CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
A robust economic growth cannot be
achieved without putting in place well focused programme to reduce poverty
through empowering the people by increasing their access to factors of
production.
The latent capacity of the poor for
entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more
self-reliant, increase employment opportunities, enhance household income and
create wealth. Micro-financing has existed for years before the introduction of
conventional banking in Nigeria and the later part of nineteenth century.
(Ekot, 2008)
The traditional Nigerian society
has a system of group savings and assistance to one another. The practice was
that a group of people who had needs for some form of capital or lump sum to
execute a particular project which they could not raise adequate savings on
their own, usually come together to form a savings group. The group may be
named after the leader who is usually the initiator of the venture. The
traditional microfinance institutions provide access to credit for the rural
and urban low-income earners. These are mainly the informal self-help groups
such as Isusu,women association like one obtainable during popular
August meetings, Umu-ada progressive women association. Other
providers of microfinance services include savings collectors and co-operatives.
(CBN brief, 2005)
The unwillingness and inability of
the formal financial institutions is to provide financial services to the urban
and rural poor, coupled with unsustainability of government sponsored
development financial schemes, contributed to the increase in number of private
sector led micro finance in Nigeria. Thus, before the emergence of microfinance
institutions, informal microfinance activities flourished all over the country.
The Central Bank of Nigeria (CBN) as at end of December 2009 gave an approval
to 840 microfinance banks to begin operation in the country. (CBN briefs,
2008-2009)
Microfinance banking is about providing
financial services to the economically active poor and low income household,
who are traditionally not served by the conventional financial institutions.
These services include credit savings, micro-leasing, micro-insurance and
payment transfers to enable them engage in income generating activities.
(Asemota, 2002).
However, the microfinance policy
launched on 15th December 2005 defined the framework for the delivery of these
financial services on a sustainable basis to the micro, small and medium
enterprises (MSMES) through privately owned microfinance banks. The
Non-governmental Organizations or Microfinance institutions (NGO-MFIS) are also
expected to transform to microfinance banks. (Dinye, 2006)
Existing Community banks and
NGO-MFIS that want to convert and transform respectively to a microfinance bank
but do not have the required minimum capital base can increase the share
capital by capital injection, merger and acquisition. These would not only
enhance monetary stability but also expand the financial infrastructural
development of the country to meet the national financial system and provide
stimulus for growth and development (Benson, 1985). It would also harmonize
operating standards and provide a strategic platform for the evolution of microfinance
institution, promote appropriate regulation, supervision and adoption of best
practices.
The establishment of microfinance
banks has become imperative to serve the following purposes: Improve,
diversified and create a dependable financial service to the active poor,
low-income earners in a timely and competitive manner that would enable them to
undertake and develop long-term, sustainable entrepreneurial activities,
mobilize savings for intermediation, create employment opportunities and increase
the productivity of active poor and income earners in the country. Thus
increasing their individual household income and capacity standard of living,
enhance organized and systematic but focused participation of the poor in the
social-economic development and resource allocation process. It will also
provide veritable avenues for the administration of the micro credit programme
of government and high net worth individual on non-resource basis. This policy
ensures that state government shall delegate an amount of not less than 10% of
their annual budgets for on-lending activities of microfinance banks in favour
of their residents and render payment services such as salaries, pension for
various tiers of government (Luck,2011).
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