MICRO FINANCE AS AN EFFECTIVE TOOL FOR POVERTY ALLEVIATION IN NIGERIA

ABSTRACT

This study examined the effect of micro finance as an effective tool for poverty alleviation in Nigeria. There has been an intensified and concerted effort by the government to eradicate poverty in the nation and international level because of the poor standard of living in the country. It is a very big problem in the society that needs to be addressed by the government. This work is aimed to know the reasons while the governments have not able to eradicate poverty in the society.

The study was conducted in integrated micro finance bank (IMFB) with 200 respondents. Data were collected from the respondents by the use of questionnaire method. These respondents were chosen by simple random method which comprises of both male and female youths, the data collected were analyzed using percentage while chi-square technique was used to test hypothesis.

The findings of this study reveal that the micro finance institutions change interest rate as high as up to 100% of lending and pay as low as 5% of savings. This aggregate the existing inequality in the distribution of wealth and income in Nigeria.

In conclusion; micro finance as an effective tool for poverty alleviation has gone a long way to help eradicate poverty in Nigeria. The study therefore recommends that both individual and government should employ qualities and skilled staff so as to enhance the achievement of both organizational and economic goals.

CHAPTER ONE

1.1     INTRODUCTION

Today widespread poverty is one of the major problems of mankind and its alleviation one of her major agendas. In recent years micro finance has emerged as an important instrument to relieve poverty in the developing countries.

Today there are more than 700 micro lending institution providing loans to more than 25 million poor individuals across the world, their vast majority being the women. However, these institutions face some serious challenges, especially in less developed countries where the proportion of people in poverty is high. The existing microfinance in Nigeria serves less than 1 million people out of 40 million being the potential number that need the service. Also, the aggregate micro credit facilities in Nigeria account for about 0.2 percent of the GDP and is less than one percent of total credit in the economy. Addressing this situation inadequately would further accentuate the problem and slow down growth and development of the country.

We find that the microfinance institutions charge interest rate as high as up to 100% for lending and pay as low as 5% of savings. This aggravates the existing inequalities in the distribution of wealth and income in Nigeria.

Finally, Nigeria being a country thirty for rapid development and economic growth encourages the creation and availability of micro finance institutions so as to encourage these (people masses) considered unbanked by the commercial banks to participate in the economic activities. Thus, encouraging economic growth and development.

1.2     STATEMENT OF RESEARCH PROBLEMS

Poverty is a serious menace, which most developing or underdeveloped Nations/economy tend to tackle. The imperative of a concreted and coordinated effort in dealing with the problem cannot be overemphasized.

Remarkable multilateral effort had been taken against high poverty level in Nigeria, where the proportion of impoverished people is reportedly high.

Due to this high rate of poverty in the economy, our youths engage in criminal activities such as robbery, smuggling, etc to meet their daily necessities/needs.

Moreso, the inability of ladies of meet their necessities i.e., adequate health care, material and financial needs led them to institutions, (Aristo) so as not to be distinguished or segregated by inferiority complex to mingle with the friends or fellow students.

Hence, the inability of parents to meet children needs, enforces them to give their child(ren) out for maids and the inability to meet or pay hospital bill makes them to go for self medications which at times is dangerous to health and causes death.

It is against all these scourge, that the need for Micro finance arouse (MOHAMMED YUNUS) so as to enable those who were previously considered unbearable by commercial bank participate actively in the economic activities. Mohammed Aliyu Dahiro and Hasa, Zubair (2008) the existing microfinance in Nigeria serves less than 1 million people out of 40 million being the potential number that need the service.

According to Nout Wellinki (2008) the term micro finance is generally used for the provision of financial services, in most cases micro-loans, to the poor and many people have been to realize its opportunities. Indeed, the concept of Microfinance has been accepted as an effective means to reach out for the poor.

Conclusively, it is against these scourge (high poverty level in Nigeria), that Microfinance banks was established, and the aim of this project is to test how effectively, the establishment of Microfinance banks can help in the alleviation of poverty in Nigeria.

1.3     THE AIM AND OBJECTIVES OF THE STUDY

The aim of this research work is to:

i.                  To examine the impact of microfinance bank on poverty alleviation.

ii.               To identify the availability of credit facility on poverty alleviation on small scale enterprises (SME’s)

iii.            To evaluate the effect of small-scale enterprises on poverty alleviation.

1.4     RESEARCH QUESTIONS

With the analysis of Microfinance Bank as an effective tool for poverty eradication in Nigeria, the question that came for proper consideration and dependable solution are as followed listed below:

i.            Does the institutional constraint to effective microfinance services delivery in Nigeria also affect the Integrated Microfinance Bank (IMFB)?

ii.            Is there any positive impact made by the Integrated Microfinance bank (IMFB) in the eradication of poverty in Nigeria?

iii.            Are there any possible recommendations in solving or tackling the institutional constraints to effective microfinance services delivery in Nigeria?

iv.            Does Microfinance bank undermine domestic capital formation of Nigeria?

v.            Does the Roles and Responsibilities of stakeholders e.g. government, Central Bank of Nigeria (CBN) contributes to encourage effective participation of Microfinance institutions to enhancing economic growth and development?

1.5     RESEARCH HYPOTHESES

This research work aimed at testing the following hypotheses.

1.       Ho: That there is no strong relationship between Microfinance bank and poverty alleviation.

H1: That there is strong relationship between poverty alleviation and Microfinancebank.

2.      Ho: That there is no strong relationship between credit facility and poverty alleviation (SMEs).

H1: That there is strong relationship between credit facility and poverty alleviation (SMEs).

3.      Ho: That there is no positive effect of SMEs in the alleviation of poverty in Nigeria.

H1: That there is positive effect of SMEs In the alleviation of poverty in Nigeria.

1.6     RESEARCH METHODOLOGY

Primary method of study: This study will use questionnaire in other to test for the relationship between Microfinance bank and poverty alleviation programmes in Nigeria. The source of data will be through primary source of data generation mainly through observation, survey, questionnaires e.t.c.

Sources of Data: Chi-square statistics will be used to analyse the information source through questionnaire.

1.7 THE IMPORTANT OF THE STUDY

The importance of the study on individuals, firms and governments are:

i.            The research work is carried out to put a clear picture to Microfinance bank as an effective tool for poverty eradication in Nigeria. Using (IMFB)as the case study.

ii.            It will also show the institutional constraints to effective microfinance services delivery in Nigeria.

iii.            This research study will also show the roles and responsibilities of stakeholders e.g. government, central bank of Nigeria (CBN) in Microfinance institutions.

iv.            This study is also aimed at indicating the goals of the Microfinance banks in eradicating poverty in Nigeria.

v.            It is also aimed of showing the policy strategies of microfinance institutions in Nigeria and the policy targets.

1.8     THE SCOPE AND LIMITATION OF THE STUDY

In carrying out this research work, information will be obtained from the case study; Integrated Microfinance Bank (IMFB) on Microfinance bank as an effective tool for poverty eradication in Nigeria.

Secondly, the questionnaire method of data collection will be use in the acquisition of information from the case study. Thirdly, the chi-square method of data analysis will be used to analyse the questionnaire acquired so as to provide adequate interpretation to the research work.

Finally, possible recommendations will be given or enhanced to tackling or combating the constraints or problems faced by the Microfinance institutions to effective microfinance services delivery in Nigeria.

Moreso, limitations also have its own impact on this project. The limitations are listed below:

1.          Time constraints

2.          Inadequate financial resources

3.          Inadequate manpower resources

4.          Inadequate data

1.9     THE DEFINITION OF BASIC TERMS/CONCEPT

Micro finance: Integrated Micro finance Bank (IMFB) P1c was incorporated as a wholly indigenous microfinance bank following the grant of an approval-in-principle by the Central Bank of Nigeria (CBN) on issuing of operating license as the first micro finance bank in Nigeria on September 2, 2005 and possessing dividend of 250 million ordinary shares ofN1.00 each. The authorized share capital of N26 billion to accommodate the teeming high net worth of individuals yearning was acquired.

Integrated Micro finance Bank (IMFB) was promoted by a group of investors who saw the gap in the Microfinance institutions in Nigeria. The official launching of Integrated Microfinance Bank was enhanced by the then President and commander-in-chief of the Federal Republic of Nigeria Olusegun Obasanjo.

Promoters of the bank comprised seasoned and tested Nigerians of integrity and their primary goal is to bank the unbanked, less-banked (Micro customers) and to take customers to their businesses through the provision of efficient financial services integrating the informal sector into the mainstream financial system.

Monetary policy: G.K. Shaw (Jhingan, M.L. 2004) defines it as any conscious action undertaken by the monetary authority (Central bank of Nigeria) to change the quantity availability or cost of money i.e. interest rate.

CBN: This means the Central Bank of Nigeria. It is the highest monetary authority in Nigeria.

Finance: Finance is the livelihood of any enterprise. It is a key factor of production; with finance; an enterprise can acquire other factors of production such as labour, machinery/technology and management as well as raw materials and embark on any business activity.

GDP: Gross Domestic Product: It can be defined as the total monetary value of all goods and services produced within an economy during a given period of times usually one year.

1.0     ORGANIZATION OF THE STUDY

Chapter one is the introductory parts. Chapter two will be the literature review. Chapter three is theoretical framework. Chapter four is research methodology, data analysis and interpretation of results. While chapter five shall contain the summary, conclusion and recommendation.