MICRO FINANCE INSTITUTIONS ORIGIN, PROBLEMS AND PROSPECTS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

One of Nigeria’s economic peculiarities is financial dualism. There is a formal financial sector made up of the ministry of finance, the Central Bank of Nigeria (CBN), banks, other financial institutions, Nigerian Stock Exchange (NSE), etc. Beside this formal sector exists an informal financial sector with people lending and borrowing directly from each other through methods like esusu, daily contributions and through cooperatives[1]. The presence of a large informal finance sector in Nigeria had been blamed on several factors, some of which are; population concentration in rural areas most of which are unbanked, low literary level, loss of confidence in the banking system due to distress, elitist banking practices and absence of other financial institutions in the rural areas[2].

A major consequence of a large informal sector is difficulty in economic management. The experience of Nigeria in this regard is not different as the monetary authorities have had to watch impotently as their monetary policy measures fall short of desired objectives[3],[4].

Apart from the difficulties experienced in monetary management, the Nigerian governments over the years have had to grapple with poverty and unemployment. The realization that many of these poor and/or unemployed persons are not without skills, ideas and willingness to work, must have propelled the government to make finance accessible to them. This, the government has tried to achieve using different programmes.

Some of the programmes tailored to address the problems of financial dualism, poverty and unemployment by successive Nigerian governments are; rural banking scheme, Peoples Bank, operation feed the nation (OFN), green revolution, Nigerian Bank of Commerce and Industry (NBCI), Nigerian Agricultural and Cooperative Bank, Nigerian Economic Reconstruction Fund (NERFUND), Nigerian Directorate of Employment (NDE), Family Economic Advancement Programme (FEAP), Poverty Alleviation Programme (PAP), Nigerian Industrial Development Bank (NIDB), Bank of Industry (BOI), Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), community banking and microfinance banking. Many of these programmes failed to achieve the objectives for which they were established and were scrapped. One of the last programmes to suffer this fate was community banking and in its place the microfinance banking scheme has been instituted. The failure of these government programmes can be attributed to the problems and challenges which they faced. The current scheme – microfinance banking – is not without its own challenges. It is in the light of the above that this paper sets to; highlight the challenges facing the microfinance banking scheme, examined the prospects of the scheme and suggest ways it can adopt in order to avoid the pitfalls of its predecessors and overcome current challenges.

The history of microfinance sector is as old as when man started using money. People have always been borrowing, lending and saving, for as long as there has been money. This has always been done within communities, using their own system and methods without any external assistance or services. The micro finance scheme has primarily developed as a response to the inability or apathy of commercial banks and the formal financial system to serve the needs of low-income households and micro enterprise. According to the central Bank of Nigeria (2005), the formal financial system provides services to about 35% of the economically active population, while the remaining 65% are excluded from access to financial services. Looking back into history, one would see that Nigerians have always engaged in economic activities, but such activities continued for a long time on subsistence basis. Agriculture, for instance was in most cases carried out simply to feed the immediate family. Other activities such as pottery, weaving, etc were for personal needs and market within the locality (Oladele, 1988). Currently, these traditional rural occupations such as pottery, basket making, cloth dying, local brewing etc which used to keep people employed, have escaped the reach of small scale undertakers. This is because, these poor entrepreneurs do not have access to financial services, which will support their activities to enable them succeed in business and consequently reduce poverty and possibly bring about economic growth and development. Furthermore, UNDP Human Development Report (1997) estimated that 40% of Nigerians live in absolute poverty, with 80% of them living in the rural areas. The significance of this is that most of these rural dwellers have been denied access to banking facilities to enable them engage successfully in agriculture, handicraft etc. The aggregate micro credit facilities in Nigeria accounts for about 0.2 percent of GDP and less than one percent of total credit to the economy. Most microfinance funding go to the commercial sector to the detriment of the more vital economic activities, especially agricultural and manufacturing sectors which provide the foundation for sustainable growth and development. Currently, only about 14.1 and 3.5 per cent of total MFI funding went to these sectors, respectively, while the bulk, 78.4 percent, funded commerce (Anyanwu, 2004). Over the years, a lot of programs and policies have emerged in a bid to improve the living condition of the Nigerian population. The CBN, in consultation with other relevant agencies, included the microfinance policy as one of its initiatives that started in 2004. The policy was designed to boost capacity of micro, small and medium enterprises towards economic growth and development through financial intermediation (Nwaogazi, 2010). In December, 2005, the micro finance policy, regulatory and supervisory framework for Nigeria was released by the Central Bank of Nigeria. Its main objective is to support the delivery of very small, uncollaterized or less than normally collaterized loans or other financial services such as savings or insurance for low income clients. In spite of these programs and policies, most of the poor entrepreneurs are yet to have access to micro finance. The purpose of this paper, therefore, is to provide an overview of microfinance in Nigeria and examine its problems and prospects.

TOPIC: MICRO FINANCE INSTITUTIONS ORIGIN, PROBLEMS AND PROSPECTS

Format: MS Word

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

Number of Pages: 89

Price: 3000 NGN

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