The Impact Of Microfinance Banks In Rural Development In Nigeria

Project and Seminar Topics with material for Banking and Finance

The Impact Of Microfinance Banks In Rural Development In Nigeria


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.

Chapter One

1.0 Introduction

1.1 Background of 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

  1. How does microfinance bank reduce poverty in the community?
  2. What is the function of microfinance bank toward women and other disadvantaged population groups?
  3. What does microfinance bank does towards the activities of business in the community?
  4. Is micro finance bank a base for the development of the rural infrastructure?

1.4 Objectives of the Study

  1. To ascertain how microfinance banks help to reduce poverty in the community.
  2. To find out the function of microfinance bank towards women and other disadvantaged population groups.
  3. To find out what microfinance bank does towards the activities of business in the community.
  4. 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.

Hypothesis One
  • HI: Micro finance bank does not provide for the needs of the people.
  • Ho: Micro finance banks provides for the needs of the people.
Hypothesis Two
  • Ho: Microfinance bank does not assist in the employment of the people.
  • HI: Microfinance bank assists in the employment of the people.
Hypothesis Three
  • 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.
Hypothesis Four
  • 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 of 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 the basis self-recognition and credit works.


Money kept in a bank not to be withdrawn without notices on which interest is payable.


A payment made to somebody on trust on the ground that such money will be repaid as at when due.


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.


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.


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.


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.


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.


The risk bearing portion of the long-term capital of a business organization for a company it is the share capital and reserve.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was aimed at finding out the positive impacts of micro finance banks in rural development in Nigeria,

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with micro finance banks in rural development.

5.2 Summary

Rural transformation is all about seeking to bring about improvement in the living condition of the people in the community. The aim of microfinance is not only to extend credits to beneficiaries but to promote entrepreneurial activities and boost rural financial markets that will provide sustainable access to financial services by creating a relationship between those with financial resources and those who need them. It is in this light that Central Bank of Nigeria provides an appropriate policy and regulatory framework for the bank operations for the microfinance sector to gain both public and donor confidence

5.3 Conclusion

Many individuals view banks as homogeneous financial intermediaries (The Uniqueness of Community banks. This study argues that such a view is misleading because the more numerous microfinance banks in Nigeria up rate very differently than larger commercial banks. This research describes recent performance and risk assessment data across micro finance bank different size categories. We find evidence that microfinance banks were generally profitable over recent years. Only the small micro finance banks appear to have significant operating inefficiencies. Above all, microfinance banks have performed well in many cases better than the larger banks in managing (The Uniqueness of Community banks. rural economy. On the other hand non-interest income is not as important for micro finance banks and it is unclear whether the generation of more non-interest income represents as good a risk-return trade-off for all micro finance banks as it does for the larger bank in the country. As at the end of 2002, some micro finance banks were well positioned in terms of profitability and reported limited credit risk exposure. These trends are likely just as strong today.

5.4 Recommendations

This study evidently depicts the fact that in order to achieve the federal government policy for grassroots development, the following recommendations are made:

  1. Micro finance banks should involve themselves in the community development projects in their catchments areas.
  2. These banks should be compelled to be more active in the discharge of their functions. They should not sit complacently by expecting rural loan seekers to seek them out. On the contrary, they should comb the rural areas; enter into its nooks and cranny of these areas to sell their activities.
  3. It is of utmost necessity that rural banks should operate as poverty oriented development banks. They should seek out the very poor within these rural areas and change their lives for good through bank credit, training in entrepreneurship and investment opportunities.
  4. Micro finance banks should do more work on the areas of mobilization and sensitization of these rural communities on what they stand to gain by seeking bank credit.
  5. As a matter of urgency, micro finance banks should incorporate into their loans and advances department the services of monitoring agents who will ensure that bank loans are utilized on projects they are granted for.
  6. Government should device measures to nip in the bud the activities of selfish individuals who may want to convert Micro Finance Banks into their family financial institution.
  7. Above all, government should not think that is work is complete with the promulgation of Micro Finance Banking Decree, it is also government responsibility to ensure that the programme is being accordingly implemented by the banks themselves.

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