APPRAISAL OF OPERATIONAL PROBLEMS FACING MICRO FINANCE BANK
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APPRAISAL OF OPERATIONAL PROBLEMS FACING MICRO FINANCE BANK
INTRODUCTION TO CHAPTER ONE OF AN APPRAISAL OF OPERATIONAL PROBLEMS FACING MICRO FINANCE BANK IN DELTA STATE
1.1 BACKGROUND OF THE STUDY
It is challenging in Nigeria to finance active poor in both urban and rural areas through conventional financial institutions (Ovia, 2007). Nigeria is dealing with a number of major issues that pose a threat to the country’s economy (Anyanwu, 2004).
According to National Financial Inclusion, Nigeria lags behind several African countries in the availability of financial services. In 2010, formal financial services served 36% of adults, or around 31 million out of an adult population of 85 million.
In comparison, South Africa has 68% and Kenya has 41%. This is because formal financial institutions deny access to financial services to the poor in both urban and rural locations. To bridge this gap, the Nigerian government established several institutions and projects to raise people’s living standards,
empower the poor, and produce more entrepreneurs than job seekers in the country. Among these schemes are the Directorate of Food, Roads, and Rural Infrastructure (DFRRI),
the Better Life/Family Support Programme, the Family Economic Advancement Programme, Peoples Bank, and Community Banks.
These programmes failed to meet their goals owing to poor implementation, corruption, and a variety of other issues. The government did not give up on making financial services available to the poor, resulting in the establishment of microfinance banks as an alternative credit system for the poor (Helms, 2006).
“Microfinance is about providing financial services to the poor who are traditionally not served by conventional financial institutions,” according to CBN (2005). Microfinance is distinguished from other formal financial products by three characteristics. They are as follows:
the lack of asset-based collateral;
the smallness of loans advanced and/or funds amassed, and
Operational simplicity.
According to Otero (1999), microfinance is “the provision of financial services to low – income poor and very poor self-employed people.” Small loans, savings, current accounts,
and financing for small businesses are among the financial services available to the active poor in both rural and urban sections of the country.
Microfinance is a phrase that refers to various techniques of providing impoverished people with access to financial services. Microfinance is the provision of timely, inexpensive,
diverse, and dependable financial services to the active poor, who would otherwise have little or no access to such services. It is a financial intervention aimed for a certain society’s low-income population.
Many academics think that the formal financial system covers only 25% of the economically engaged population in most emerging nations. This means that 75% of people have no access to financial services other than those offered by moneylenders and family.
Savings have continued to expand at a very slow rate, particularly in Nigeria’s rural areas. Because of a lack of savings possibilities and products, most poor individuals retain their resources in kind or simply beneath their mattresses.
Such ways of saving are risky, offer no returns, and limit the aggregate volume of resources that may be mobilised and channelled to sections of the economy that are in deficit.
The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was established in 2005 with the goal of addressing the long-term nonperformance of many existing community banks. This poor performance has been linked to inept management, lax internal controls, and excessive transaction costs.
MPRSF will also address poor corporate governance, a lack of well-defined operations, tight regulatory/supervisory requirements, and current institutions’ insufficient financial bases.
As a result of the rigidity of formal financial institutions in Nigeria, a big vacuum exists in the supply of financial services to a large number of active but impoverished and low income groups, particularly in rural areas. The lack of money also undermines the effectiveness of microfinance institutions in Nigeria.
However, conventional microfinance in Nigeria exacerbates the country’s inequitable distribution of income and wealth. This is because the interest rates on both voluntary and mandated savings for clients range between 4.5% and 6% per year. Lending at this rate takes the rewards of the poor and redistributes them to the wealthy.
Poor borrowers must pay the amount due to group pressure, even if it means taking out another loan or selling their property.
1.2 STATEMENT OF THE PROBLEM
According to the CBN (2005), microfinance banks aim to empower the poor and the private sector by providing necessary financial services. This empowerment, it is believed, will enable people to engage in or extend their current range of economic activities, thereby creating jobs.
There have been concerns raised concerning the efficacy of Nigeria’s microfinance banks. The overarching goals of this research are to identify the restrictions that most frequently impede the operations of microfinance banks in Nigeria and to provide strategies for overcoming such constraints.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s particular objectives:
1. Investigate the business model of microfinance institutions.
2. To investigate the operational issues confronting microfinance banks.
3. To identify the variables that can improve microfinance bank operations.
1.4 RESEARCH QUESTIONS
1. What is the business model of microfinance banks?
2. What are the operational issues confronting microfinance banks?
3. What are the factors that can improve microfinance bank operations?
1.6 SIGNIFICANCE OF THE STUDY
The following are the study’s implications:
1. The study’s findings would be a beneficial guide for the Nigerian government in addressing the operational issues confronting microfinance banks in order to provide effective banking services to rural people.
2. This research will also serve as a resource base for other academics and researchers interested in conducting additional research in this sector in the future, and if utilised will go so far as to provide new explanations for the topic.
1.7 SCOPE AND LIMITATIONS OF STUDY
This research on the operational issues confronting microfinance banks will examine the activities of microfinance banks in Nigeria in order to determine the operational shortfall.
STUDY LIMITATIONS
Financial constraint- A lack of funds tends to restrict the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.
REFERENCES
C. M. Anyanwu (2004) Microfinance Institutions in Nigeria: Policy, Practise, and Prospects. Paper presented at the G.24 Workshop on Growth Constraints in Sub-Saharan Africa, November 129 – 30 in Protoria, South Africa.
Microfinance Policy Regulatory and Supervisory Framework for Nigeria, CBN, 2005.
B. Helms (2006), Access to All: Building Inclusive Financial Systems, World Bank Consultative Group to Assist the Poor, p.2.
M. Otero, “Bringing Development Back into Microfinance”, Journal of Microfinance, 1999.
J. Ovia, 2007, Microfinancing: Some Cases, Challenges, and Prospects.Synergy Resource and Technology Solutions Ltd. is based in Abuja.
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