The Role Of Microfinance Bank In Economic Development In Nigeria

Project and Seminar Material for Economics

Abstract

This study is on the impact of microfinance bank on economic growth of Nigeria. The total population for the study is 200 staff of community bank, Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up managers, customer care officers, marketers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

Chapter One

Introduction

1.1 Background of the Study

It would be observed that, despite the presumed developments in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema, 2006). More so, its industrial growth is not quite impressive. Before the emergence of formal microfinance institutions, informal microfinance activities flourished all over the country. Traditionally, microfinance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives, government owned institutional arrangements, poverty reduction programmes etc (Lemo, 2006). The Central Bank of Nigeria Survey in 2001 indicated that the operations of former microfinance institutions in Nigeria are relatively new, as most of them never registered after 1981. Before now, commercial banks traditionally lend to medium and large enterprises which are judged to be credit-worthy. They avoided doing business with the poor and their micro enterprises because the associated cost and risks are considered to be relatively high (Anyanwu, 2004). The Federal and State governments have recognized that for sustainable growth and development, the financial empowerment of the rural areas is vital, being the repository of the predominantly poor in society and in particular the SMEs. If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve rural enterprise production capabilities. (Olaitan 2006) In view of this, the impact of micro finance bank in economic growth and development of Nigeria started showcasing itself. With the initiative of microfinance, rural areas are opportune to grow and develop as loan and fund are easily given to rural farmers and entrepreneur. Jobs opportunities were created since there is avenue for lending and investing.

1.2 Statement of Research Problems

There are so many problems and challenges that hinder the functionality of the microfinance bank in carrying out their major role of improving economic growth and development in Nigeria.

These problems include

Poor attitude of Nigerians towards MFBs
Insufficient support from the regulators and government
There are communication gaps and inadequate awareness among the masses.
Undue competition rather than cooperation from the mega banks, and undue malpractice/Sharp practices by microfinance bank operation.

The researcher will in the research find possible ways of solving or making better the conditions for the operation of MFBs

1.3 Objective of the Study

The objectives of the study are;

To ascertain the impact of micro finance bank in economic growth and development of Nigeria.
To ascertain the ways in which micro finance banks can contribute in developing rural areas and improving the life of the poor people.
To investigate the ways microfinance bank can contribute in building entrepreneurship within the country.

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0: microfinance institution does not contribute to entrepreneurial productivity
H1: microfinance institutions do contribute to entrepreneurial productivity
H02: microfinance banks cannot contribute in developing rural areas and improving the life of the poor people
H2: microfinance banks can contribute in developing rural areas and improving the life of the poor people

1.5 Significance of the Study

This study is essentially significant in that it is directed towards evaluating the impact and role that micro finance banks have on the economic growth and development of Nigeria, especially the rural areas which is a criteria aimed at measuring economic standard. Owing to the fact that researcher has aimed at pinpointing the ways in which micro finance bank can help in the revamping of the nation’s economy, the findings of this research work will be of great help to most developing countries who may wish to toe the part of Nigeria in MFB development. It will also serve as a reference point for future researchers who in one way or the other will try to unveil the role and impact of micro finance bank to economic development.

1.6 Scope and Limitation of the Study

The scope of the study is subjected around the frame work of microfinance bank in Nigeria vis-à-vis its contribution to the economic growth and development. For accuracy and coherency, the research work will take as a case study the Community bank Enugu to enable precision and distinctiveness. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 Definition of Terms

Impact:

According to the advanced oxford learner’s dictionary, impact is the powerful effect that something has one somebody or something

Microfinance Bank

According to the Nigerian Banking Act, 1969 (as amended Bank amendment act 1979), Microfinance banks are institutions constructed as a company licensed to carry on the business of providing microfinance services such as collection of savings, loans provision, insurance money transfer services and other non financial services that are needed by the poor. The clients of microfinance banks are typically self employed low income entrepreneurs in both urban and rural areas, they include traders, subsistence farmers, street vendors, motorcycle riders and blacksmith etc.

Economic Growth and Development:

This term has generated a lot of controversies over the years. Some economics see it as political and structural change while others are of the opinion that it relates the progress in the basic human needs over time. Another school of thought defines it as growth accomplished by changes i.e. change in structure of the economic in the country’s social structure and its political structure.

Others have tended to make basic human needs approach, an approach which defined economic development in terms of progress toward reducing the incidence of poverty, unemployment and income inequalities and for those whose living standards have not been rising. This approach also seeks ways and means of improving their conditions,

Nigeria:

A nation in the African continent and located in the western part of Africa. it was colonized by the British and got its independent in 1960.

1.8 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), historical background, 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 important to ascertain that the objective of this study was to ascertain the impact of microfinance bank on economic growth of 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 of the impact of microfinance bank on economic growth of Nigeria

5.2 Summary

This study was on the impact of microfinance bank on economic growth of Nigeria. Three objectives were raised which included:To ascertain the impact of micro finance bank in economic growth and development of Nigeria, to ascertain the ways in which micro finance banks can contribute in developing rural areas and improving the life of the poor people, to investigate the ways microfinance bank can contribute in building entrepreneurship within the country. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of community bank, Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up managers,customer care officers, marketers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

5.3 Conclusion

It is revealed from the findings so far that Asset base and deposit liability has an insignificant impact on economic growth while Loan and Advances to the public has a significant impact on economic growth in Nigeria. However, the overall significance of the model shows that the activities of the microfinance banks cannot be overemphasized in the pursuance of a sustained economic growth in Nigeria

5.4 Recommendation

It is therefore recommended that the government should create an enabling environment capable of supporting the microfinance banks in microcredit delivery. The central bank of Nigeria through its regulatory framework should increase the asset base of microfinance institutions. Regulatory framework should increase the asset base of microfinance institutions.