ABSTRACT
In the course of carrying out this research, data were collected from both primary and secondary sources to test the hypotheses. The Random sampling technique was used to determine the sample size. In analyzing and presenting data collected, tables and percentages were used. The Chi-square method was used to test the hypotheses stated, and after a careful test on the data, it was revealed that microfinance institutions play significant roles in the mobilization for fund for micro credit scheme in Nigeria, that implementation of microfinance policy in Nigeria is low and also that the attitude of commercial banks as regards micro credit scheme in Nigeria is unfavorable. It is therefore, recommended that government should enforce and monitor the implementation of microfinance policies and also provide incentives for commercial banks that involve in micro credit scheme so as to create a favorable or enabling environment for the parties involved.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Credit has been recognized as an essential tool for promoting small and medium enterprises (SMEs) in Nigeria. About 70 percent of the Nigerian population is engaged in the informal sector or in subsistence agricultural productions.
Governments at all levels have seen the fact that for sustainable growth and development to be achieved, the financial empowerment of the rural area is salient. This is being the repository of the predominantly the poor in the society. Again, credits to micro-enterprises are assuming importance in rural areas in response to the need of the less privileged entrepreneurs with limited or no capital base.
Institutions such as commercial banks have not been performing optionally in this direction. This is evidenced by the less than one percent share of total credit to small and medium enterprises (SMEs) in the recent years. The only reasons adduced for this apathy to cater for the rural grassroots development are that commercial loans to private small and microfinance business were regarded is highly risky and unprofitable due to lack of acceptable collateral. Moreover, the formalities of commercial banks are formidable deterrents to micro business operators, many of whom even lack the formal education necessary to cope with them.
Community banking was introduced and adopted as part of the Federal Government’s measures to open up credit lines and other financial services to people at the grassroots and, thus, alleviate poverty. The community banks, however, failed unlike what are obtainable in Ghana, Gambia and some other countries of the world due to their ownership structures and lending rules coupled with the Nigerian’s experience of difficult economic climate of the 1990s.
This scenario has led to the emergence of microfinance institution in Nigeria. This institution has taken up the task and responsibilities to provide funding for the poor as well as microenterprises in Nigeria since the big and more capitalized financial institutions are most likely to focus more on financing big businesses. To achieve the expected goals, two forms of microfinance banks were introduced in Nigeria; a unit microfinance banks and microfinance banks licensed to operate in a state.
A unit microfinance banks are licensed to establish and operate branches and/or cash centers gradually subject to meeting the prescribed prudential requirements and availability of free funds for opening branches/cash centers. While microfinance banks licensed to operate in the State are the ones licensed to operate in all parts of the State at once without recourse to gradual coverage as in unit microfinance banks.
The above mentioned issues triggered the researcher’s interest to embark on this study of the role of microfinance institutions in mobilization of fund for micro-credit scheme in Nigeria. The research will present opportunities offered by the micro-credit giving institutions and the role they play in mobilization of micro-credit funds to foster collaborative interventions that will support building of long term sustainable micro-credit delivery scheme in Nigeria.
1.2 Statement of the Problem
There exists a huge unutilized potential for financial intermediation at the micro and rural levels of the Nigeria economy. Attempts by governments in the past to fill this gap through the creation of financing institutions have failed. This is due to the poor capitalization and restrictive regulatory and supervisory procedures.
The community banks were primarily designed to fill the gap, but some conventional banks which regarded them as competitors frustrated their efforts by discriminating against their payment instruments such as cheques and demand drafts. The inability of commercial banks to provide financial services to micro-businesses due to lack of acceptable collateral by and their proximity to beneficiaries have not really helped in their roles of mobilization of fund for micro-credit scheme in the country.
Microfinance banking scheme has not been able to prove its relevance in charting a new path for the economic development of the poor people. The global economic meltdown is one of such challenges which have caused some of the microfinance institutions that could not cope to close shop.
1.3 Objectives of the Study
The general objective of this study is to evaluate the role which microfinance institutions play in the mobilization of fund for microcredit scheme in Nigeria.
However, the specific objectives are:
- To identify the specific roles performed by microfinance institutions in Nigeria.
- To ascertain the level of implementation of micro-credit scheme in Nigeria.
- To identify the problems and challenges facing microfinance in Nigeria.
- To identify the need for establishment of micro-credit institutions in Nigeria.
- To identify policies that would facilitate the linkage of informal and formal financial services providers to micro-credit users.
1.4 Research Questions
For the purpose of this research work, the researcher deems it necessary to ask the following research questions:
- To what extent do microfinance institutions play their roles in mobilization of micro-credit fund?
- What are the impacts of microfinance banks policies in Nigeria?
- What are the challenges of microfinance in Nigeria?
- Why are the establishments of micro-credit institutions necessary in Nigeria?
- What policies would facilitate the linkage of informal and formal financial services providers to micro-credit users?
1.5 Statement of Hypotheses
A number of hypothesis were formulated the researcher to enable her test the validity or otherwise of the information obtained from the research work.
The two types of Hypothesis to be considered are;
– Null Hypothesis (HO): this is a tentative statement that has no binding force; it is an invalid statement that has no value.
– Alternative Hypothesis (Hi): Is defined as a tentative statement of fact that leads itself for an empirical test which occurs by turn successively.
Hypothesis I
Ho: Microfinance institutions do not play significant role in mobilization of fund for micro credit scheme
Hypothesis II
Ho: The implementation of microfinance policies in Nigeria is low.
Hypothesis III
Ho: The attitude of commercial banks as regards to micro-credit scheme in Nigeria is unfavorable.
1.6 Scope and Limitations of the Study
The scope of this study covers the role of microfinance institutions in the mobilization of fund for micro-credit scheme with particular emphasis on its impact on the Nigerian economy. The study carried out was limited to Ebonyi State.
In the process of the study, the researcher encountered some problems which restricted the work. Some of the constraints included lack of finance, insufficient time. These limitations notwithstanding, the result of the work will enrich the existing literature in this field.
1.7 Significance of the Study
This study is of great significant value to many interested groups such as:
- Government: This study will be of great value to the different levels of government to enable them formulate policies that will affect the lives of people both in urban and rural areas.
- Financial Institutions: The study will be of immense help to financial institutions in the sense that it will create awareness to them on their role of mobilization of fund for economic development.
- Educational Institutions: The study will be of great importance to various educational institutions in the country. This is because the study will provide an important source of reference to many researchers that may want to carry out further researches on the study.
- Investors: This study will help investors to know the level of micro-credit mobilization by banks.
1.8 Definition of Terms
The researcher deems it necessary to define some relevant terms and explain some key concepts used to throw more light on the whole research work.
(i) Micro-enterprises: This is a business that requires microcredit/loans to operate. The operations and management are often built around the sole owner.
(ii) Poor person: A poor person is the one who has meager means of sustenance or livelihood and whose total income during a year is less than the minimum taxable limit set out in the law relating to income tax. Minimum taxable income limit is any income of a person that equals to zero after deductions of 15% of such income and personal relief of three thousand naira (N3,000.00).
(iii) Financial Institutions: these are the structures through which funds are created and allocated to the competing ends in the economy.
(iv) Funds: These are resources an entity seeks to acquire to enable its day to day operations.
(v) Impact: This is the effect of something on another.
References
Daily champion: “Community Banks and new competitive era,” August 30, 2006 page 30.
Idam, L.E (2000): Business Finance: an introduction. Zeeman Printing and Publishing Nigeria, Enugu.
Levitsky,J. (1989): Micro-enterprises in developing countries, Intermediate Technology Publications, London
Nda Yakubu (2003): Nigerian laws on public finance, Vol. III, National Library of Nigeria, Abuja.
The Business News: “A role for Smaller Banks” March 2nd 2006 page 45-47.
The Guardian: “Banks, microfinance institutions and portfolio delineation, August 30 2006 page 26.
CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical Framework
According to the regulatory and supervisory frame work for microfinance banks in Nigeria, microfinance bank is defined as “any company licensed to carry on the business of providing microfinance services such as savings, loans, domestic fund and transfers and other financial services that economically active poor, micro enterprises and small and medium enterprises need to conduct or expand their business” (CBN 2005). Muktar (2009:3) agreed with CBN (2005) and added that microfinance banks render other non financial services that are needed by the poor as well as the micro-enterprises. Such services included but not limited to provision of professional advice to poor persons regarding investments in small businesses and performance of non-banking functions that relate to micro-finance related business development services, such as co-operatives and group formation activities, rural industrialization and other support services needed by micro-enterprises.
Micro-finance banks are the banks that are approved by the Federal Government of Nigeria through the Central Bank of Nigeria to give loans to people to use and boost their existing business or to give to people to start up their businesses. (Guardian, August 30, 2006). Agundu and Akani (2008:112) while citing Asemota, (2002) stated that microfinance banking is about providing financial services to the economically active poor and low income households who are traditionally not served by the conventional financial institutions. The services include credit, savings, micro-leasing, micro-insurance and payment transfer.
Dinye (2006:12) sees microfinance bank as the one that engages in small financial transactions involving low-income households and micro-enterprises (both urban and rural) using the same standard methodologies such as character based lending, group guarantees and short term repetitive loans. Yakubu (2006:25) while defining micro-finance bank observed that the bank serves people who tend to be the poorest members of the all societies and self-employed and low income entrepreneurs. Such category of people include: traders, subsistence farmers, street vendors, hair dressers, black smiths and artisans.
2.2 Past and Current Efforts in Microfinance in Nigeria
Microfinance has existed with us for years, even before the introduction of conventional banking in Nigeria (Ekot 2008:162). Furthermore, he stated that past public efforts at redressing the inadequate supply of financial services to the poor in Nigeria include the following:
(i) Government support to cooperatives which began with the promulgation of the cooperative societies ordinances in 1936. All types of cooperatives have regular/compulsory savings by members as one of their goals while thrift and credit societies combine regular savings of members with lending.
(ii) The establishment of the Nigeria Agricultural and cooperative Bank (NACB) 1973.
(iii) The setting up of the Agricultural Credit Guarantee scheme Fund (ACGSF) in 1978.
(iv) The Rural Banking Programme (RBP).
(v) The supervised credit schemes of various state governments
(vi) The Federal Government establishment of Peoples Bank in 1989
(vii) The licensing of community banks in the 1990s
(viii) The CBN’s directives to commercial banks on lending to the poor.
(ix) The launching of the microfinance guideline in 2005
(x) The launching of the N50 billion Microfinance fund.
According to Muktar (2009:5) the Federal Government’s National Poverty Eradication Programme NAPED and National Economic Empowerment and Development Strategy (NEEDS) are also the efforts of government to provide microfinance to the targeted group in the society.
2.3. The Need for Establishment of Microfinance Institutions in Nigeria
Creating access to financial services for owners of micro and small businesses has become a thriving industry. The fabricators on the streets, street traders and food vendors are increasingly turning to microfinance institutions for financial services. In response to these demands, institutions to take care of microfinance have emerged (Ehigiamusoe 2008:17).
According to Ogunrinola and Alega (2007:97) microfinance institutions which have varying financial capabilities have been established to provide means for overcoming barriers created by the formal financial sector. Some of these barriers include the paper work needed for opening, operating and closing accounts, the high initial amount required for opening an account (Hirschland, 2003:14).
Akinboyo (2007:43) observed that the establishment of microfinance institution had become imperative because of the following factors:
First, like the conventional banks, there has been a weak institutional capacity due to incompetent management, weak internal control and absence of deposit insurance scheme on the part of the old existing community banks.
Secondly, most of the community banks have very weak capital base to adequately provide succor for the risk of lending to microentrepreneurs without collateral.
Finally, the need to utilize the fund appropriated for small and medium enterprises equity Investment scheme (SMEEIS) led to the establishment of micro-finance institutions in Nigeria.
Uche (2008:53) pointed out two interrelated factors as responsible for the establishment of microfinance institutions in Nigeria to include: the need to increase rural banking and the desire
to bring the informal sector, where cash-based transaction is prevalent, into the banking system. He quoted the CBN publication in 2004 where cash in circulation outside the banking system was put at about N545.8 billions representing about 4% and 9% in UK and USA, respectively.
2.4 Implementation of Micro-Credit Policies in Nigeria
According to CBN (2005) micro-credit is a facility granted to an individual or a group of borrowers whose principal source of income is derived from business activities involving the production or sale of goods and services. The said loans are usually unsecured, but typically granted on the basis of the applicants’ character and combined cash flow of the business and household.
Odoh (2008:25) observed that a number of policies have been rationalized on the grounds that because of the high risks and cost associated with the targeted sector and groups, the private sector particularly, the financial sector operators would not get involved in the activities of the sectors or those associated with the poor in the society.
Marx (2001:23) noted that there are some policy programmes initiated by government toward micro-credit scheme and poverty alleviation in Nigeria. These include: The Agricultural Development Programme (ADP), rural banking scheme and the establishment of specialized institutions and programmes, such as the Nigerian Agricultural and Cooperative Bank (NACB), Peoples Bank, the National Directorate of Food Roads and Rural Infrastructure (DEFFRI).
Nwankwo (2000:10) explained that in the case of financial sector, the Central Bank of Nigeria’s monetary policy guideline made it mandatory for all commercial banks to open rural branches under the rural banking scheme, to facilitate savings mobilization and extension of bank credit to the public.
Similarly, Orjih (2001:51) explained that there are other development banks and institutional framework that were established to ensure effective mobilization of micro-credit fund. These institutional frameworks include: Development Finance Institution (DFI) and other microfinance banks.
However, according to Akinboyo (2007:42), the implementations of some of the various policies aimed at promoting the access to micro-credits in Nigeria have been unsuccessful. He further argued that the implementation of the Industrial Development Centre (IDCs) was poor and their performances were without glory because many of them were inadequately equipped and funded. The Small Scale Industries Credit Schemes (SSICs) was largely unsuccessful because of the dearth of executive capacity to appraise, supervise and monitor projects which resulted into many unviable projects being funded leading to massive loan repayment deviants.
2.5 The Role of Microfinance Institutions in Mobilization of Fund
Microfinance institutions’ mobilization of fund from the informal financial sector for onward lending to the active poor in the society has been the cardinal basis of establishing them. This is effected through mobilization of savings for intermediation (Odoh, 2008:26).
According to Ogunrinola and Alege (2007:112) microfinance institutions, by the provision of microfinance, is not only necessary for business survival and growth through the services to the microentrepreneurs, it is also important in checking the rural-urban migration through rural employment creation and retention.
Mabogunje, 1997 cited by Odoh (2008:27), stated that the role of microfinance Banks in the promotion of synergy and mainstreaming of the informal sub-sector into the national financial system cannot be undermined as they enhance service delivery to micro, small and medium entrepreneur. Microfinance banks collect proceeds of banking instruments on behalf of their customers through correspondent banks.
Kasimu, (1997:18) added that microfinance banks contribute to rural transformation and promote linkage programmes between universal/development banks and other microfinance institutions. It is also on record that most microfinance institutions have introduced Esusu, Isusu (daily contributions) as other ways of fund mobilization. They have also established various products through which funds are mobilized.
2.6 Challenges of Microfinance Institutions in Nigeria
In mobilization of fund, the microfinance institutions have run into some bottlenecks. The N50 billion ear-marked by the Obasanjo’s regime has not been equitably distributed to the microfinance institutions. Also, the 1% deduction from state governments’ allocations which should be given to microfinance institutions has not gotten to them. With these difficulties, the microfinance institutions are finding it difficult to survive (Odoh, 2008:28).
It is the intention of the stakeholders that the microfinance institutions should cover or reach a greater number of the poor in the society. According to C.B.N (2002), a survey indicates that, microfinance institutions’ clients’ base was about 600,000 in 2001, and there are indications that they may not be above 1.5 millions in 2003. This number is too small for a country that has over 60 million people that need microfinance services.
Uche (2008:49) agreed with the CBN survey and added that even the recently licensed microfinance Banks are more dominant in the urban than rural areas. Anyanwu (2004:118) identified that microfinance institution are not active in funding the real sector of the economy. He noted that only about 14.1 and 3.5 percent of total microfinance institutions funding respectively went to agriculture and manufacturing sectors while the bulk of 78.4 percent funded commerce.
Furthermore, according to Ezekiel et al. (2010:8), in a country like Nigeria where rural areas are characterized by low population density, poor infrastructure, limited participation of the rural poor in the cash economy and restricted diversification of income sources, it is a very challenging task to develop a sustainable microfinance programme.
Adeoti (2003) in his contribution, noted the following as the prominent factors militating against the effectiveness of microfinance institutions in Nigeria: weak and ineffective institutional framework for administering microfinance, infrastructural inadequacy and the orientation of the poor vis-a-vis microfinance as a public sector-led activity.
According to Muktar (2009), the following are the conspicuously seen challenges facing microfinance banks in Nigeria.
- High operating cost: Small unit of services pose the challenges of high operating cost, several loan applications to be processed, numerous accounts to be managed and monitored, and payment collections to be made from several locations especially in rural communities
- Repayment problems: Loan default is a major threat to microfinance bank sustainability.
- Inadequate on non-monitoring of micro and small enterprises by banks, leading to default.
2.7 Performance of Microfinance Institutions
Ekot, (2008:168) observed that the new policy framework on micro-financing has brought a new lease of life to micro-financing in Nigeria and increased the confidence of the international donor agencies on micro-financing. Over 1,000 microfinance banks had been registered by the Central Bank of Nigeria in the previous two years and the international Finance corporation (IFC) is to double its total commitments in the microfinance sector to about US1.2billion over the next four years (Daily Sun, July 23, 2008).
In terms of deposit mobilization and granting of credits, the microfinance institutions licensed to operate in the country have accumulated a total deposit of N50.28 billion as at end of June, 2008, while registering N34.54 billion as net loans and advances. (The Vanguard, August 27,2008).
2.8 Microfinance Policy Strategies
A number of strategies have been derived from the objectives (CBN Report, 2005). They are as follows:
(i) License and regulate the establishment of microfinance banks.
(ii) Promote the establishment of Non Governmental Organization NGO-based microfinance institutions
(iii) Promote the participation of Government in the microfinance industry by encouraging states and Local Governments to devote as least one percent of their annual budgets to microcredit initiative administered through microfinance banks.
(iv) Promote the establishment of institutions that support the development and growth of microfinance service providers and clients.
(v) Strengthen the regulatory and supervisory framework for microfinance banks.
(vi) Promote sound microfinance practice by adopting professionalism, transparency and good governance in microfinance institutions.
(vii) Mobilize saving, and promote the banking culture among low income groups.
(viii) Strengthen the capital base of the existing microfinance institutions.
(ix) Broaden the activities of microfinance institutions.
(x) Strengthen the skills of regulators, operators and beneficiaries of microfinance activities.
(xi) Clearly define stake holder’s roles in the development of the microfinance sub-sector.
2.9 Transformation of Community Banks into Microfinance Banks
The Central Bank of Nigeria policy on microfinance provided that all community banks should transform into microfinance banks latest by December, 2006 (The Guardian Wednesday 30, 2006).
According to Okafor and Orjih (2005: 138) the reasons for compelling the existing community banks to have a special and peculiar status that stands them out to transform into microfinance intermediation are not farfetched. Some of the reasons were:
(1) The community ownership of community banks makes them stakeholder in poverty alleviation/microfinance intermediation.
(2) Development and appreciation on need of the rural small producers to cultivate the habit of savings of funds mobilization for developmental purpose.
(3) Community banks are targeted to grassroots communities which engender their loyalty and pride.
(4) It is cheaper for government to support the community banks as it will make them more self sufficient and better developed in the short, medium and long terms.
(5) Community banks should be seen as helping commercial banks in the task of making the economy grow in all sectors, the more the community bank are empowered to become effective savings mobilizers and credit managers at grass roots level, the better it will be for the entire economy.
(6) The acceptance of Nigeria Deposit insurance company (NDIC)to insure CBN licensed community banks has added further guarantee to the safety of the depositors’ funds.
(7) Community banks already held business relationships with the emerging universal banks, thus paving the way for smooth linkage and partnership.
2.10 Challenges in Building Microfinance Institutions in Nigeria
According to Uwaje (2006:19), the following are very important constraints in the development of microfinance institutions in Nigeria.
(a) There is a general lack of awareness about opportunities in modern microfinance among Nigerians.
(b) Wide spread poverty makes it difficult for promoters to muster the level of capital that will sustain the microfinance through stock and not put the shareholders money at risk.
(c) The registration processes for formal microfinance institutions are often slow, tedious expensive, and fraught with uncertainties.
(d) There is inadequate co-ordination between agencies that supply micro credit in Nigeria, whether in the public or private sector.
(e) There is a marked absence of dedicated public sector policies and institutions for the development and extension of micro credit in line with international best practice in the field.
(f) There is a lack of an autonomous re-financing out fit to meet the long-term credit requirement of the microfinance industry.
(g) There is low level of professional in the micro-credit field, and inadequate capacity of managers and members.
2.11 Potentials of Micro-financing in Nigeria
As observed by Anyanwu (2004:169), Nigerians, the rich and the poor are enterprising and industrious. But the poor who account for over half of the population do not have access to formal banking services and they rely heavily on formal and informal microfinance institutions for credit. Nigeria’s large population requires the production of goods and services on daily basis and funding is required for the production. The microfinance institution operations are expanding, but they have very limited financial resources. The SMIEIS funds and the Development Finance Institutions (DFI) have been identified as potential sources of long-term funding for microfinance institution operations.
Deposit Money Banks (DMBs) are beginning to develop interest in microfinance funding, given the unfolding commercial viability sector. Several of these banks now have microfinance units, while others have floated microfinance banks. (Business World, September 1, 2008). Apart from the deposit money banks, other institutions including insurance companies and other financial institutions have made serious incursion into the microfinance sub-sector. Business world of September, 2008 reported that first call option investment Ltd has established five microfinance banks scattered all over the country. With all these developments, the researcher believes that the future of micro-financing is quite bright in Nigeria.
1.12 Elements and Principles of Microfinance
According to Ehigiamusoe (2008:17), over the years, certain features have been identified with microfinance practices. The features as outlined include:
(1) Collateral substitution
(2) Small units of services
(3) Priority focus on women.
(4) Access to repeat loans.
(5) Client centeredness
(6) Group Delivery Methodology
(7) Door-step services delivery
(8) The poor need a variety of financial services, not just loans.
(9) Microfinance is a powerful instrument against poverty and
(10) Financial sustainability is necessary to reach significant numbers of poor people.
2.13 Summary of the Review
This chapter has carefully reviewed various contributions made by different authors on the topic. From the available literatures, it is obvious that micro credit scheme is very important for economic development of the country. Also micro-finance institutions have made some notable foot prints in the mobilization of fund for micro credit scheme. But it seems that these efforts are not adequate enough to propel the country to a greater height. Therefore, it becomes very imperative that these microfinance institutions should be encouraged to design good strategies of credit mobilization.
References
Adeyemi K.S (2008): Institutional Reforms for Efficient Microfinance Operations in Nigeria, Bullion Publications of Central Banks of Nigeria Vol.31 No.1
Adeoti, S (2003): Financial Alternative to SMEs. Business times 18th February. Page 41.
Agundu, P. and Akani W. Henry (2008) Microfinance Banks and Economic Development in Nigeria, International Journal of Economic and Development Issue Vol. 7 No. 2
Akinboyo O.L (2007): Microfinance Banks: Unblocking the Potentials of Micro-Business activities of the Nigerian economy, rural Bullion publication of the central Bank of Nigeria. Vol. 13 No.1
Anyanwu, C.M (2004): Microfinance institutions in Nigeria: Policy, practice and potentials, paper presented at the G24 workshop on “constraints to growth in sub-saharan Africa”, Pretoria, South Africa Nov.29-30.
Business World Newspaper (2008): Operators differ on Banks’ Incursion into Microfinance. September 1, page 31.
CBN (2005): Regulatory and supervisory Framework for microfinance Banks in Nigeria. CBN, Abuja.
Daily sun Newspapers (2008): Nigeria’s Microfinance Sector to Benefit from IFC’s US1.26 billion facility. July 21 Page 41
Dinye, R.D (2006): State Sponsored Rural Microfinance Programmes in Gjance: A performance Review, International Journal of Economic and Development issues (2).
Ehigiamusoe G. (2008): The Role of Microfinance Institutions in the Economic Development of Nigeria, Bullion Publication of the Central Bank of Nigeria Vol. 32 No.1
Ekot, E. Gabriel (2008): Micro-financing as a vehicle for Eradication of poverty in Nigeria, International Journal of Economic and development issues vol. 8 No. 2.
Ezekiel, J.I etal (2010): The impact of Microfinance Bank in Alleviating Rural Poverty in Nigeria: A study of three selected Microfinance Banks in Akwa Ibom State, International Journal of Investment and Finance Vol. 3 No. 1 & 2
Hirchsland, M. (2003): Serving small depositors: overcoming the obstacles, recognizing the trade offs. The micro-banking bulletin 9th July.
Kasimu, S.U (1997): Banking on micro-enterprises: Innovative lending and credit programmes, NIDB News letter, October.
Marx, M.T (2001): Nigeria Rural and microfinance. Rural microfinance option, report on formation mission by IFAD/World Bank/CBN.
Muktar Mustapha (2009): The Role of Micro-finance Banks in the promotion and Development of Entrepreneurship in Semi Urban and Rural Areas, mmutars78@yahoo.com.
Nwankwo, G.O (2000): The Nigerian financial system, Macmillian Publishers, London.
Odoh charles M. (2008): The Role of micro-finance institutions in Nigeria, ASCON Journal of management Vol 29 No1-2
Ogunrinola O.I (2007): Micro-credit and micro-enterprises Development, An analysis of some rural-based enterprises in Nigeria, The Nigeria Journal of Economics and social studies Vol 49 No1
Olaiya, O. (2006), August,30)”: Banks, micro-finance institutions and portfolio delineation” The Guardian, PP26.
Orjih John (2002): Banking and Finance: Principles, policies and Institutions, splashrnedia Organization, Enugu,
The Vanguard Newspapers (2008): Microfinance Banks Rake in N150.28 billion Deposit-CBN. August,27 Page19
Uche, R.U (2008): The Role of Banks, Insurance and Microfinance Institutions in National Development: A lecture delivered to participants of senior executive course No. 30 of the National Institute for policy and strategic studies, Kuru, Jos.
Uwaje .F (2006): An Examination of Micro-credit movement in Nigeria, Journal of Economic Studies Vol. 40 No. 2
Yakubu, A.A (2006): Microfinance strategy for Food Security in Nigeria. International Journal of Economic and Development Studies 6(1&2). http/www.businessdayonline.com/analysis/comments4s25/html. http/www.en.wikipedia.org/wiki/micro-credit.
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design
According to Ibe (2003:68), research design is said to be the plan, structure and strategy of investigation conceived so as to obtain answers to research questions and control of variance.
The research design adopted for this study is a survey method. Data collection was based on a field survey using a questionnaire. This technique was chosen so as to have a comprehensive study on the topic.
3.2 Sources of Data
Data were collected through primary sources and secondary sources. The primary sources involved interview by the researcher, while the secondary sources included relevant text books, journals, newspapers and internet materials.
3.3 Population of the Study
The population of the study includes the staff of microfinance institutions in Abakaliki metropolis. For the purpose of the study, the population is 152. This was distributed according to the three levels of management staff.
3.4 Sample Size Determination
The method of sample size determination is based on the random sampling technique. Since the population of the study is finite, the sample size is calculated by using the statistical formula as follows:-
n = N/1+N(e2)
Where: n = sample size required
N = finite population
1 = Constant term
e = Margin of error = 0.05 or 5%
n = 152/1+152 (0.05)2
= 152/1.38 = 110
The sample size is approximately 110
3.5 Instrument of Data Collection
The instrument used for data collection is a structural questionnaire.
3.6 Questionnaire Distribution and Return
Copies of the questionnaire were administered by the researcher during personal interviews according to the sample size. A total of 90 copies of the questionnaire were collected by the researcher representing 81.8% return rate. The table below indicates the distribution of questionnaires:
Table 3.1 Questionnaires Distribution
| Level | No. distributed | No. returned | Percentage (%) |
| Senior | 25 | 15 | 60 |
| Middle | 32 | 32 | 100 |
| Junior | 53 | 43 | 81 |
| Total | 110 | 90 |
Source: Field survey, 2012
3.7 Method of Data Analysis
Data collected are analyzed descriptively and quantitatively. Tables and charts are used for presentation. The hypotheses formulated are tested using the chi-square test.
Decision Rule/Criteria: Reject Ho (Null hypothesis) if X2c > X2a otherwise, accept.
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
This chapter deals with presentation and analysis of data.
4.1 Analysis of the Questionnaires
Question 1: What level of staff are you?
Table 4.1 reveals that 20% of the respondents are senior staff, 35.6% of them are of middle level while 44.4% out of the 90 staff are junior staff. (Source: Appendix C)
Question 2: How long have you served in your institution?
Table 4.2 indicates that out of 90 respondents, 52 had served for between 1 and 5 years, 26 respondents served for between 6 and 10 years while 12 respondents had served for above 11 years in their respective microfinance institutions which represented 57.8%, 28.9% and 13.3% respectively. (Source: Appendix C)
Question 3: Do you agree that provision of micro-credit is important for economic development of poor persons?
Table 4.3 indicates that all the respondents agreed that micro-credit is important for economic development of poor persons in Nigeria. No respondent disagreed. (Source: Appendix D)
Question 4: What factor do you consider most important in granting micro-credits?
Table 4.4 indicates that out of 90 respondents, 72 answered that the issue of collateral is a major factor considered for granting of microcredit, 18 indicated that what is considered most is the repayment period while no respondent answered that character of the users of micro-credit fund is considered in granting micro-credit. These represent 80%, 20% and 0% respectively. (Source: Appendix D)
Question 5: Do microfinance institutions play significant roles in mobilization of fund?
Table 4.5 indicates that 75.6% of the respondents agreed that microfinance institutions play significant role in mobilization of fund for micro-credit while 24.4% of the respondents answered no to it. (Source: Appendix E)
Question 6: Do you think that microfinance institutions have been able to adequately provide the much needed fund for micro-credit scheme in Nigeria?
Table 4.6 above indicates that 6 respondents representing 6.7% answered yes that microfinance institutions have been able to adequately provide the needed fund for micro-credit scheme in Nigeria while 84 respondents representing 93.3 disagreed to such opinion. (Source: Appendix E)
Question 7: What are the attitudes of commercial banks towards the provision of micro-credit to micro-enterprises?
Table 4.7 indicates that only 4.4% of the respondents were of the opinion that the attitudes of commercial banks towards provision of micro-credit to micro-enterprises are favourable while 86 respondents representing 95.6% are of the opinion that they are unfavourable. (Source: Appendix F)
Question 8: Do you agree that microfinance institutions are adequately available for rural dwellers?
Table 4.8 reveals that 39% of the respondents are of the opinion that microfinance institutions are adequately available for rural dwellers, while 61% of them opined otherwise. (Source: Appendix F)
Question 9: How do you assess the implementation of micro-credit policies in Nigeria?
Table 4.9 reveals that 50 respondents representing 55.6% are of the opinion that the implementations of micro-credit policies in Nigeria are generally low while 40 respondents representing 44.4% indicated that the implementation is high. (Source: Appendix G)
Question 10: Do you think that public efforts in microfinance in Nigeria have been successful?
Table 4.10 reveals that out of 90 respondents, 29 respondents indicate that public efforts in microfinance in Nigeria has been successful, 43 respondents disagreed with that while, 18 did not make any decision which represented 32.2%, 47.8% and 20% respectively. (Source: Appendix G)
4.2 Analysis of Research Questions
Research Question 1: To what extent do microfinance institutions play their roles in mobilization of micro-credit fund?
The analysis on table 4.5 reveals that microfinance institutions play roles in mobilization of fund for micro-credit to the targeted group of people in Nigeria.
Research Question 2: What are the impacts of microfinance banks policies in Nigeria?
Table 4.10 indicated that the impact of microfinance banks policies in Nigeria has not been positive as expected.
Research Questions 3: What the challenges of Microfinance in Nigeria?
The analyses of that 4.7 and 4.9 revealed that the attitude of commercial banks towards micro-enterprises and low implementation of micro-credit policies constitute major challenges of microfinance in Nigeria.
Research Question 4: Why are the establishments of micro-credit institutions necessary in Nigeria?
Table 4.3 when analyzed, revealed that the establishments of microcredit institutions in Nigeria is necessary in order to guarantee the provision of micro-credit for economic developments of poor persons
4.3 Test of Hypotheses
Hypothesis 1
Ho: microfinance institutions do not play significant role in mobilization of fund for micro-credit scheme.
Table 4.5 is re-arranged according to the levels of staff of microfinance institutions as shown below:
| Option | Senior | Middle | Junior | Total |
| Yes | 10 | 22 | 36 | 68 |
| No | 8 | 10 | 4 | 22 |
| Total | 18 | 32 | 40 | 90 |
Source: Filed survey, 2012
To set at a level of significant 5% at 2 degree of freedom (X20.5) (R-I) (C-1), the critical value from chi-square table is 5.991
DECISION RULE: Reject H0 (Null hypothesis) if X2c >X2a otherwise, accept.
Where:
X2c = calculated value.
X2a = critical value of chi-square.
X2c = ∑[oi-ei]2/ei
Where ei = (RijxCij)/N
oi = observed frequency
ei = expected frequency
Rij = row total
Cij = column total
N = grand total
∑= summation sign.
The expected frequencies are calculated as follows:
(68 x 18)/90 = 13
(68 x 32)/90 = 24
(68 x 40)/90 = 30
(22 x 18)/90 = 4
(22 x 32)/90 = 8
(22 x 40)/90 = 10
X2c = ∑[oi-ei]2/ei = (10-13)2/13 + (22-24)2/24 + (36-30)2/30 + (8-4)2/4 + (10-8)2/8 + (4-10)2/10
= 0.7+0.2+1.2+4+0.5+3.6=10.2
Decision: since X2c (10.2)> X2ca (5.991), we reject the hypothesis.
Conclusion: The conclusion to make is that microfinance institutions play significant role in mobilization of fund for microcredit scheme.
Hypothesis 2:
Ho: The implementation of microfinance policies in Nigeria is low.
Table 4.9 is re-arranged to reflect only the levels of staff of microfinance institutions as show below:
| Option | Senior | Middle | Junior | Total |
| Very low | 7 | 10 | 18 | 35 |
| Low | 2 | 8 | 5 | 15 |
| Very high | 4 | 5 | 8 | 18 |
| High | 5 | 5 | 8 | 10 |
| Total | 18 | 32 | 40 | 90 |
Source: Field survey, 2012.
To set at a level of significant 5% at 2 degree of freedom (X20.5) (R-1) (C-1), the critical value from chi-square table is 5.991
Decision Rule: Reject H0 (Null hypothesis) if X2c > X2a otherwise, accept
Expected frequencies (ei) are calculated as follows:
(35 x 18)/90 = 7
(35 x 32)/90 = 12
(35 x 40)/90 = 16.
(15 x 18)/90 = 3
(15 x 32)/90 = 5
(15 x 40)/90 = 7.
(22 x 18)/90 = 4.
(22 x 32)/90 = 8
(22 x 40)/90 = 10
(18 x 18)/90 = 4
(18 x32)/90 = 6
(18 x 40)/90 = 8
X2c= ∑[oi-ei]2/ei = (7-7)2/7 +(10-12)2/12 +(18-16)2/16 + (2-3)2/3 + (8-5)2/5 + (5-7)2/7 + (4-4)2/4 + (9-8)2/8 +(9-10)2/10 +(5-4)2/4 + (5-6)2/6 + (8-8)2/8
= 0+0.3+0.25+0.3+1.8+0.57+0+0.13+0.1+0.25+0.2+0 = 3.9
Decision: Since X2c (3.9) < X2a (5.991), we accept the hypothesis.
Conclusion: The conclusion is that the implementation of microfinance policies in Nigeria is low
Hypothesis 3
Ho: The attitude of commercial banks as regards to micro-credit scheme in Nigeria is unfavourable
Table 4.7 is re-arranged to reflect only the levels of staff of microfinance institutions as shows below.
| Option | Senior | Middle | Junior | Total |
| Favourable | 2 | 1 | 1 | 4 |
| Unfavourable | 16 | 31 | 39 | 86 |
| Total | 18 | 32 | 40 | 90 |
Source: Field survey, 2012.
To set at a level of significant 5% at 2 degree of freedom (X20.5) (R-1)(C-1), the critical value from chi-square table is 5.991.
Decision Rule: Reject H0 (Null hypothesis) if X2c> X2a, otherwise, accept.
Expected frequencies (ei) are calculated as follows:
(4 x18)/90 = 0.8
(4 x 32)/90 = 1
(4 x40)/90 = 2
(86 x 18)/90 = 17
(86 x 32)/90 = 31
(86 x 40)/90 = 38
X2c = ∑[oi-ei]2/ei = (2-0.8)2/0.8 +(1-1)2/1 +(1-2)2/2 + (16-17)2/17 + (31-31)2/31 + (39-38)2/38
= 1.8+0+0.5+0.06+0.03+0.03 = 2.42
Decision: Since X2c (2.42) < X2a (5.991), we accept the hypothesis
Conclusion: The conclusion to make is that the attitude of commercial banks as regards to micro-credit scheme in Nigeria is unfavourable.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
In the course of this study, the following findings were made as summarized below.
The roles of microfinance institutions in alleviating rural poverty through increasing access to source of capital cannot be over emphasized. Table 4.5 reveals that microfinance institutions play significant role in mobilization of fund in Nigeria.
Another major finding as revealed by the analysis of table 4.7 is that commercial banks have not been able to address the needs of the rural poor. This is just because the traditional banking services provided by these banks were not tailored to meet the needs of microenterprises as profitable entities.
It can be seen, from the analysis made on table 4.6 and table 4.8, that microfinance institutions whose policy objectives include making financial services accessible to a large segment of the potentially productive Nigerian population which otherwise would have little or no access to financial services have not done satisfactorily in this regard. The reason for this is the locations and operational base of these institutions. They are located majorly in urban centres and do not have effective strategies to penetrate the rural un-served markets.
Table 4.4 revealed that the absence of asset base collateral (collateral substitution) which is a major principle of microfinance and a yardstick for distinguishing microfinance institutions from the formal financial institutions has been grossly undermined in Nigeria thereby inhibiting effective micro-credit supply.
Table 4.9 revealed that the implementation of micro-credit policies in Nigeria is generally low. One of the causes is that the level of grants as a source of funding is very high as compared to the contribution from commercial sources such as savings which are not sustainable.
5.2 Conclusion
An attempt has been made to analyze the role of microfinance institutions in mobilization of fund for micro-credit scheme in Nigeria. An examination of the administration of micro-credit scheme in Nigeria reveals pertinent factors militating against the effectiveness of institutions established for this purpose.
Prominent among these factors are the inability of micro-credit fund to get to the poor, the unfavourable attitude of commercial banks which have seen microfinance institutions as strong competitors in the financial market and lack of funding of the real sector of the economy by the institutions as well as weak and ineffective institutional framework for administering microfinance.
The various hypothesis formulated were tested and it was established that microfinance institutions play significant role in fund mobilization for micro-credit scheme in the country. But, that these roles are not actually adequate.
5.3 Recommendations
In the light of the observations made, the following recommendations are made:
- There should be provision to increase outreach capacity to microfinance institutions by the poor.
- The microfinance institutions should encourage the formation of cooperatives so that a number of beneficiaries that are engaged in the similar business can collectively enjoy their services and hence a reduction in operating cost as well as the likelihood for borrowers to default.
- Microfinance institutions should redesign their marketing strategies along the line of the traditional self-help group and credit unions as a way of penetrating the rural populace. This will engender confidence among rural depositors.
- Microfinance institutions should create attractive incentives to encourage savings by the very low income earners, majority of whom reside in the rural areas.
- Access to micro-credit should be made as flexible as possible.
- Encourage training programmes for loans beneficiaries especially those young entrepreneurs in areas of fund management, record keeping and accounts. This will definitely enhance their management skill and improve their productivity.
Suggestions for Further Study
Findings from research study of this nature have not always been exhaustive. However, further research should be carried out in the Following areas:
- Similar studies on topic in another geographical setting.
- Other financial houses like insurance industries.
Bibliography
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httpwww.businessdayonline.com./analysis/comments4s25/htm/
http/www.en.wikipedia.org/wiki/micro-credit.
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Appendix A
Questionnaire
Instruction: Please fill section A and tick [ ] in any of the columns that best suit your reaction to the options in section B of this questionnaire
Section A
Personal Data
Name ……………………………………………….
Qualification ……………………………………….
Sex ……………………………………………………
Marital status …………………………………………
SECTION B
- What level of staff are you? Senior [ ] Middle [ ] Senior [ ]
- How long have you served in this institution? 1-5 years [ ] 6-10 years [ ] 11 years and above [ ]
- Do you agree that provision of micro-credit is important for economic development of poor persons? Yes [ ] No [ ]
- What factor do you consider most important in granting microcredits? Collateral [ ] Repayment period [ ] Character [ ]
- Do microfinance institutions play significant roles in mobilization of funds? Yes [ ] No [ ]
- Do you think that micro-finance institutions have been able to adequately provide fund for micro-credit scheme in Nigeria? Yes [ ] No [ ]
- What are the attitudes of commercial banks towards the provision of micro-credit to micro-enterprises? Favourable [ ] Unfavourable [ ]
- Do you agree that microfinance institutions are adequately available for rural dwellers? a. Yes [ ] No [ ]
- How do you assess the implementation of micro-credit policies in Nigeria? Very low [ ] Low [ ] Very high [ ] High [ ]
- Do you think that public efforts in microfinance in Nigeria have been successful? Yes [ ] No [ ] undecided [ ]
Appendix B
Table 4.1 Classifications of Staff According to their Levels
| Option | No of Responses | Percentage (%) |
| Senior | 18 | 20 |
| Middle | 32 | 35.6 |
| Junior | 40 | 44.4 |
| Total | 90 | 100 |
Table 4.2: Period of Services in the Institution
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| 1 – 5 years | 52 | 9 | 24 | 19 | 57.8 |
| 6 – 10 years | 26 | 3 | 8 | 15 | 28.9 |
| 11 years and above | 12 | 6 | – | 6 | 13.3 |
| Total | 90 | 18 | 32 | 40 | 100 |
Appendix D
Table 4.3: Importance of Micro-Credit
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Yes | 90 | 18 | 32 | 40 | 100 |
| No | – | – | – | – | – |
| 90 | 18 | 32 | 40 | 100 | |
Table 4.4 Determinations of Micro-Credit Supply
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Collateral | 72 | 16 | 20 | 36 | 80 |
| Repayment period | 18 | 2 | 12 | 4 | 20 |
| Character | – | – | – | – | – |
| 90 | 18 | 32 | 40 | 100 | |
Appendix E
Table 4.5: The Role of Microfinance Institutions in Fund Mobilization
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Yes | 68 | 10 | 22 | 36 | 75.6 |
| No | 22 | 8 | 10 | 4 | 24.4 |
| Total | 90 | 18 | 32 | 40 | 100 |
Table 4.6: Adequacy of Micro-Credit Fund
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Yes | 6 | 3 | 3 | – | 6.7 |
| No | 84 | 15 | 29 | 40 | 93.3 |
| Total | 90 | 18 | 32 | 40 | 100 |
Appendix F
Table 4.7: Attitudes of Commercial Banks to Microcredit Provision
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Favourable | 4 | 2 | 1 | 2 | 4.4 |
| Unfavourable | 86 | 16 | 31 | 39 | 95.6 |
| Total | 90 | 18 | 32 | 40 | 100 |
Table 4.8: Availability of Microfinance Institutions
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Yes | 35 | 12 | 18 | 5 | 39 |
| No | 55 | 6 | 14 | 35 | 61 |
| Total | 90 | 18 | 32 | 40 | 100 |
Appendix G
Table 4.9 Implementation of Micro-Credit Policies in Nigeria
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Very low | 35 | 7 | 10 | 18 | 38.9 |
| Low | 15 | 2 | 8 | 5 | 16.7 |
| High | 22 | 4 | 9 | 9 | 24.4 |
| Very high | 18 | 5 | 5 | 8 | 20 |
| Total | 90 | 18 | 32 | 40 | 100 |
Table 4.10: Public Efforts in Microfinance in Nigeria
| Option | No of Responses | Percentage (%) | |||
| Total | Senior | Middle | Junior | ||
| Yes | 29 | 6 | 8 | 15 | 32.2 |
| No | 43 | 10 | 20 | 13 | 47.8 |
| Undecided | 18 | 2 | 4 | 12 | 20 |
| Total | 90 | 18 | 32 | 40 | 100 |
