THE SOCIAL AND ECONOMIC SIGNIFICANCE OF MICROFINANCE INSTITUTIONS IN NIGERIA TOWARDS ECONOMIC SELF-RELIANCE

ABSTRACT

This paper studies the social and economic significance of microfinance institutions in Nigeria towards economic self-reliance.

The research was prompted by the fact that all Eyes are focused on the fast and quick ways to set the economy up and going so as to enable Nigeria compete in the International Market and Standard, and at doing this, the basis for boosting any economy has been neglected and almost forgotten. Also it is an obvious fact that the major problem facing Small and Medium Scale Enterprises in Nigeria is inadequate finance hence this neglected parts refers to the simple and slow but tremendously effective ways of achieving economic growth and development. Microfinance is one of such way. The goals to achieve through this research work are as follows:

To show the present level of contributions to Nigeria’s economic self-reliance Microfinance Institutions.

To show the growth trend of Microfinance Institutions.

To find out the impact of microfinance institutions on the Expansion of Small and Medium Scale Enterprises (SMEs) in Nigeria.

To disclose the problems and challenges constraining the effectiveness of Microfinance Institutions in Nigeria.

To show the extent to which the poor and small scale enterprise have embraced and utilized the products and services offered by the microfinance institutions in Nigeria.

To examine and disclose the possible future for Microfinance Institutions in Nigeria.

CHAPTER ONE

INTRODUCTION

Economic self-reliance which actually means the Fusion of economic growths development and stability, cannot be achieved without putting in place well focused progrmmes to reduce poverty through empowering the people, by increasing their access to factors of production, especially finance and credit.

In recent years, increasing emphasis has been placed on “Micro-financing” as a tool for poverty alleviation, economic growth, economic development and socio-political empowerment. Efforts of government have been geared towards narrowing the income gap between the urban and the rural sectors through breaking the cycle of unemployment, economic stagnation and poverty. In the past two decades there has been an overwhelming consciousness in Nigeria, on the need to put forward, improvement on the living standard of the people especially those in the rural areas. This can be seen through the numerous awareness programmes that have emerged and also with the increase of microfinance institutions in Nigeria since 1980, when formal microfinance institutions were registered with the Central Bank of Nigeria (CBN Survey 2001).

According to Robinson (2002) “microfinance refers to small scale financial services for both credit and deposits that are provided to people who are engaged in small or micro enterprises” and also providing financial services to the poor who are traditionally not served by the conventions. Financial institutions (banks, insurance companies; discount houses). Schremer: (2000), stated that Microfinance is a formal scheme designed to improve the wellbeing of the poor through better access to saving and services loans.

In essence, a microfinance institutions (MFI) acts as bank for the poor. In some cases, Micro-finance institutions is actually a bank, but usually it is a non-governmental organization (CGO) or a governmental programme and at poverty reduction and alleviation. The purpose of microfinance is to provide financial loan to the poor that are not made available to them through eh traditional banking system (Brandsma and Chaoul, 1998:1). These loans can range from at tiny as N5000 to N20,000 or more, and are typically used by the client to start a small business. In 1976, the world finally witnessed a truly effective approach to economic growth and development, through microfinance. Muhammad Yanus, a professor at the University of Chittangon in Bangladesh, decided to give act a few $50 loans to women in rural Bangladesh. A few moths later when the returned to the villager, the women had started small tailoring and weaving businesses. Not only were the women able to pay back their loans, but their small businesses were profitable enough to improve their living conditions of the women, their families and on the whole, the community in which they resided convinced that he had discovered a solution to poverty, Dr. Yanus launched an ambitious programme to provide credit to entrepreneurs in Bangladesh. Thirty years later the Grameen Bank had 3.7 million borrowers, 1,267 branches in 46,000 village worldwide and has proved to the world that if presented with the right opportunities, the poor can be empowered to improved their own lives (Grameen Bank 2005) so Muhammad Yanus approach to poverty alleviation is known as microfinance.

Microfinance is a relatively new concept that has growth exponentially in the last two decades as private individuals investors, donors, and banks realize the potential for capital that can be provided through banking to the poor. In the past, it was assumed that poor people were not bankable since they were only capable to taking out small loans, and had no collateral (Brandsma and Chaouli 1998:12; (Simanowitz and Walter 2002:5). Grameen Bank in Bangladesh, proved that not only is it possible to bank with the poor, but microfinance in the informal sector can be quite profitable (Brandsma and Chaouli 1998:1). Since their microfinance institutions have sprung up all over the world and reached million of people.

The United Nations’ General Assembly, gathered at UN headquarters in New York from September 14th to 16th 2005 to hold the 60th High-Level Plenary Meeting 151 heads of state from around the world were presented. The Summit was held for world leaders to review progress in reaching the Millennium Development Goals (MDGs), whose primary aim is to eradicate extreme poverty by the year 2015. Microfinance was prominent on the agenda of this historic gathering. The most significant recognition of its importance was made in the 2005 World Summit Outcome Document adopted by the gathering, which states “we recognize the need for access to financial services, in particular for the poor, including financial microfinance and microcredit” (Paragraph 23(i)).

Support for microfinance was also strongly implied in the endorsement by the summit of the 2002 Monterrey Consensus which states: “Microfinance and Credit for micro, small and medium-sized enterprises, including. In rural areas, particularly for women, as well as national savings schemes, are important for enhancing the social and economic impact of the financial sector” (aragrah II, A, 18).

Many countries today are developing at an incredible pace, national currencies are fusing, English in transpiring as the world language, the European Union (EU) and African Union (AU) are uniting their countries, and it seems that in the future all nations will be united one language, one currency, one leader, and one global market. But while these countries rapidly expand they leave behind a large portion on their own people. (Simanowitz and Walter: 2002). This is from the fact that the growth of many countries is majorly paper work and just very small portions of the country’s citizenry is actually productive and posses the resources for production. The gap between the rich and the poor continues to grow at an alarming rate and in response to the increase in poverty, affluent countries have instituted large amount of programmes to these impoverished regions, so as to get an even development of their countries and thus become economically self-reliant.

Thus, the purposes of this research work is to demonstrate that microfinancing is an effective approach to the socio-economic growth and Nigeria and also that microfinance institutions play a vital role in Nigeria’s strive for economic self-reliance through reduction of poverty and financial empowerment of the poor.

STATEMENT OF RESEARCH PROBLEMS

The research is focused on Micro finance institutions in Nigeria and the Socio-Economic significance in the achievement of Nigeria’s economic self-reliance.

A number of questions still persist, even though lots of measures have been taken by the Government, Non-Government Organizations (NG) and private individuals, to boost the economic self-reliance of Nigeria’s Economy through the establishment of microfinance institutions. The questions are a follows:

What it is the contribution of Microfinance Institutions to the Nigeria economy presently?

What is the relationship between Microfinance Institutions in Nigeria and Nigeria’s Socio-Economic growth, and to what extent have Microfinance institutions been able to influence the socio-economic growth of the Nigeria Economy?

What is the growth trend of Microfinance Institutions in Nigeria?

What are the contributions of Microfinance Institutions to the growth of Small and Medium Enterprises in Nigeria?

What challenges do Microfinance Institutions constrain their effectiveness?

What is the future for Microfinance Institutions in Nigeria?

Is capital a major problem facing Small and Medium Scale Enterprises in Nigeria?

OBJECTIVES OF THE STUDY

The research was prompted by the fact that all Eyes are focused on the fast and quick ways to set the economy up and going so as to enable Nigeria compete in the International Market and Standard, and at doing this, the basis for boosting any economy has been neglected and almost forgotten. Also it is an obvious fact that the major problem facing Small and Medium Scale Enterprises in Nigeria is inadequate finance hence this neglected parts refers to the simple and slow but tremendously effective ways of achieving economic growth and development. Microfinance is one of such way. The goals to achieve through this research work are as follows:

To show the present level of contributions to Nigeria’s economic self-reliance Microfinance Institutions.

To show the growth trend of Microfinance Institutions.

To find out the impact of microfinance institutions on the Expansion of Small and Medium Scale Enterprises (SMEs) in Nigeria.

To disclose the problems and challenges constraining the effectiveness of Microfinance Institutions in Nigeria.

To show the extent to which the poor and small scale enterprise have embraced and utilized the products and services offered by the microfinance institutions in Nigeria.

To examine and disclose the possible future for Microfinance Institutions in Nigeria.

STATEMENT OF RESEARCH HYPOTHESES

The basic assumptions of this research work is that microfinance institutions is a gateway to the attainment of Nigeria’s economic self-reliance and as such, the following hypotheses were formulated to serve as a guide in the research work and also to help us show the relationship between Nigeria economic self-reliance and the microfinance institutions in Nigeria.

Hypotheses 1

Ho:There is no relationship between the growth of Microfinance Institutions in Nigeria and the eradication of poverty.

Hi:There is a relationship between the growth of Microfinance Institutions and the Eradication of Poverty.

Hypothesis 2

Ho:Microfinance Institutions has relationship with the growth of small micro and small lower scale enterprises in Nigeria.

Hi:Microfinance Institution do promote the growth of Small and Medium Scale Enterprises in Nigeria.

SIGNIFICANCE OF THE STUDY

One would wonder what a research work like this is set out to impact! Majority of Nigerians do not have the smallest of knowledge as to the activities of Microfinance Institutions even when they are opposite their homes. This is also to show the roles that these M.Is plays or are supposed to play in the ‘development’ of the country’s economy and on the well-being of the citizens.

To the Government: This will give them updated information as to the contributions of M.Is in Nigeria’s strive for economic self-reliance and draw a reasonable attention to the betterment of the Microfinance Institution in Nigeria.

To the Society: It will enlighten the society on the functions and nature of Microfinance Institutions in the society, and their importance in the economic well-being of Nigerians.

To Small and Medium Scale Enterprise and Other Organization: It will enlighten the small and medium scale enterprises on the operations and activities of Microfinance Institutions in the Nigeria Economy and how well to utilize the products and opportunities provided by these microfinance institutions.

To the Microfinance Institutions: It will serve as a reminder of their goals and objectives with regards to expectations owing from their existence.

To the Student: It will add to their strength of knowledge and also serve as an academic exercise for gaining academic excellence.

To Database: It will be a source of information, reference and a guide for future research and investigation for people who intend to study the Microfinance Institutions in Nigeria and other related topics.

SCOPE AND LIMITATION OF THE STUDY

The research will intensively examine Microfinance Institution and the socio-economic significance toward the achievement of Nigeria’s self-reliance. An eleven-years empirical review is the time for this study: 1998:-2008.

The research consists of all the Microfinance Institution in Nigeria but for the purpose of this study, ten (10) Microfinance Institutions in Edo State were chosen, five () from Oredo Local Government Area in Edo State, and five (5) from Egor Local Government Area also in Edo State.

The following are the limitations we encountered during the researcher work:

Lack of sufficient and analytical data on the subject matter.

Inadequate indigenous literature on the subject matter.

The problem of generalization which is due the smallness of the sample size in representing the whole population.