PROBLEMS AND PROSPECTS OF MICROFINANCE BANKS IN NIGERIA

CHAPTER ONE

Introduction

1.1   Background of the study

The Nigerian banking industry, regulated by the Central Bank of Nigeria, is made up of: deposit money banks (referred to as commercial banks), development finance institutions and other financial institutions which include; finance companies, discount houses, microfinance banks, bureau de changes and primary mortgage institutions. As at December 2009, the banking industry included twenty-four commercial banks, five development finance institutions, one-hundred and seven finance companies, five discount houses, fifty class ‘A’ bureau de change, five hundred and ninety-eight bureau de changes, ninety-nine primary mortgage, and nine hundred  and ten Microfinance banks (MCP; STUDY MANUAL; 2010). The evolution of the banking system in Nigeria dates back to 1890, with the presence of monetization of the economy growing side by side with barter trading. The use of cash had grown sufficiently during this period through out West Africa. The history of modern banking in Nigeria dates back to 1892 with the establishment of the African Banking Corporation in Lagos. Despite having a vibrant financial sector, accessibility to finance has been the main challenge facing economic agents particularly those at the bottom of the pyramid. The medium and Small Enterprises form the main crust of every economy contributing about 70% of GDP and employing well over 75% of the population both in the rural and urban centers. (MCP; STUDY MANUAL; 2010)

The commercial Banks (CBs) in Nigeria have been growing rapidly since 2004 with the banking reform introduced by the Central Bank of Nigeria (CBN). The Insurance, Capital Markets and Mortgage sub-sectors are currently undergoing their own reforms to complement the banking sub-sector reform and deepen the financial market system in Nigeria. Although the progress has been made with the reform agenda, there still exists trailing behind in the banking sub-sector in terms of performance and growth indicators. The financial services sub-sector in Nigeria was largely skewed in favour of the urban areas due to the availability of infrastructure, businesses, ‘big envelope’ deposits and demand for loans. As a result, microfinance was being discriminated against and therefore wasn’t responding fast to the boom in the banking sub-sector and overall growth in the economy. As seen above, there was a disconnection between the surplus funds available in the vaults of many commercial banks and the deep yearnings for investment funds (capital) in the rural economy to lubricate the growth of the informal sector in order to generate income provide employment and reduce poverty and provide the stimulus for growth and development in the country. (CDF; 2010). In December 2005, in response to this challenge of financing the real sector namely the Micro, Small and Medium Enterprises (MSME) and rural finance, the federal government of Nigeria put in place a microfinance policy to cater for this important segment of the Nigerian economy. In other to accomplish this, the CBN had to eliminate the activities of community banks(distressed at that time) due to some negative factors militating against it, some of which were characterized with weak institutional capacity like; weak internal controls, incompetent management and lack of deposit insurance schemes, weak capital base, existence of huge un-served market, insufficient economic empowerment of the poor, unimproved employment generation and poverty reduction and many other numerous factors. All licensed community banks, prior to the approval of this policy transformed to microfinance banks licensed to operate as a unit bank on meeting the prescribed new capital and other conversion requirements within a period of 24 months from the date of approval of this policy. Any community bank which failed to meet the new capital requirement within the stipulated period ceased to operate as a community bank (CBN Microfinance Policy; 2005).

Microfinance has been in existence in Nigeria providing their members with financial services like small loans with interest for short periods they were cooperatives and thrift groups. They were popularly called “ajo” or “esusu”. (MCP; STUDY MANUAL; 2010) Microfinance is the provision of a broad range of financial services such as savings, loans, payment services, money transfers, insurance to the low-income individuals and their microenterprises which are traditionally not served by the conventional financial institutions.

TOPIC: PROBLEMS AND PROSPECTS OF MICROFINANCE BANKS IN NIGERIA

Format: MS Word

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

Number of Pages: 92

Price: 3000 NGN

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