ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA
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ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA
ABSTRACT ON THE ROLE OF MICROFINANCE BANKS IN POVERTY RELIEF IN NIGERIA
This paper investigates the enormous importance of microfinance banks in poverty alleviation in Nigeria. The researcher discovered that rural residents frequently deposit their money in their pillows rather than in microfinance institutions.
Data were gathered from both primary and secondary sources. In terms of primary sources, surveys and interviews were employed. Hypotheses were tested using the chi-square (x2) method. The percentage approach was used to analyse the questionnaire responses.
According to the conclusions of this study, an attempt to use microfinancing as a stimulus to poverty alleviation in Nigeria may lack basic knowledge of the many financial transactions accessible and how rural residents might access them.
Finally, it was hoped that the advice would assist microfinance banks in strengthening their weaknesses in order to provide better and more effective services in order to fulfil their sets of goals and socioeconomic progress for the relief of poverty in Nigeria.
THE ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA, CHAPTER ONE
1.1: BACKGRUND OF THE STUDY
A healthy economic growth cannot be realised without putting in place a well-targeted policy to eradicate poverty by empowering people by expanding their access to production elements.
The provision of microfinance services would considerably raise the poor’s latent capacity for entrepreneurship, allowing them to engage in economic activities and become more self-sufficient, increase employment prospects, increase household income, and create wealth. Microfinance has existed in Nigeria for many years prior to the establishment of conventional banking in the late nineteenth century. (Ekot, 2008)
Traditional Nigerian civilization has a system of collective savings and mutual help. A savings club was typically formed by a group of persons who needed some type of capital or lump amount to undertake a certain project but could not raise significant funds on their own. The group may be called after the leader, who is usually the venture’s initiator.
Traditional microfinance institutions provide credit to low-income individuals in rural and urban areas. These are primarily informal self-help groups such as Isusu, women’s associations such as the one available during popular August meetings,
and Umu-ada progressive women’s association. Savings collectors and co-operatives are two further types of microfinance service providers. 2005 CBN brief
The unwillingness and inability of formal financial institutions to provide financial services to the urban and rural poor, combined with the unsustainable nature of government-sponsored development financial schemes, has contributed to an increase in the number of private sector-led microfinance institutions in Nigeria.
Thus, prior to the establishment of microfinance banks, informal microfinance activity flourished throughout the country. The Central Bank of Nigeria (CBN) approved the operation of 840 microfinance banks in Nigeria at the end of December 2009. Briefings from CBN, 2008-2009
Microfinance banking is the provision of financial services to economically engaged poor and low-income households that have previously been ignored by established financial institutions. Credit savings, micro-leasing, micro-insurance, and money transfers are among the options available to help individuals engage in income-generating activities. 2002 (Asemota)
However, the microfinance policy, which was published on December 15, 2005, defined the framework for providing these financial services to micro, small, and medium enterprises (MSMES) on a sustainable basis through privately owned microfinance institutions. Non-governmental organisations or microfinance institutions (NGO-MFIS) are also predicted to evolve into microfinance banks. (Dinye, 2006)
Existing Community banks and NGO-MFIS who desire to convert or transition to a microfinance bank but lack the statutory minimum capital base might grow their share capital through capital injection, merger, and acquisition.
These would not only improve monetary stability, but would also broaden the country’s financial infrastructure development to meet the national financial system and offer stimulus for growth and development (Benson, 1985).
It would also harmonise operating standards and provide a strategic platform for microfinance institution evolution, as well as encourage adequate regulation, oversight, and the adoption of best practises. The establishment of microfinance banks has become necessary to serve the following purposes: improve, diversify,
and create a dependable financial service to the active poor and low-income earners in a timely and competitive manner, enabling them to undertake and develop long-term, sustainable entrepreneurial activities, mobilise savings for intermediation, create employment opportunities, and increase the productivity of active poor and income earners in the community.
Thus, raising their individual household income and standard of living, the poor can participate in social-economic development and resource allocation in a more organised and methodical but concentrated manner.
It will also open up new paths for the administration of the government’s microcredit programme and high-net-worth individuals on a non-resource basis.
This strategy requires state governments to delegate at least 10% of their yearly budgets to microfinance banks in order to lend to local inhabitants and provide payment services like as salaries and pensions to various levels of government (Luck, 2011).
1.2:STATEMENT OF THE PROBLEM
Nigeria is made up of many groups of people who are either enterprising or industrial low class, accounting for more than half of the population who do not have access to official banking services. Savings have continued to rise at a very modest rate, particularly in Nigeria’s rural areas. One of the issues raised is rural residents’ inability to deposit their funds in banks.
The majority of rural residents keep their resources under their pillows. This way of conserving money is dangerous because it could be stolen, lost, or wasted on frivolous spending. Furthermore, any returns that would have accrued to depositors in the form of interest are forfeited.
The government’s commitment to poverty alleviation through the development of microfinance banks looks to be a small step forward. Despite the introduction of microfinance institutions, it has been discovered that the majority of people are unable to acquire a loan.
This is due to a number of issues, including high interest rates, a lack of collateral necessary by commercial banks before loans can be provided, and the formation of Microfinance to solve these economic imbalances.
If the banking system continues to satisfy the demands of Nigerians, particularly the rural poor, this indicates that there is a gap that needs to be addressed, which can be done through government assistance by establishing new microfinance banks in Nigeria to aid in poverty alleviation.
Another issue that has been found is the difficulty of most microfinance bank prospective customers to repay their loans on time. This could be linked to the country’s high poverty rate. The high rate of poverty is visible in areas such as unemployment, high inflation, non-payment of salaries, mismanagement of loans granted to rural dwellers,
infrastructural deficiencies such as power, road network, and so on, as well as various political, economic, and bureaucratic bottlenecks. Also, the Nigerian economy is made up of people who live hand to mouth.
When loans are given, they are diverted to other areas such as feeding, bill payment, school tuition, hospital bills, and so on, rather than being used for the stated company purpose.
1.3: OBJECTIVES OF THE STUDY
The overarching goal of this research is to determine the impact of microfinance banks in poverty alleviation in Nigeria. These are their names:
1. Determine the rate at which rural residents deposit their money in microfinance banks rather than hiding it beneath their pillows.
2. Determine the government’s contribution to poverty alleviation through the development of microfinance banks.
3. Determine the rate at which rural residents may repay their loans.
1.4: RESEARCH HYPOTHESIS
The following theories have been formed as the foundation for this research:
H0: Rural residents deposit less money in microfinance banks than they keep under their pillows.
H1: Rural residents deposit more money in microfinance banks than they keep under their pillows.
H0: The government has not aided microfinance institutions in meeting the needs of rural residents and communities.
H1: The government has aided microfinance institutions in meeting the requirements of rural residents and communities.
H0: Microfinance borrowers have a negative attitude towards loan repayment.
H1: Microfinance borrowers are optimistic about loan payback.
1.5: RESEARCH QUESTIONS
1. What is the percentage of rural residents that store their money in microfinance banks rather than under their pillows?
2. What is the government’s role to poverty alleviation in Nigeria through the development of microfinance banks?
3. Why do the majority of Microfinance borrowers respond negatively to loan repayment?
1.6: SIGNIFICANCE OF THE STUDY
The following organisations will benefit from this research:
a. Government; The findings of this study will be valuable to the government in that they will learn about the importance of MFIs and how to improve the quality of their services. The study’s findings will also identify areas for improvement and give recommendations for how to improve them.
b. Owners; It will also be important for people wanting to start Microfinance banks to understand the use of microfinance banks as a catalyst or stimulus for poverty alleviation in rural areas as a method of developing rural banking.
c. Scholars; Students would also find it very valuable in some study work on project concerns by increasing their knowledge of microfinance banks in poverty reduction. Those in need of referencing resources on the function of microfinance in poverty alleviation will find this study valuable.
1.7: SCOPE OF THE STUDY
The study of the function of microfinance banks in poverty reduction, which necessitates a careful examination of the Oha Microfinance Bank, Ogui Road branch in Enugu State.
1.8: LIMITATIONS OF THE STUDY
During the course of this inquiry, the researcher faced a variety of issues, including:
1. Inadequate funding: As a student, financial constraints prevent the researcher from investigating the activities of all banks and also limit the volume of data collection; for example, the funds provided will not be sufficient for transportation and fact seeking.
2. Time constraint: There was insufficient time to do extensive investigation.
3. The inability to gain access to some Microfinance banks in order to obtain additional information about their records and other important information about the work also limits the acquisition of research data.
4. Environmental constraint: Because the researcher was unable to leave the setting in which the study work was written, the researcher was faced with the difficulty of determining how to reach the field of research and coordinate operations as planned.
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