CHALLENGES OF INTERNATIONAL FINANCIAL SOURCES SUPPORTS TO MICROFINANCE IN NIGERIA

CHALLENGES OF INTERNATIONAL FINANCIAL SOURCES SUPPORTS TO MICROFINANCE IN NIGERIA

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ABSTRACT

The purpose of the research work is to investigate the challenges of international financial sources supports to micro finance in Nigeria.

The objectives of the study were to examine the ways international financial sources can help develop the microfinance sector in Nigeria. To also identify the types of international financial institutions that support microfinance sector in Nigeria. And finally to determine the major threats and challenges facing the microfinance banking sector in Nigeria.

The primary data for the purpose of this study was gotten from the used of questionnaires. While the rest was obtained from journals and other related articles.

The method of chi-square was used for the purpose of the analysis. The hypothesis was tested; the p-values were 0.00 which were all less than the level of significance; so we concluded that there are challenges and threats facing the Microfinance banking       sector in Nigeria. Also there is a significant relationship between the types of             international financial institutions and the support to microfinance sector in Nigeria and finally that international financial sources do help develop the microfinance      sector in Nigeria.

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The international financial institutions (IFIs) are financial institutions that have been established (or chartered) by more than one country, and hence are subjects of international law (World Bank, 2005). International financial institutions (IFIs) are institutions that provide financial support (via grants and loans) for economic and social development activities in developing countries (Helms, 2006). The owners or shareholders are generally national governments, although other international institutions and other organizations occasionally figure as shareholders. According to Alegieuno (2008), the most prominent IFIs are creations of multiple nations, although some bilateral financial institutions (created by two countries) exist and are technically IFIs. The best known IFIs were established after World War II to assist in the reconstruction of Europe and provide mechanisms for international cooperation in managing the global financial system. To facilitate transactions from different nations to provide lending services to developing countries around the world that encourages economic development and international trade (Global Development Finance, 2005).

             Hossain (2004) describes microfinance as the practice of offering small, collateral free loans to members of cooperatives who otherwise would not have access to the capital necessary to begin a small business or other income generating activities. This view is to narrow, since it not only excludes such services as saving accounts and insurances, but also ignores the possibility of collateral demanding MFIs. Although it is true that many MFIs do not take collateral, especially if they are focusing on the poorest that normally do not possess any collateral, several MFIs in fact do require some forms of collateral.

            Microfinance shows up as a long sustainable and a very successful program, in which millions of people in developing and developed countries around the world are involved. The expansion of microfinance is a priority of the United Nations as part of the Millennium Development Goals. However, microfinance has been expanding more and more from the local level to the global. The portfolios of microfinance institutions include commercial banks, which are recognized as a lucrative market of the future. The year 2005 also saw the introduction into the stock market (securitization) package of Asian, Latin American and African micro-credit and a capacity of tens of millions of dollars. The investment in microfinance can help to bring more opportunity such as self-employment, improving household level, market link, etc (Alberto, 2011).

            The Nigerian microfinance industry has come a long way. A Central Bank of Nigeria study identified as of 2001. 160 registered Microfinance Institutions (MFIS). In Nigeria with aggregate saving worth N99.4 million and outstanding credit of N649.6 million, indicating huge business transactions in the sector (Anyanwu, 2004). Institutional Structures for the provision of micro credit vary and may be any of the following: government, or public sector oriented, NGO supported, traditional or a mixtures of two or more of these.

            Microfinance institutions (MFIs) are one of the specialized financial institutions (Mosley and Hulmey, 1998). They are the agencies or institutions which are either established by private individuals, government, donor agencies as well as non-governmental organizations with sole aim of ensuring financial inclusion. The essence of MFIs are to provide microfinance services such as provision of micro loan, micro saving, micro insurance, transfer services and other financial products targeted at poor or low income individuals (Kurfi, 2008). Microfinance can be defined as lending small amount of money for enterprise development and attainment of income above poverty line (Lashley, 2004). It is provision of small units of financial services to low income client which are usually excluded from mainstream financial system (Ehigiamusoe, 2008).

1.2       STATEMENT OF THE PROBLEM

            The central essence of microfinance is to provide loan to micro entrepreneurs to invest in their businesses as well as allowing them to grow out of poverty. The credit policy for the poor involves many practical difficulties arises from operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial banking institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable. A huge number of micro loans are needed to serve the poor, but banking institution prefers dealing with big loans in small numbers to minimize administration expenses. They also look for collateral with a clear title - which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information monitoring costs on operation (Okezie et al; 2013).

            Also, uneven relationship between International financial sources and micro finance institutions in Nigeria is one problem characterized by international financial institutions not funding microfinance banks and as well as corruption and mal-administration of Microfinance banks in Nigeria.

            Despite several factors accounted for the persisting gap in access to financial services. The distribution of microfinance banks in Nigeria is not even, as many of the banks are concentrated in a particular section of the country, which investors perceived to possess high business volume and profitability. Also, many of the banks carried over the inefficiencies and challenges faced during the community banking era. In addition, the dearth of knowledge and skills in micro financing affected the performance of the MFBs. Furthermore, there are still inadequate funds for intermediation owing to lack of aggressive savings mobilization, inability to attract commercial capital, and the non establishment of the Microfinance Development Fund.

1.3       OBJECTIVES OF THE STUDY

            The main objective of this study is to examine challenges facing micro finance sector in Nigeria in terms of financial support from international financial sources. Specific objectives include the following:

1.         To examine the ways international financial sources can help            develop the microfinance sector in Nigeria.

2.         To identify the types of international financial institutions that        support microfinance sector in Nigeria.

3.         To determine the major threats and challenges facing the      microfinance banking sector in Nigeria.

1.4       Research Questions

The following research questions were stated to guide this study:

1.         What are the ways international financial sources can help develop the microfinance sector in Nigeria?

2.         What are the types of international financial institutions that            support micro finance sector in Nigeria?

3.         What are the challenges and threats facing the Microfinance            banking sector in Nigeria?

1.5       Research Hypotheses

            The following research hypotheses were formulated to guide this study:

Hypothesis 1

H0:       International financial sources do not help develop the         microfinance sector in Nigeria.

H1:       International financial sources do help develop the microfinance      sector in Nigeria.

Hypothesis 2

H0:       There is no significant relationship between the types of       international financial institutions and the support to microfinance          sector in Nigeria.

 H1:      There is a significant relationship between the types of         international financial institutions and the support to microfinance          sector in Nigeria.

Hypothesis 3

H0:       There are no challenges and threats facing the Microfinance             banking sector in Nigeria.

H1:       There are challenges and threats facing the Microfinance banking    sector in Nigeria.

1.6       SIGNIFICANCE OF THE STUDY

The relevance of this study to the intended microfinance sub-sector and to the Nigerian economy cannot be overemphasized. This is a sub-sector established to improve productivity and livelihood of the active poor and directly the populace at large but this purpose has been dashed by the ill- treatment of operators in its industry. This research intends to:

            It would provide resources and serve as a point of reference to any research embarked upon by stakeholders in the International Financial Institutions, commercial banks and microfinance industry, (operators, customers etc.). The study will also proffer probable solutions to the various challenges, e.g. poor liquidity, inadequate capital, etc suffered by this subsector.

            It would also reveal hidden knowledge which may not be made known to the public at large which may help to find solutions to pending quests within the industry. This would bridge the gap that exists between the regulatory body and the operators in the system or between the operators and the customers of the industry as this is vital to the growth of this subsector and to the overall industry.

            Finally, the study would serve as a source of information to other researchers studying or carrying out further studies on related topics.

1.7       SCOPE OF THE STUDY

            The study is on the challenges of international financial sources supports to microfinance in Nigeria using selected Microfinance Banks in Nigeria which includes Self Reliance Economic Advancement Program (SEAP), LAPO Microfinance Bank Ltd, HASAL Microfinance Bank and ACCION Microfinance Bank Ltd. The study covers other areas which include theoretical framework, conceptual framework, empirical review and others areas which necessary for the study.

1.7       LIMITATION OF THE STUDY

            The limitation to the study was unwillingly attitudes of the officials to disclose classified sensitive information.

            Distance and its attendance cost of travel in order to obtain information which to write this study was also a major limitation.

            Finally, lack of information from International Financial Institutions (IFIs) was also one of the limitations to study. Therefore, this caused the researcher resolved to seek friendly approach in order to obtain the needed materials or information from the organization under study through the administration of questionnaire.

1.9       DEFINITION OF TERMS

a)         International Financial Institutions (IFIs): International Financial            Institutions (IFIs) are institutions that provide financial support (via      grants and loans) for economic and social development activities     in developing countries.

b)         Microfinance: Microfinance is defined as banking the unbankable,             bringing credit, savings and other essential financial services      within the reach of hundreds or millions of people who are too poor            to be served by regular banks in most cases because they are         unable to offer sufficient collateral.

c)         Grant: Grants are non-repayable funds or products disbursed by    one party (grant makers), often a government department,         corporation, foundation or trust, to a recipient, often (but not           always) a nonprofit entity, educational institution, business or an             individual.

d)         Loan: In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.

e)         Collateral: Collateral is a property or other assets that a borrower offers a lender to securing a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses.

e)         Microfinance Institutions: A microfinance institution (MFI) is an organization that provides financial services to the poor. This very broad definition includes a wide range of providers that vary in their legal structure, mission, and methodology. However, all share the common characteristic of providing financial services to clients who are poorer and more vulnerable than traditional bank clients.

 f)        Active Poor: These are the vulnerable people in the society surviving on a low level of income but still able to run a form of micro/small business.

g)         Commercial Bank: An institution charged with the primary function of accepting deposits, granting business loans and advances, and offering other related services like issuance of letter of credit, bank drafts and FOREX trading among others.


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