ROLE OF MICRO-FINANCE BANK ON POVERTY REDUCTION
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ROLE OF MICRO-FINANCE BANK ON POVERTY REDUCTION
Chapter One
INTRODUCTION
1.1 Introduction.
Poverty is one of humanity’s most serious challenges, and reducing or eliminating poverty is critical for societal progress. Poverty is mostly perceived as a problem of the impoverished earning too little money and consuming too little to maintain a socially acceptable quality of living.
Microfinance is an important development approach that promotes poverty reduction and economic empowerment. Microfinance has been characterised as attempts to enhance low-income people’s access to loans and savings services (Shreinner, 2001:1), and it is currently being promoted as a critical development approach for poverty reduction/eradication and economic empowerment.
It has the ability to successfully address material poverty, physical deprivation of goods and services, and the income required to obtain them, by providing financial services to households that are not served by the official banking system.
Poverty is a global problem, with approximately 2.8 billion people living in poverty, including 1.1 billion who survive on less than US$1.00 per day (CBN).
This spurred the international community to proclaim the Millennium Development Goals (MDGs), which aim to reduce global poverty by half by 2015 (CBN 2009:21).
Poverty is one of the most serious concerns that humanity faces today. Poverty is not only increasing, but also widespread in many emerging nations (Osuala et al, 2009:152). Hunger and malnutrition are extreme forms of poverty that cannot be ignored.
According to a World Bank assessment, an estimated 174 million under-five children in developing countries were hungry between 1996 and 1998, with malnutrition accounting for 6.6 million of the 12.2 million fatalities among children in that age group (Osuala et al: 2009:152).
However, as other continents, such as South Asia, continue to experience sustainable economic growth and development, Africa is not only lagging behind, but is also trapped in a vicious cycle of poverty, relying on borrowing from outside the continent and relying heavily on donor nations, which essentially sabotages real economic development.
The Central Bank of Nigeria’s unwavering commitment to reducing poverty and other related socioeconomic malaise in Nigeria influenced the Bank’s decision to develop and implement a functional microfinance policy framework aimed at stimulating long-term growth and development.
This is especially important given the official banking sector’s limited capacity to provide financial services to the large majority (about 65%) of Nigeria’s poor but economically active people.
Microfinance institutions could play a critical role in serving the financial requirements of both individuals and small businesses. The conventional or formal banking sector has
The poor have not received adequate credit services, and microfinance organisations and programmes are being formed to fill this gap. If micro-finance institutions
are correctly aimed at improving access to credit, then encouraging savings and the means to save to those who did not previously have such access 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 overall economic development.
The increasing relevance of microfinance in development cannot be overstated, and this is attributable to a number of critical causes (UN: 2000:1). These factors include:
The impoverished require access to resources, including proper financial services, in order to improve their situation.
The poor have a strong need for financial services because the commercial or formal sector provides them in limited quantities.
The poor may save, repay debts, and successfully use resources to generate income as long as the instruments are adequate for their requirements.
The Central Bank of Nigeria’s assistance, oversight, and directives demonstrate its interest in microfinance as a development tool.
Other regulatory authorities, as well as private banking institutions.
1.2 Statement of Problem
Access to microfinance services remains extremely biassed. What appears to be even more obvious is the prevalence of poverty, unemployment, and famine in society. Furthermore, small and medium-sized business owners struggle to obtain microfinance loans due to high interest rates and rigid restrictions.
The mechanisms to transform these small-scale businesses/ventures into formal economic structures that will help to reduce poverty are possible with the help of microfinance funding
but there is still a barrier in the ability of owners of these businesses to acquire funds due to ignorance, as well as the failure of microfinance institutions to reach out to the owners.
Governments and public bodies occasionally run programmes that provide skills, start-up cash, and other resources to help reduce poverty. Despite the empowerment assistance, many of these projects have been sporadic and poorly sustained due to insufficient money and working capital.
Microfinance institutions have been unable to provide services to a large number of persons in need. As a result, society suffers from a high rate of poverty. This study is carried out under these limits.
1.3 Study Objectives
To assess the impact of microfinance banks on poverty alleviation.
To investigate the impact of microfinance institutions in socioeconomic development.
To investigate the difficulties faced by microfinance institutions in decreasing poverty.
To investigate strategies to overcome these problems of alleviating poverty.
1.4 Research questions.
What are the roles of microfinance banks in poverty reduction?
What impact do microfinance institutions have on socioeconomic development?
What challenges do microfinance institutions confront in addressing poverty?
What are the various means of overcoming these barriers to reduce poverty?
1.5 Statement of Hypothesis
The following hypotheses were created to help achieve the study’s objectives:
Ho: Microfinance banks’ roles in poverty reduction do not include providing credit, training business owners on how to use credit, assisting in the development of small businesses, or financially empowering vulnerable businesses.
Microfinance banks’ functions in poverty reduction include providing loans, training business owners on how to use credit, assisting in the development of small businesses, and financially empowering weak businesses.
Ho: The influence of microfinance institutions on socioeconomic development does not include poverty reduction, the growth of small-scale firms, increased access to fundamental social services, or the well-being of the very poor.
Ho: Microfinance institutions have an impact on socioeconomic development by reducing poverty, establishing small-scale firms, boosting access to essential social services, and improving the well-being of the very poor.
Ho: Microfinance institutions’ obstacles in eliminating poverty do not include a lack of technical skills and competence, restricted outreach to the poor, or the absence of microfinance institutions in rural areas.
Ha: Microfinance institutions’ obstacles in eliminating poverty do not include a lack of technical skills and competence, restricted access to the poor, or the absence of microfinance institutions in rural areas.
Ho: Allowing easy access to microfinance services for women and other vulnerable people, establishing microfinance institutions in rural areas where the poorest of the poor live, implementing favourable/less stringent credit conditions, and lowering credit interest rates are not viable ways of overcoming these poverty-reduction challenges.
Allowing easy access to microfinance services to women and other vulnerable persons, establishing microfinance institutions in rural areas where the poorest of the poor are, implementing favourable/less stringent credit conditions, and reducing interest on credit are not possible ways of overcoming these challenges of poverty reduction.
1.6 Significance of the Study
The study’s significance lies in its ability to highlight the role of microfinance institutions in reducing poverty in society. It will assist microfinance organisations in identifying and removing societal impediments. It will be useful reference material for other researchers seeking knowledge on the subject.
1.7 Scope of Study
This study examines the function of microfinance banks in poverty reduction in Akwa Ibom state, utilising a selected cooperative women’s society as a case study. The scope also includes the following:
Four factors were specified in the research questions.
The use of questionnaires as data collection tools.
Use of descriptive statistics.
50 respondents
The application of Chi-Square statistics
1.8 Limitations of the Study
The study’s limitations included the following:
Financial Factor: Inadequate money influenced data collection because the researcher had to travel vast distances to distribute the research questionnaires.
Time Factor: Because the researcher only had two months to finish the study, the size of the sample used was reduced.
Material Issue: A lack of appropriate materials for the literature review constituted a significant challenge.
The study was also confined to data acquired from primary and secondary sources.
1.9 Organisation of the Study
In this research study, the researcher examined the impact of microfinance banks in poverty reduction in Akwa Ibom state, utilising a selected cooperative women’s society as a case study. The research was organised into five chapters.
The first chapter discussed the study’s history, as well as the problem statement, study objectives, research questions, hypothesis statement, relevance of the study scope and limitations, study organisation, and term definitions.
Chapter two examined the relevant literature on the subject and the contributions of various authors.
The fourth chapter covers data presentation, analysis, and interpretation, as well as a discussion of the findings.
Chapter five (5) contains the researcher’s summary, findings, conclusion, and suggestions.
1.10 Definition of Terms.
Poverty is the state of not having enough money to meet basic requirements including food, clothing, and housing.
Banks are businesses that keep money for individuals or firms, exchange currencies, provide loans, and provide other financial services.
Microfinance bank: Any corporation licenced by Nigeria’s central bank to provide microfinance services such as savings, loans, domestic funds, and so on to economically active poor people and micro, small, and medium-sized enterprises.
A loan is a sum of money borrowed from another individual, group, or legal body with the condition that it be repaid, usually with interest.
Interest: The fee charged for getting a loan or credit.
Credit is a privilege of delayed payment offered to a buyer or borrower based on the seller’s or lender’s assumption that what is supplied will be returned.
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