IMPACT OF MICROFINANCE BANKS ACTIVITIES ON POVERTY ALLEVIATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The universal objective of microfinance is to make it possible for large numbers of low-income people to access institutional financial services, hence the potential benefits of microfinance has accounted for its widespread adoption as an economic development, job creation and poverty reduction strategy. In Nigeria, the microfinance policy regulatory and supervisory framework was launched in December, 2005. The framework provides a roadmap for the participation of stakeholders in microfinance provision. The concept of microfinance was well received in Nigeria, culminating in the conversion of 606 erstwhile community banks to microfinance banks (MFBs) at the end of December, 2007 and licensing of 363 de novo MFBs, resulting in a total of 969 MFBs as at August 31, 2010 (The Nigerian Microfinance Newsletter, 2010). Furthermore, the Microfinance Policy that was launched in 2005 created the framework for licensing, regulation and supervision of privately owned microfinance banks. The policy also provides for the participation of various institutions such as deposit money banks, non-governmental organizations-microfinance institutions and financial cooperatives in the provision of financial services. The microfinance banks are licensed by the Central Bank of Nigeria (CBN), to conduct microfinance operations such as mobilizing micro-savings and deposits from the public, extending credit and other financial services to them. The institutions are supervised by the CBN and are required to comply with the Supervisory and Regulatory Guidelines for MFBs. The MFBs also set up their apex association known as “National Association of Microfinance Banks” (NAMBs) to create the platform for capacity building, generic product development and marketing, as well as information/resource sharing and promoting best practices, among members. There are facts that poverty is indeed increasing in Nigeria, based on the poverty assessment study commissioned and sponsored by the World Bank in 1995 (Akanji, 2006). Attacking ‘poverty’ is based on a deeper understanding of the meaning and causes of poverty. In the opinion of Akanji (2006), the World Bank report shows that economic development continues to be central to success in reducing poverty, but that poverty is also an outcome of economic, social and political processes that interact with and reinforce each other in ways that can ease or exacerbate the state of deprivation in which poor people live. Effectively functioning financial markets have fundamental roles to play in fostering development. At the level of individual livelihoods, financial markets can perform very crucial functions. They can be a principal means for the poor to get access to financial assets; through facilitating savings, they can be of importance in reducing the vulnerability associated with uneven and unpredictable year-to-year changes in circumstances, and they can help convert illiquid assets into liquid ones in the event of emergencies (Olomola, 2008). Nonetheless, any poverty reduction programme must seek to address the inefficiency and inadequacies of financial markets since they rarely effectively discharge the expected functions. The credit policy for the poor involves many practical difficulties arising from the operations of financial institutions and the economic characteristics and financing needs of low-income households. For Example, commercial banking institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self-employed households is not stable. A huge number of micro loans are needed to serve the poor, but banking institutions prefer dealing with big loans in small numbers to minimize administration expenses. They also look for collateral with clear title-which many low-income households do not have. In addition, bankers tend to consider low income households a bad risk, imposing exceedingly high information monitoring costs on operation (Shastri, 2009). This paper therefore, will critically assess how the poor has been empowered through the operation of microfinance as a strategy for poverty reduction in Nigeria.

TOPIC: IMPACT OF MICROFINANCE BANKS ACTIVITIES ON POVERTY ALLEVIATION IN NIGERIA

Format: MS Word

Chapters: 1 - 5, Abstract, References.
Delivery: Email

Number of Pages: 70

Price: 3000 NGN

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