ABSTRACT

This research study concerns itself basically with the investigation with microfinance bank institution to capital formation in Nigeria, in analyzing this research study, unitary test was adopted and the instrument used for obtaining the data is secondary data from CBN statistical bulletin. The information collected from the secondary data, helps the researcher to analyse how micro-finance bank work and meet the expectation of the government and the people. Having the dependent variable as gross fixed capital formation testing the strength of independent variables inflation, loans and advances and interest rate which shows 65 percent change in the dependent variable. The researcher therefore went ahead to recommend that the importation of goods which can be produced in Nigeria should be banned as this will give our indigenous investors the zeal and challenge to do more exploits in research. Finally the researcher therefore concluded that financial support to micro-businesses, small and medium scale industries SMIS in developing countries like Nigeria.

TABLE OF CONTENT

Title Page

i

Approval Page

ii

Dedication

iii

Acknowledgement

iv

Abstract

vi

Table of content

vii

CHAPTER ONE: INTRODUCTION

Background of the study

1

Statement of the problem

3

Objectives of the study

4

Research questions

5

Hypothesis formulation

5

Significances of the study

7

Scope of the study

8

Limitation of the study

8

Organisation of the study

9

Definition of terms

10

CHAPTER TWO

Literature review

12

Introduction

12

Background of the study

13

Overview of microfinance activities in Nigeria

16

Justification for the establishment of microfinance bank

18

Operational guideline for microfinance institution

27

Evaluation of microfinance bank

28

Evaluation of microfinance banks in other countries

35

Improving microfinance banking in Nigeria

39

The contribution of microfinance banking to capital formation

in Nigeria

44

Effective credit supply of microfinance

59

CHAPTER THREE

Research design

68

Overview

68

The model

69

Specification of variable

70

Economic apriori

71

Evaluation techniques

71

Econometrics

72

CHAPTER FOUR

Presentation and analysis of result

74

Battery test

74

Presentation and interpretation of result

74

Economic apriori criteria

78

Statistical criteria (first order test)

79

Econometric criteria

83

CHAPTER FIVE

Summary

89

Conclusion

92

Recommendation

94

Bibliography

Appendix

CHAPTER ONE

1.0            INTRODUCTION

1.2            BACKGROUND OF THE STUDY

Microfinance has emerged as an effective strategy for poverty reduction.

Across developing countries (Nigeria for example) micro, small and medium enterprises are turning to microfinance institutions (MFIS) for an array of financial service-microfinance is acknowledged as one of the prime strategies to achieve the millennium development goals (MDGs)- access to sustainable financial service enable owners of micro enterprises to increase their capital base, build assets and reduce their vulnerability to external stocks. Access to financial services enable poor household to move from everyday struggle for

survival to planning for the future, inves education, health and empowering women especially.

However, the potency of microfinance as a development strategy is contingent upon the existence of microfinance institutions which:

1.     Have adequate outreach and more impact on poverty

2.     Achieve financial and operating self-sufficient

3.     Deliver responsive services to micro and small enterprise

Microfinance is the study of loans, savings and other basic financial services to the poor who are traditionally not served by the conventional financial institution.

These owners of micro and small enterprise require a diverse range of financial instruments to meet working capital requirement, build assets, stabilize consumption and shield themselves against risk. According to Ehigiamusoe (2008) microfinance primarily focuses on alleviating poverty through provision of financial services to the poor or owners of micro enterprises. Services users include artisans, small holder farmers, food processors petty traders and other persons who operate micro enterprises according to (Okereke et al 2009). The financial services include working capital loans, consumer credit, savings pension etc. in practice, microfinance is much more than disbursement management and collection of little bits of loans.

Microfinance is not charity organizat lending”. Primarily accessmicrofinancetocreditforthepoorwhoseeks ordinarily are locked out of financial services in the formal financial market for

reasons of their poverty that is lack of command over assets. If therefore places

obligation on the borrowers for proper utilization and complete repayment of the borrowed amount even at commercial interest rate.

Microfinance is not new especially history we come across schemes and social arrangement, which enable people to poor their financial resources for on-ward distribution to co-operating and needy individual. Example includes

“adachi” and fsev“esusu”ralvariants.Nigeriano micro also intergraded best practice of traditional schemes into the operational procedures.

1.2            STATEMENT OF THE PROBLEM.

Although microfinance services have Endeavour to offer financial services to the vulnerable groups, (youth, women especially), their impact on the economic activities of the beneficiaries still remain low due to its high operating cost, repayment problem, in adequate experienced credit staff, client apathy and dropout, internal control challenges etc. for instance the percentage dropout rate of FINCA wobulenzi beneficiaries stands at 33% on average (FINCA internal annual management report 2004).

Some dropout may be due to improvement on welfare of the bank or the interest rate while in other cases some have lost –even the little they used to own (Nakalnesi, 2003) this therefore sets the basis for the study.

1.3            OBJECTIVES OF THE STUDY

The study was guided by the following objectives:

1.     To examine the nature of financial services offered by microfinance institutions to the rural communities

2.     To identify the indicators of growth in economic activities of microfinance beneficiaries in Nigeria.

3.     To establish the contribution of microfinance banking to capital formation in Nigeria.

4.     To design appropriate strategies that will increase the outreach of microfinance institutions so as to enhance economic development and growth in Nigeria.

5.     To solve the problems of inadequate experienced credit staff, client apathy and dropout, high operating cost repayment problems etc.

1.4          Research Questions

The following research questions are formulated to enable us find lasting

solutions to the problems of this study:

1.     Of what importance are the contributions of microfinance banks?

2.     How does a microfinance bank credit a small and medium scale enterprise on capital formation?

3.     Do microfinance banks enhance individual household ability to accumulate assets and create wealth?

4.     Is it important for microfinance banks to aid in the facilitation of rural transformation