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THE ROLE OF MICROFINANCE BANK IN THE ALLEVIATION OF POVERTY
IN NIGERIA
ABSTRACT
This study is an attempt to explore the immense role of the
Microfinance banks in the alleviation of poverty in Nigeria. The research
revealed that the rate at which rural dwellers deposit their money in their
pillows rather than in microfinance banks is high. Data were collected through
primary and secondary sources. As regards to data collection, primary sources,
questionnaires, and interviews were use. The chi-square(x2) method was used for
the analysis of data. Responses to the questionnaires were analysed using
percentage method of analysis. Based on the findings of this study, an attempt
to explain the role of micro-financing as stimulus to poverty alleviation in
Nigeria may lack adequate knowledge of various financial transactions available
and how the rural dwellers can access them .In conclusion, it hoped that the
recommendation will help the microfinance banks to strengthen its weakness for
better and effective services in order to achieve its set goals and
socio-economic advancement for the alleviation of poverty in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROND 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 microfinance 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 laterpart 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 capitalor 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 Isusuwomen
association like one obtainableduring popular August meetings,
Umu-adaprogressive women association. Other providers of microfinance services
include savings collectors and co-operatives. (CBN, 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 amicrofinance banks 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 financialinfrastructural development of the country to meet the
nationalfinancial 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,O.R.(2011)
1.2 STATEMENT OF
PROBLEM
Nigeriaconsistof different classes of individuals, who are
either enterprising or industrial low class that account for over half of the
population who do not have access to formal banking services. Savings have
continued to grow at a very low rate particularly in the rural areas of
Nigeria. One of the problems brought to bear is the inability of rural dwellers
to channel their savings into banks. Most rural people keeps their resources
under their pillows. This method of keeping savings is risky because it might
be stolen, lost or wasted in extravagant spending. Moreover,returns which would
have accrued to the depositors in form of interest are forfeited.
The contribution of government to alleviate poverty through
the establishment of microfinance banks appears a little progress. This is in
spite of the establishment of microfinance banks, it was observed that most
people are not able to obtain loan. This is attributed to a number of
challenges such as the high level of interest rate, lack of collaterals
required by the commercial banks before loans can be granted which necessitated
the establishment of Microfinance to address these economic imbalances. If the
banking industry continue to meet the demands of Nigerians especially the rural
poor, this shows that there is a gap which need to be filled and this can be
done through the contribution of government by establishing more microfinance
banks in Nigeria to help in alleviation of poverty.
Another problem observed is the inabilityof prospective
borrowers of most Microfinance banks to repay their loans as at when due. This
may be attributed to high rate of poverty in the country. The high rate of
poverty is noticeable insuch area such as unemployment, high rate of inflation,
non-payment of salaries, mismanagement of loan granted to rural dwellers,
infrastructural deficiencies, such as power, road network, etc and all kinds of
political, economic and bureaucratic bottlenecks.. Also Nigerian economy
consist of individual who feeds from hand to mouth. The loans when granted are
channeled to other areas such as feeding, payment of bills,school fees,
hospital bills and others instead of using it for the intended business
purpose.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to find out the role of
microfinance banks as a palliative in the alleviation of poverty in Nigeria.
They are as follows:
1.To find out the rate at which rural dwellers deposit their
money in microfinance banks rather than putting it under pillows.
2.To find the contribution of government in alleviation of
poverty throughthe establishment of microfinance banks.
3.To find out the rate at which rural dwellers are able to
repay their loans.
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