The Impact of Microfinance Banks on Rural Development in Nigeria
Chapter One
Objectives of the Study
- To ascertain how microfinance banks help to reduce poverty in the community.
- To find out the function of microfinance bank towards women and other disadvantaged population groups.
- To find out what microfinance bank does towards the activities of business in the community.
- To find out if microfinance bank serves as a base for the development of the rural infrastructure.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
The condition of the rural dwellers remained deplorable in spite of the federal government’s rural development programmes. Some researchers believe that government’s centralist approach to this was the main reason why the programmes did not achieve much of the desired results. A more participatory and decentralized approach, which paves the way for the active involvement of these rural dwellers in their development quest, was advocated. The success of the participatory and rural development was predicated on the fact that 70% of the nation’s population lives in the rural areas where potentials for agricultural production abound. Development of local arts, crafts and technology has also been described as a veritable means of laying a solid technological base for this country. These small scale industries are more labour intensive and hence generate more employment. Their capital ratio is very low. They seem better suited to the development of home grown technology. They are more suited to the next stage of industrialization with its emphasis on local production of myriad components for use by larger scale assembly type enterprises with each of such component being the special of one small scale enterprise providing potential vehicle for mass involvement in the development effort (National Institute for Policy and Strategic Studies, 1986). While the potentials to mass-produce food and open up small-scale industries abound in the rural areas, the major difficulty for the rural producers is capital or loanable fund. Jega and Nkom (1995) write that a very critical factor in the struggle to reverse rural decline and to achieve a significant breakthrough in the productivity and living standards of Nigeria’s rural population lies in improving the availability of credit and banking facilities in the rural areas. As they rightly pointed out, enhanced access to institutional credit is very important element in the transformation of the economic base of rural society. Institutional credit will enable the farmer to acquire more productive assets to employ more labour and to expand their scale of production. Credit facilitates the adoption of those modern out-put enhancing technologies and inputs which enables the farmer to break-out of the stranglehold of the money lender, the exploitative produce buyer and the shylock merchant, all of whom have survived and continued to prosper on usurious credit, extended to the farmer on highly unfavourable terms. Peasant farmers and rural small-scale industrialists to meet their credit need (First Bank Monthly Business and Economic Report, 1996). To a great extent, such informed credit institutions have relieved these rural dwellers of credit and other sundry needs and problems but they have certain constraints. They have limited ability to provide terms for finance and large loans or to mobilize savings. According to Bailey (1999), they have difficulty coping with inflation. They cannot control the money in circulation or regulate people’s preferences. It is equally unfortunate that the obnoxious practice of the rural dwellers burying their money in the ground, hiding them under their pillows or keeping them in calabashes will continue. A part from not helping the rural dwellers inculcate banking habits, such monies outside the banking sector are not capitalized (Mabogunje, 1995) i.e. converted into a factor of production through credit route. Therefore, the federal government deemed it expedient to provide institutions to provide the means to credit facilities at the grassroots.
CONCEPT OF MICROFINANCE
There are various definitions of the term “microfinance” that have been provided by scholars, academics as well as various organizations. According to Opportunity International, Microfinance can be defined as the stipulation of monetary services such as credit, funds, assurance and guidance to persons dwelling in poverty. In the view of Chad Brooks (2013), Microfinance refers to a collection of financial services, including credit, advance, money and insurance cover, accessible by poverty stricken industrialists and small commercial proprietors who have no security and wouldn’t otherwise meet the requirements for an average bank loan. A non-governmental organization (The Consultative Group to assist the poor, CGAP), views the term “microfinance,” as a wide range of products (including spending, disbursements, investments, and insurance cover) modified to meet the specific needs of low-income persons. In the view of the Central Bank of Nigeria, microfinance is about offering financial services to the poor who are usually not served by the typical financial and monetary institutions (CBN Report, 2005). According to the report, three characteristics differentiate microfinance from other official monetary and financial products. These are: the compactness of highly developed loans and or funds collected; the non-existence of asset based securities; and ease of procedures.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter deals with the method used in collecting data required in carrying out this research work it explains the procedures that were followed and the instrument used in collecting data.
SOURCES OF DATA COLLECTION
Data were collected from two main sources namely:
- Primary source and
- Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment, the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
POPULATION OF THE STUDY
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information for the study the impact of micro finance banks in rural development in Nigeria. The researchers randomly select 200 staffs and customers of Oha Microfinance Bank, Ogui Road branch in Edo State as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
INTRODUCTION
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY CONCLUSION AND RECOMMENDATION
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.
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
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.
Recommendations
This study evidently depicts the fact that in order to achieve the federal government policy for grassroots development, the following recommendations are made:
- Micro finance banks should involve themselves in the community development projects in their catchments areas.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Reference
- Adewuni O & Osuntogun T (1983): Rural Banking in Nigeria Institute of Bankers, Lagos, Longman Nig Ltd.
- Akor, R. and Mou, D. (1983): Capital Development and Internal Migration in Nigeria, Scandinaisan Journal of Development Alternatives, Vol. S. No. 51.
- Asian Development Bank (ADB) (2000): The Role of Central Banks in Microfinance in Asia and the Pacific: Overview. Manila: Asian Development Bank (ADB).
- Awosika, K. (1977): “Evolution and Development of Commercial Banking in Nigeria: Prospects and Retrospect’s” in Adewumi and Osuntogun (eds) 1982, Rural Banking in Nigeria.
- Berger A. N. (2003): The economic effects of technological progress: Evidence from the banking industry. Journal of Money, Credit, and banking 35, no. 2:141-76
- Berger, A.N., and Loretta J. M. (2003): Explaining the dramatic changes in performance of the U.S banks: technological change, deregulation, and dynamic changes in competition. Journal of Financial Intermediation 12, no. 1:57-95.
