance regulatory policy and framework, using recognized economic development/ poverty assessment tools, these would aid the determination of the current levels of clients presently served.
  3. A percentage of state and local government funding to microfinance banks should be allocated directly to programs that target local financial market. This fund disbarment should not be politically influenced but market demand oriented, also the percentage of fund allocated should be increased over the next ten years until basic development / poverty reduction tools are in place.
  4. The decisions on whether and how to intervene in local financial markets should be taken with prior knowledge of the working of those markets. Thus, government agencies instituted to aid economic development and poverty reduction via the microfinance bank should make informed decision on whether their work is likely to augment or impact development and poverty reduction agenda.

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