CHAPTER ONE

INTODUCTION

1.1 Background to the Study

          Microfinance is all about providing financial services to the poor who are traditionally not served by the conventional financial institution. In the part: efforts have been made to use modern banking institutions to meet the credit needs of people at the grassroots especially in sub-urban and rural areas of Nigeria. Commercial and merchant banks were established and specialized development banks created focusing on agriculture and industrial production, cooperative activities and other specific areas. Beyond this the establishments of rural branches were made mandatory for commercial banks so that the interest of the rural would be catered for. In spite of these efforts, the people could not fit into the convention all banking system. In order to secure even the modest of loans, they were required to fill several forms of obey certain rules and provide some form of guarantee or collaterals which were beyond their comfort.

          In Nigeria, the formal financial system provides services to about 35% of the economically active population while the remaining 65% are excluded from access to financial services. These 65% are often served by the information financial sector, through the non-governmental organization, microfinance institutions, money lenders, relatives, friends and credit unions.

          Therefore, it is seen that robust economic growth cannot be achieved without putting in place well focused programmers to reduce poverty through empowering the people by increasing their access to factors of production especially credit. Latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more self reliant, increase employment opportunity, enhance household income and create wealth.

          The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban, low-income earners. They are mainly of the informal Self-Help Groups (SHGS) or the Rotating Saving and Credit Association (ROSCAS) type. Other provider of microfinance service include saving collectors and cooperative society.

          In order enhance the flow of financial services into the economic in the Nigeria, Government has in the past initiated series of publicly financed rural credit programmers and policies notable among such programmers were the rural banking programmed sectored allocation of credit and a concessionary interest rate other institutional arrangements were the establishment Nigeria Agricultural and Co-operative Bank Limited (NACB). The people Bank of Nigeria (PBN), the Community bank (CB), and the Family Economic Advancement Programmed (FEAP).

          Microfinance, services have adopted the traditional supply led subsidized credit approach mainly directed to the agricultural sector and non-farm activities, such as trading, tailoring, welding, blacksmithing and transportation. Although, the service have resulted in the increased level of credit disbursement and gains in agriculture production and other activities, the effects were short-lived, due to the unsustainable nature of the programmed.

          Since the 1980s, the Non-Government Organization (NGOS) have emerged in Nigeria to champion the cause of the Micro and Entrepreneurs, with a shift from the supply-led approach to a demand driven strategy. The number of (N.G.DS) involved in microfinance activities has increase significantly in recent times due to the inability of the formal financial sector to provide the services needed by the low income groups and the poor and the declining support from development partners and also the entrepreneur in the country.

1.2 Statement of the Problem

          It is vital to point out that one of the serious problems of the common man in Nigeria society is the in accessibility of loan and credit facilities as currently operated in the main stream of conventional commercial banks, the micro finance bank was established to eradicate such degenerating tendencies by granting loan/credit to highly spirited community indigene in order statue as agent of growth and economic development of the communities. The Micro Finance Bank Decree 37 of 1992, The National for Microfinance Bank have been involve in the regulations of achieving this aims, the government and micro fiancé bank board have been able to come up with guidelines and policies aimed at achieving this singular objectives of growth and economic development of communities.

          The problem now is to outline the role of micro finance in the complying, monitoring and executing these guidelines to ensure that achievement of this basic objective.

1.3 Objectives of the Study

          The specific objective of this study includes:-

i.                   To problem of microfinance bank as a tool for economic transformation.

ii.                 To ascertain the extent in which microfinance bank can affect the economy of Olamaboro.

iii.              To identify how the bank handle cases of loan defaulters.

iv.               To identify the police of Olamaboro bank in promoting local enterprise in it area of operations.

v.                 To identify if the community or individual repay the loan given to them by the bank when they are supposed to.

1.4 Statement of Hypotheses

For the purpose of this research the following hypotheses have been formulated.

Hypotheses One

Ho:    Microfinance has no significant impact on the growth and development of t  he Economy.

Hi:     Microfinance has significant impact on the growth and development of the Economy.

Hypotheses Two

Ho:    Microfinance bank has no bearing with the attainment of Economic Transformation.

Hi:     Microfinance bank has no bearing with the attainment of Economic transformation.

Hypotheses Three

Ho:    Inadequate appraisal of the strengths and weakness of Microfinance bank cannot influence growth and development it the Economy.

Hi:     Inadequate appraisal of the strengths and weakness of Microfinance bank can influence growth and development it the Economy.

1.5 Significance of the Study

Microfinance bank as a tool for economic transformation has be of great significance or benefit to the following categories.

-         Masses

-         Management of Micro Finance Banks

-         Future researchers

To the masses, most of whom are so naïve of microfinance bank, this project will educate them and also enable them to have a better understanding of the significance and benefit of the bank or institution.

          To the management of microfinance bank the research will enable them to know their areas of weakness and how to correct them. It will also help to measure their level of performance in terms of economic development and customer services (etc).

The future researcher will also benefit from this research working the area of writing similar research topic which will serve as a guideline and literature for future researchers.

1.6 Scope and Limitations of the Study

Scope of the Study

The research covers only the included local government area of Kogi State; Ogugu is one of the districts in Olamaboro Local Government.

The study shall be restricted to the role of micro finance bank as agent of growth and economic development of communities.

Limitations of the Study

The researchers are however, aware of the limitation encounter in the process of such study. In the process of data collection, problems like of lack of enough funds, time and materials were encountered.

I have to travel to many villages to meet elders and customers of Micro finance banks, the distance of our case study from the school cost me a lot of money to cover other microfinance bank as case study is a good representation of other microfinance banks.

As my research topic is a recent one, I experienced a general act of available records and literature which could have assisted me in the research works therefore, the major part of this project is based on interview and the use of questionnaire.

1.7 Definition of Key Terms

Economy: Can be defined as a science which studies human behavior as a relationship between ends scares and means which have alternative use. (Prof. Robbins).

Economy Growth: Economic growth is an enormous long run force in raising living standard swats anything that can be done by redistribution policies to raise the ordinary employed person standard of living. And it can also be define as a long term rise in capacity to supply increasingly diver’s economic goods to its population, this growing capacity based on advancing technology and institutional and ideological adjustment that it demands.

Money: Money is anything that is generally accepted as a medium of exchange. A medium of exchange is virtually anything used to pay for goods and service or settle debts.

Bank: Bank can be defined as a financial institution that accept deposit make payment and also give out loans.

Current Account: Current account is one which you open with a bank and from which you can withdraw money by the use of cheques.

Saving or Deposited Account: Saving or deposit account can be open at the branch of any bank and pass book, issued.

 Transformation: Transformation is a complete change in something or somebody and also it is described as the process of making institution and organization more dynamic.

Development: Development is the gradual growth of something or organization so that it become more advanced and stronger.

Finance: This is money used to run a business, an activity, project and settlement of disputes.

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