Role Of Micro-Finance Bank On Poverty Reduction

Project and Seminar Material for Business Administration and Management BAM

Project and Seminar Material for Business Administration and Management BAM


Chapter One


Introduction

1.1 Background Of The Study

Poverty has been one of the major problems of mankind and its reduction/alleviation is imperative for societal progress. Poverty is viewed largely as a problem of the poor earning too little income, consuming too little to attain a socially acceptable standard of living. Microfinance is a key development strategy for promoting poverty reduction and economic empowerment. Microfinance has been defined as efforts to improve the access to loans and to savings services for poor people (Shreinner, 2001:1), and is currently being promoted as a key development strategy for promoting poverty reduction/eradication and economic empowerment. It has the potential to effectively address material poverty, the physical deprivation of goods and services and the income to attain them by granting financial services to households who are not served by the formal banking sector. Poverty is a global phenomenon with over 2.8bn of the world population living below the poverty live out of which 1.1billion live on less than US$1.00 per day (CBN). This prompted the international community to declare the Millennium Development Goals (MDG) aimed at reducing incidence of poverty globally by half by 2015 (CBN 2009:21).

One of the compelling challenges facing mankind today is the problem of poverty. Poverty is not only on the increase, but also wide spread in many developing countries (Osuala, et al, 2009:152). The dimension of hunger and malnutrition, which are extreme cases of poverty are alarming and cannot leave anyone indifferent. According to World Bank report, an estimated 174 million under-five children in the developing world were malnourished in 1996-1998, and 6.6million out of 12.2million deaths among children in that age group were associated with malnutrition (Osuala, et al: 2009:152). However, today, as other continents such as South Asia continues to register sustainable economic growth and development, Africa is not only lagging behind, but is still trapped in a vicious circle of poverty, depending on borrowing from outside the continent and largely relying on donor nations, which practically sabotage real economic development. The unflinching commitment of the Central Bank of Nigeria to the reduction of poverty and other associated socio-economic malaise in Nigeria, informed the decision of the Bank to formulate and implement a functional microfinance policy framework aimed at stimulating sustainable growth and development. This has become more imperative in view of the limited capacity of the formal banking sector in providing financial services to the vast majority (about 65%) of the Nigeria population considered poor but economically active (CBN 2010:22).

Microfinance institutions could play a pivotal role in meeting the financial needs of both households and micro enterprises. Traditional or formal banking sector has

failed to provide adequate credit services to the poor, and microfinance institutions and programmes are being developed to fill this gap. If microfinance institutions

are correctly aimed at improving access to credits, then encouraging savings and the means to save to those who did not have such access before, could play a critical role in eradicating or reducing poverty and empowering a nation, including Nigeria, which, according to Ankomah and Chamba (2000:5) could lead to economic development generally.

The increasing role of microfinance in development cannot be overemphasized and it is due to several key factors (UN: 2000:1). These factors include:

  1. The poor need access to resources of which appropriate financial services are a key resource in order to improve their condition.
  2. There is a high demand among the poor for credit services, because provision of this service by the commercial or formal sector is limited.
  3. The poor can save, repay loans and effectively utilize resources towards income generation provided that the instruments are appropriate to their needs.

The interest in microfinance as a development strategy is evident from the support, supervision and directives it has received from the Central Bank of Nigeria and other supervisory agencies as well as private banking institutions.


1.2 Statement of problem

Access to microfinance services is still highly biased.. What seems to be evident even more is the high level of poverty, unemployment and starvation that is rampant in the society. Also, owners of small and medium enterprises find it difficult to gain access to microfinance funding due to high interest rates, rigid policies. The mechanisms to transform these small scale business/ventures into formal economic structure so that it will help in reduction of poverty is possible with the aid of micro-finance funding but there is still a barrier of inability of owners of this businesses to acquire funds due to ignorance and also failure of microfinance institutions to reach out to the owners of such businesses. Occasionally, programmes by governments and public agencies provide skills, start-up capital and other inputs, which are meant to to aid in reducing poverty. Despite the empowerment supports, many of these programmes have been mostly adhoc and poorly sustained due to inadequate funding and working capital. Microfinance institutions have not been able to extend their services to numerous people that need their services. The consequence of this is high level of poverty in the society. It is in view of these constraints that this study is carried out


1.3 Objectives of the study

  1. To determine the role of micro-finance banks on poverty reduction.
  2. To find out the impact of micro finance institutions in socio-economic development
  3. To examine the challenges faced by micro finance institutions in reducing poverty.
  4. To examine ways of overcoming these challenges of reducing poverty

1.4 Research questions

  1. What are the roles of micro-finance banks on poverty reduction?
  2. What is the impact of micro finance institutions in socio-economic development?
  3. What are the challenges faced by micro finance institutions in reducing poverty?
  4. What are the possible ways of overcoming these challenges of reducing poverty

1.5 Statement of Hypothesis

As a guide to achieve the objectives of the study, the following hypotheses were formulated:

  1. Ho: Provision of credit, educating business owners on how to utilize credit, aiding the development of small enterprises and empowering weak businesses financially are not the roles of micro-finance banks on poverty reduction.
    Ha: Provision of credit, educating business owners on how to utilize credit, aiding the development of small enterprises and empowering weak businesses financially are the roles of micro-finance banks on poverty reduction.
  2. Ho: Reduction of poverty, establishment of small scale enterprises, increasing access to basic social services and enhancement of the well being of the very poor people are not the impact of micro finance institutions in socio-economic development.
    Ho: Reduction of poverty, establishment of small scale enterprises, increasing access to basic social services and enhancement of the well being of the very poor people are the impact of micro finance institutions in socio-economic development.
  3. Ho: Lack of technical skills and capacity, limited outreach to the poor, absence of micro finance institutions in rural areas are not the challenges faced by micro finance institutions in reducing poverty.
    Ha: Lack of technical skills and capacity, limited outreach to the poor, absence of micro finance institutions in rural areas are not the challenges faced by micro finance institutions in reducing poverty.
  4. Ho: Allowing easy access of Microfinance services to women and other vulnerable persons, establishment of microfinance institutions in rural areas where the poorest of the poor are, implementation of favourable/less stringent conditions on credit and reduction of interest on credit are not possible ways of overcoming these challenges of reducing poverty.
    Ha: Allowing easy access of Microfinance services to women and other vulnerable persons, establishment of microfinance institutions in rural areas where the poorest of the poor are, implementation of favourable/less stringent conditions on credit and reduction of interest on credit are not possible ways of overcoming these challenges of reducing poverty

1.6 Significance of the Study

The significance of the study is that it will bring to light the relevance of micro finance banks in bringing about poverty reduction in the society. It will help microfinance institutions identify the barriers to reducing in the society. It will serve as a useful reference material to other researchers seeking for information on the subject.


1.7 Scope of the Study

This research work is focused on the role of micro-finance bank on poverty reduction in Akwa Ibom state using selected co-operative women society in Akwa Ibom as a case study. Also included in the scope are:

Four variables as listed in the research questions.

  1. The use of questionnaire as instrument of data collection.
  2. Use of descriptive statistics
  3. Fifty respondents
  4. The use of Chi-Square statistics

1.8 Limitations of the Study

The study was limited by the following factors:

Financial Factor:

Inadequate funds affected the way data were collected since the researcher had to travel long distances for the distribution of the research questionnaire forms.

Time Factor:

This affected the reduction in the size of the sample used for the study because the researcher had less than two months to complete the study.

Material Factor:

Shortage of relevant materials for literature review posed a great difficulty.

The study was also limited to the information gathered from primary and secondary records.


1.9 Organization of the Study

In this research study, the researcher took a critical look at the role of micro-finance bank on poverty reduction in Akwa Ibom state using selected co-operative women society in Akwa Ibom as a case study. The research work was divided into five chapters.

Chapter one was on the background of the study, as well as statement of the problem, objectives of the study, research questions, statement of hypothesis, significance of the study scope and limitation of the study, organization of the study and definition of terms.

Chapter two reviewed the related literature on the subject matter and contributions of different authors.

Chapter four takes care of the data presentation, analysis and interpretation as well as discussion of findings.

Chapter five (5) encapsulates the summary, findings, conclusion and recommendations made by the researcher.


1.10 Definition of Terms

Poverty:

The state of not having enough money to take care of basic needs such as food, clothing, and housing

Banks:

A business that keeps money for individual people or companies, exchanges currencies, makes loans, and offers other financial services

Micro-finance bank:

Any company licensed by the central bank of Nigeria to carry on business of providing microfinance services such as savings, loans, domestic funds, etc that are needed by economically active poor and micro small and medium enterprises.

Loan:

A sum of money that an individual, group borrows from another individual, group or legal entity on the condition that it will be paid back, usually with interest.

Interest:

The price paid for obtaining loan or credit.

Credit:

A privilege of delayed payment extended to a buyer or borrower on the sellers of lender’s belief that what is given will be repaid.


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