The Role of Microfinance Bank in the Alleviation of Poverty in Nigeria

Abstract Of The Role of Microfinance Bank in the Alleviation of Poverty in Nigeria

This study is an attempt to explore the immense role of the Microfinance banks in the alleviation of poverty in Nigeria. The research revealed that the rate at which rural dwellers deposit their money in their pillows rather than in microfinance banks is high. Data were collected through primary and secondary sources. As regards to data collection, primary sources, questionnaires, and interviews were use. The chi-square(x2) method was used for the analysis of data. Responses to the questionnaires were analysed using percentage method of analysis. Based on the findings of this study, an attempt to explain the role of micro-financing as stimulus to poverty alleviation in Nigeria may lack adequate knowledge of various financial transactions available and how the rural dwellers can access them .In conclusion, it hoped that the recommendation will help the microfinance banks to strengthen its weakness for better and effective services in order to achieve its set goals and socio-economic advancement for the alleviation of poverty in Nigeria.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

A robust economic growth cannot be achieved without putting in place well focused programme to reduce poverty through empowering the people by increasing their access to factors of production.

The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self reliant, increase employment opportunities, enhance household income and create wealth. Micro-financing has existed for years before the introduction of conventional banking in Nigeria and the laterpart of nineteenth century. (Ekot, 2008)

The traditional Nigerian society has a system of group savings and assistance to one another. The practice was that a group of people who had needs for some form of capitalor lump sum to execute a particular project which they could not raise adequate savings on their own, usually come together to form a savings group. The group may be named after the leader who is usually the initiator of the venture. The traditional microfinance institutions provide access to credit for the rural and urban low-income earners. These are mainly the informal self-help groups such as Isusuwomen association like one obtainableduring popular August meetings, Umu–adaprogressive women association. Other providers of microfinance services include savings collectors and co-operatives. (CBN, 2005)

The unwillingness and inability of the formal financial institutions is to provide financial services to the urban and rural poor, coupled with unsustainability of government sponsored development financial schemes, contributed to the increase in number of private sector led micro finance in Nigeria. Thus, before the emergence of microfinance institutions, informal microfinance activities flourished all over the country. The Central Bank of Nigeria (CBN) as at end of December 2009 gave an approval to 840 microfinance banks to begin operation in the country. (CBN briefs, 2008-2009)

Microfinance banking is about providing financial services to the economically active poor and low income household, who are traditionally not served by the conventional financial institutions. These services include credit savings, micro-leasing, micro-insurance and payment transfers to enable them engage in income generating activities. (Asemota, 2002)

However, the microfinance policy launched on 15th December 2005 defined the framework for the delivery of these financial services on a sustainable basis to the micro, small and medium enterprises (MSMES) through privately owned microfinance banks. The Non-governmental Organizations or Microfinance institutions (NGO-MFIS) are also expected to transform to microfinance banks. (Dinye, 2006)

Existing Community banks and NGO-MFIS that want to convert and transform respectively to amicrofinance banks but do not have the required minimum capital base can increase the share capital by capital injection, merger and acquisition. These would not only enhance monetary stability but also expand the financialinfrastructural development of the country to meet the nationalfinancial system and provide stimulus for growth and development (Benson 1985). It would also harmonize operating standards and provide a strategic platform for the evolution of microfinance institution, promote appropriate regulation, supervision and adoption of best practices. The establishment of microfinance banks has become imperative to serve the following purposes: Improve, diversified and create a dependable financial service to the active poor, low-income earners in a timely and competitive manner that would enable them to undertake and develop long-term, sustainable entrepreneurial activities, mobilize savings for intermediation, create employment opportunities and increase the productivity of active poor and income earners in the country. Thus increasing their individual household income and capacity standard of living, enhance organized and systematic but focused participation of the poor in the social-economic development and resource allocation process. It will also provide veritable avenues for the administration of the micro credit programme of government and high net worth individual on non-resource basis. This policy ensures that state government shall delegate an amount of not less than 10% of their annual budgets for on-lending activities of microfinance banks in favour of their residents and render payment services such as salaries, pension for various tiers of government. (Luck,O.R.(2011)

STATEMENT OF PROBLEM

Nigeriaconsistof different classes of individuals, who are either enterprising or industrial low class that account for over half of the population who do not have access to formal banking services. Savings have continued to grow at a very low rate particularly in the rural areas of Nigeria. One of the problems brought to bear is the inability of rural dwellers to channel their savings into banks. Most rural people keeps their resources under their pillows. This method of keeping savings is risky because it might be stolen, lost or wasted in extravagant spending. Moreover,returns which would have accrued to the depositors in form of interest are forfeited.

The contribution of government to alleviate poverty through the establishment of microfinance banks appears a little progress. This is in spite of the establishment of microfinance banks, it was observed that most people are not able to obtain loan. This is attributed to a number of challenges such as the high level of interest rate, lack of collaterals required by the commercial banks before loans can be granted which necessitated the establishment of Microfinance to address these economic imbalances. If the banking industry continue to meet the demands of Nigerians especially the rural poor, this shows that there is a gap which need to be filled and this can be done through the contribution of government by establishing more microfinance banks in Nigeria to help in alleviation of poverty.

Another problem observed is the inabilityof prospective borrowers of most Microfinance banks to repay their loans as at when due. This may be attributed to high rate of poverty in the country. The high rate of poverty is noticeable insuch area such as unemployment, high rate of inflation, non-payment of salaries, mismanagement of loan granted to rural dwellers, infrastructural deficiencies, such as power, road network, etc and all kinds of political, economic and bureaucratic bottlenecks.. Also Nigerian economy consist of individual who feeds from hand to mouth. The loans when granted are channeled to other areas such as feeding, payment of bills,school fees, hospital bills and others instead of using it for the intended business purpose.

OBJECTIVES OF THE STUDY

The broad objective of this study is to find out the role of microfinance banks as a palliative in the alleviation of poverty in Nigeria. They are as follows:

1.To find out the rate at which rural dwellers deposit their money in microfinance banks rather than putting it under pillows.

2.To find the contribution of government in alleviation of poverty throughthe establishment of microfinance banks.

3.To find out the rate at which rural dwellers are able to repay their loans.