Micro Finance Development In Nigeria: Problems And Prospects

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Abstract

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The research work looks at Micro Finance Institutions (MFIs) from a broad perspective as any institution services to low-income entrepreneurs who are traditionally well served by conventional/formal financial institutions from this view pointy; it reviews past efforts to promote microfinance policy guidelines.

The research work evaluated the development of microfinance in Nigeria and made some proposals towards making microfinance institutions more effective and result-oriented. Prominent among these recommendations is the need for government not to interfere with the determination of interest rates charged by MFIs a need for effective supervision of Micro Finance Banks (MFBs).

It also recommends the MFBs a should explore an fully exploit the benefits of group lending to reduce cost of loans while the use of peer pressure to enforce loan repayment was advocated.

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Table Of Contents

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Preliminary Page(s)

• Title page
• Certification page
• Dedication
• Acknowledgement
• Table of content
• Abstract

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Chapter One

1.0 Introduction

• 1.1 General Overview of the Study
• 1.2 Statement of the Problem
• 1.3 Objective of the Study
• 1.4 Significance of the Study
• 1.5 Statement of Hypothesis
• 1.6 Scope of the Study
• 1.7 Limitation of the study
• 1.8 Definition of Terms

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Chapter Two

2.0 Literature Review

• 2.1 The Concept of Microfinance
• 2.2 Functions of Microfinance
• 2.3 Development Thrill of Microfinance
• 2.4 Regulatory and supervisory Framework of Microfinance-
• 2.5 Goals of Microfinance
• 2.6 Challenges Facing Microfinance Sector

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Chapter Three

3.0 Research Methodology

• 3.1 Sources of Data
• 3.2 Method of Data Analysis
• 3.3 Population Size
• 3.4 Questionnaire Design

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Chapter Four

4.0 Data Presentation and Analysis

• 4.1 Data Presentation
• 4.2 Data Analysis
• 4.3 Test of Hypothesis
• 4.4 Interpretation of Result

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Chapter Five

5.0 Summary, Conclusion and Recommendation

• 5.1 Summary of Findings
• 5.2 Conclusion
• 5.3 Recommendations
• Bibliography

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Chapter One

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1.0 Introduction

1.1 General Overview Of The Study

Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty though empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant increase, employment opportunities, enhance house hold income and create wealth. (Iweala, 2005).

Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products. These according to Ogbunka (2003) are

1. The smallest of loans advanced and/or savings collected.
2. The absence of asset-based collateral.
3. Simplicity of operations.

In Nigeria, the formal financial system provides services to about 35% of the economically active population while the remaining 65% are excluded from access to financial services. This 65% are often served by their informal financial sector, through Non-Governmental Organization. (NGO). Microfinance Institutions, Money lenders, friend, relatives and credit unions. The Non-regulation of the activities of some of these institutions have serious implications for the Central Bank of Nigeria (CBN) ability to exercise one aspect of its mandate of promoting monetary stability and a sound financial system.

A microfinance policy which recognizes the outstanding existing informal institutions and brings them within the supervisory preview of the CBN would not only enhance monetary stability, but also expand the financial infrastructure of the country to meet the financial requirements of the micro small and medium enterprises (MSMEs) such a policy would create a vibrant microfinance sub sector that would be adequately integrated into the mainstream of the national financial system and provide the stimulus for growth and development.

It would also harmonize operating standards and provide a strategic platform for the evolution of microfinance institutions, promote appropriate regulation, supervision and adoption of best practices. In these circumstances an appropriate policy has become necessary to develop a long-term sustainable microfinance sub sector.

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1.2 Statement Of The Problem

1. The research study is geared towards solving the following problems, is microfinance necessary for the economic development of Nigeria?
2. The ways through which microfinance programme can be sustained.Can microfinance be a solution to the problem of ineffective banking service at the grassroots (rural areas)?
3. Microfinance scheme, a solution for Nigeria entrepreneurial and industrial development.

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1.3 Objective Of The Study

The purpose of this study is

1. To find and bring to our understanding the need for the development of small and medium scale entrepreneurs
2. The importance of microfinance to the nation
3. To increase the monetary stability function of central bank
4. To improve on the supervision and best practices of the scheme/microfinance.
5. To make recommendations on how to solve the problems associated with microfinance in Nigeria.

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1.4 Significance Of The Study

1. It provides opportunities for sourcing short-term funds for small and medium scale.
2. It introduce policies that check and regulate activities of the operators of the scheme
3. It provides opportunities for reaching the poor and the less privileged in the society
4. It creates opportunity for students who are studying financial management and other related courses to have in depth knowledge of microfinance.

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1.5 Statement Of The Hypothesis

To achieve a meaningful result the following hypothesis have been proposed for the present study

1. Ho: Microfinance banks play prominent role in the economic development of Nigeria
2. Hi: Microfinance banks have positive impact in enhancing service delivery of micro small and medium enterprises.

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1.6 Scope Of The Study

This research work is worth particular reference to selected microfinance banks in Lagos State such as New Life MFB, Sunrise MFB, Integrated MFB, Traders MFB, Unique MFB, etc

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1.7 Limitations Of The Study

In this research work many problems were encountered but the most existing thing is that, despite the problems, the study was completed.

Time constraints was not left out from the limitations because carrying out a research is time consuming and combining it with classroom work and exams, was not an easy task.

Finance was also one of the constraints I faced in carrying out this research work but in view of all the constraints, the project was successful and it covered only Lagos microfinance banks.

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1.8 Definition Of Terms

Ancillary:

Providing necessary support to the main work to activities of an organization.

Credit:

Buying or borrowing on the promise to repay in at a later date.

Delinquencies:

When consumer fails to make monthly payment

Devastation:

Great destruction or damage, especially over a wide area

Disbursement:

Paying money to somebody from a large amount that has been collected for a purpose

Empowerment:

To give somebody more control over their own life or the situation they are in.

Entrepreneur:

A person who makes money by starting or running business

Facilities:

Building, services, equipment, etc that are provided for a particular purpose.

Framework:

A set of beliefs, ideas or rules that is used as the basis for making judgments decisions.

Gigantic:

Extremely large.

Grassroots:

Ordinary people in society or in an organization.

Infrastructure:

The basis systems and services that are necessary for a country or an organization to run smoothly

Metropolis:

A large important city often the capital city of a country or region.

Paucity:

A small amount of something less that enough of something.

Prospect:

‘An idea of what might or will happen in the future.

Purview:

Within the limits of what a person an organization can do.

Robust;

Strong and not likely to fail ort become weak

Scheme:

A plan for getting money or some other advantage for yourself

Surfeit:

An amount that is too large

Thrill:

A strong feeling of excitement or pleasure.

Vulnerable:

Weak and easily hurt physically or emotionally.

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Chapter Five

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5.0 Summary, Conclusion And Recommendation

This study became necessary due to the perceived development thrill of microfinance banks. Microfinance banks are very important forces in the growth and development of the economy due to the fact that they provide the starting point for small business and also serve as spring board and training ground for entrepreneurs.

This study was carried out to appraise the prospects and problems of microfinance banks.

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5.1 Summary Of Findings

In this study, it was found that the major source of finance for entrepreneurs is from microfinance institutions.
Banks provides financial services to the poor. The microfinance has played a dynamic and positive role in responding to the needs aspirations and future challenges of the entrepreneurs.

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5.2 Conclusion

There exists a huge untapped potential for financial intermediation at the micro and rural levels of the Nigerian economy Attempts by government in the past to fill this gap, through supply driven creation of financing institutions and instruments, have failed, due to the poor capitalization of such schemes and restrictive regulatory and supervisory procedures, among other factor.

The community banks were designed to fill the gap, but their low capital base and isolated mode of operation have not enabled them to make meaningful contribution of micro financing.

High operating cost as a result of inability to reach the critical scale for viability. Our findings suggest that the viable microfinance industry in Nigeria would require that:

1. Government pursues policies that ensure macro-economic stability, which ensures that small firms thrive.
2. Government eschews the temptation to directly manage or fix interest rates charged on microfinance services so that cost recovery is not compromised.

MFBs should explore and fully exploit the benefits of group lending to reduce cost of loans and use the peer pressure exerted by these groups to enforce loan repayment, thereby reducing the incidence the incidence of delinquent loans.

This study confirmed some problems sited in some literature. These problems include poor infrastructural facilities, unstable macroeconomic environment in interest rate subsidization.

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5.3 Recommendation

The problem of microfinance banks could be reduced to the bearest minimum if the following issues are considered.

1. Provision of micro credits by NGOs
2. Inadequate income generation and grants
3. Unstable microeconomic environment.
4. Massive loan delinquencies
5. Absence of supervision or incompetent supervision.
6. The extension of commercial banking to the rural areas, through the CBN administers rural banking programme where existing commercial banks were allocated rural branches to open.
7. The licensing of community-owned unit branch financial institutions to provide limited banking services to customers (community banks).
8. Interest rate subsidization.
9. Lack of depositor confidence in the institutions, as their deposits were not insured.
10. Poor infrastructural facilities
11. MFBs should adopt automated management information systems to speed up transaction processing.
12. MFBs should have attractive compensation systems that would attract and retain experienced staff.
13. MFBs should be very innovative in product design, customer relationship management and the design of their lending methodology.

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