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MICRO FINANCE BANK AS GOVERNMENT STRATEGY TO POVERTY REDUCTION IN NIGERIA

Project topic for Financial Studies department.

CHAPTER ONE

                      INTRODUCTION

1.1       Background of the Study

            In Nigeria, Micro financing is not a new phenomenon as evidenced by such cultural economic activities which were practiced to provide funds for producers in the rural communities. The earliest evidence of financial institutions in Africa dates to the 16th century: a rotating savings and credit associations (ROSCAS) among the Yoruban. As a form of social capital and also as a financial self-help groups (SHGs) was transported during the slave trade to the Caribbean Islands (Bascom, 1952:69).

            Micro-finance bank is thus not a recent development and it is not just a temporary solution for poor countries. Robust economic growth cannot be achieved without putting in place well focused programmes that increase access of poor and low income earners to factors of production, especially credit. The banking system which is part of the Nigeria financial sector composed of variety of banks working as commercial merchant, mortgage, investment development, community and profit and loss sharing Banks. The recent reformation in Nigeria financial sector brought about the full deregulation of the adoption of universal banking in Nigeria via the central bank of Nigeria (CBN) circular reference BSD/DO/CIF/VOL. 1/10/200 AS SEEN IN OGUNLEYE (2002).

            This reformation agenda also led to the commencement of a new type of banking in Nigeria to be called “Microfinance bank” Micro finance banks also know a sustainable finance. Micro finance institutions and micro – enterprise finance. The backbone for this type of banking in Nigeria is contained for this type of banking in Nigeria is contained in the micro – finance policy released by the CBN (2005) in exercise of the powers conferred on her, by the provision of section 28. Sub-section (1) (b) of the CBN Act 24 of 1991 (as amended), and in pursuance of the provisions of sections 56-60 (a) of banks and other financial institution act (BOFIA) 25 of 1991 (as amended). The latent capacity of poor for entrepreneurship would be significantly enhanced through the provision of micro finance service to enable them engage in economic activities and be more self. Recent, increase employment opportunities, enhance household income, and credit create wealth (Iweata 2005). Micro finance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions.

            A Micro Finance policy which recognizes the existing informal institutions and bring them within the supervisory purview of the CBN would not only enhance monetary stability but also expand the financial infrastructure of the country to meet the financial requirements of the Micro, small and medium enterprises (MSMES). Such a policy would create a vibrant micro finance sub-sector that would be adequately integrate into the main stream of the national financial system and provide the stimulus for growth and development (Okeke, 2007:14).

            By the understanding of the level of poverty in Nigeria, government attempted with several Micro credit programmes to alleviate poverty. Although all the programmes were directed at improving the productive base for sustainable growth, most of the efforts at purveying micro – credit to alleviate poverty were largely irrelevant, urban structure.  The programmes has terms of resource endowment were dominated by government who way paternalistic subvention in trickles. The way the programmes had functioned over the years was such that credit system was essentially directed at meeting the needs of elites where as the programmes is largely for peasant poor groups.

            It is, therefore, against this background that this study is set to examine micro finance as a government strategy of reducing poverty in Nigeria.

Statement of Problem

The growing awareness of the potential of micro finance in poverty reduction, economic growth and development coupled with the emergence of several of highly successful, and fast growing micro finance institution (MFPs) has effectively put the issue of micro finance on the political agenda of most developing countries. Banks are faced with the problem of when, where and how to grant credit, since not all aspiring debtors normally meet up with the credit standard not only that most institutions aim at maximizing profit which micro –finance institution cannot satisfy from their views. In spite of the concern so far shown by the government through micro –finance policies, the level of poverty is still high this perhaps is attributable to some defects in the micro –finance policy and programmes. The targeting of the policy has been inappropriate. Instead of the poor, credits are made available to the elites who were not truly poor.

 Furthermore, the micro –finance institution and agencies administering the various micro-credit scheme were saddled with a myriad of problem especially inadequate funding as well as lack of appropriate skills to identity / mobilize the poor and cannot, therefore provide the essential remedy in a sustainable way.

Moreover, the most serious problem of the agencies set up to provide micro-credit was the fact that they lacked adequate professional staff. However, lending procedures were tortuous with extremely demanding forms for completion by uninformed and illiterate famers and the target group who are basically seeking relatively small-loans. A more pressing need over the years by micro –financing institution which need to be tackled in inadequate capital base, small loans financed by some institution which are not adequate for some entrepreneurs, inconsistent on micro –finance institution.

Finally, the schemes were urban oriented benefiting only few people in urban centers to the neglect of the millions of the rural poor. Banks are faced with the problem debtors normally meet up with the credit standard.

Objectives of the Study

The specific objectives of this study are:

To review the micro –finance activities in Nigeria.

To determine the impact of micro –finance on poverty reduction level in Nigeria.

To find out how micro-credit is intented to reduce poverty level.

Research Question

What is the effort of micro –finance at service delivery?

What is the impact of micro –finance on poverty level?

What is the intention of micro –finance to reduce poverty level?

Hypotheses

1.         Ho:       The effort of micro –finance is not at service

                        delivery.

            H1:       The effort of micro –finance is at service delivery.

2.         Ho:       Micro –finance does not impact on poverty

                        reduction in Nigeria through policy strategies.

            H1:       Micro –finance impact on poverty reduction in

                        Nigeria through police strategies.

3.         Ho:       Micro –finance does not intend to reduce poverty

                        level in Nigeria with strong strategies

            H1:       Micro –finance intends to reduce poverty level in

                        Nigeria with strong strategies.

Significance of the Study

The significance of the study derives from the following:

Usefulness to Government: The findings of the study will provide useful information that will enable the government to appraise the effectiveness of the poverty reduction policy. This will enable it take remedial measure.

Usefulness to CBN: The information to be provided by the research findings will enable the CBN to understand the flaws on micro –finance policy in respect of poverty reduction.

Usefulness to the Society: Members of the society will also benefit from this study. this is because it will provide them devalued information of micro –finance policy and how they will benefit from it.

 Usefulness to Students: Students who carry out studies in related areas will also benefit from the study because it will serve as a reference material.

Scope of the Study

This study focuses on Micro –Finance Bank as a strategy for reducing the incidence of poverty starting from military regime to the present civilian administration in Nigeria.

Definition of Terms

Micro–Finance Bank: is one devoted to extending small scale loans, referred to as Micro loans, to individuals, small scale businesses and medium sized organization in low – income regions, including geographic area in the country.

Strategy: Is a plan designed for a particular purpose and also a process of planning something or carryout out a plan in a skillful way.

Policy: Is a plan of action and statement of idea purposed or adopted by government political party and business.

Reduction: Is the action of reducing something or the state f being reduced.




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