PROPOSAL ON THE IMPACT OF MICROFINANCE BANK ON ECONOMIC GROWTH OF NIGERIA

Abstract

This study examined the performance of microfinance banks (MFBs) and its impact in promoting economic development in Nigeria. The study found a positive relationship between human development index and microfinance loan. The findings suggest that microfinance banks promote economic growth and social capital formation in Nigeria. The study therefore recommends that relevant stakeholders should create more awareness to the general public on the importance of microfinance loans to the livelihood of the citizens. It is also recommended that, based on the findings, the CBN should coopt MFIs in administering specialised funds set aside to improve microcredit access at low interest rate, especially SME Credit Guarantee Schemes to further human development index trajectory in Nigeria

        INTRODUCTION

The operation of microfinance institutions date back to the pre-independence period in Nigeria when traditional thrift saving system and activities of the traditional group networks served as proprietors of financial exchange led by traditional money lenders could not handle the growing expansion and needs of people in rural communities. The failure of conventional banking in Nigeria to meet the socio-economic complexities (needs) of the rural communities that consequently experience rapid growth and changes as well as government desire to reach rural areas with development gave rise to the emergence of community banks (now microfinance banks) as a way of providing financial answers to the low income earners or people so as to finance and improve their income generating activities, i.e. productive activities It would be observed that, despite the presumed developments in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema, 2006). More so, its industrial growth is not quite impressive. Before the emergence of formal microfinance institutions, informal microfinance activities flourished all over the country. Traditionally, microfinance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives, government owned institutional arrangements, poverty reduction programmes etc (Lemo, 2006). The Central Bank of Nigeria Survey in 2001 indicated that the operations of former microfinance institutions in Nigeria are relatively new, as most of them never registered after 1981. Before now, commercial banks traditionally lend to medium and large enterprises which are judged to be credit-worthy.

STATEMENT OF THE PROBLEM

There are so many problems and challenges that hinder the functionality of the microfinance bank in carrying out their major role of improving economic growth and development in Nigeria.

These problems include

• poor attitude of Nigerians towards MFBs
• insufficient support from the regulators and government
• There are communication gaps and inadequate awareness among the masses.
• Undue competition rather than cooperation from the mega banks, and undue malpractice/Sharp practices by microfinance bank operation.

The researcher will in the research find possible ways of solving or making better the conditions for the operation of MFBs

OBJECTIVE OF THE STUDY

The objectives of the study are;

1. To ascertain the impact of micro finance bank in economic growth and development of Nigeria.
2. To ascertain the ways in which micro finance banks can contribute in developing rural areas and improving the life of the poor people.
3. To investigate the ways microfinance bank can contribute in building entrepreneurship within the country.

RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀ Microfinance institution does not contribute to entrepreneurial productivity

H₁:  Micro finance institutions do contribute to entrepreneurial productivity  

SIGNIFICANCE OF THE STUDY

This study is essentially significant in that it is directed towards evaluating the impact and role that micro finance banks have on the economic growth and development of Nigeria, especially the rural areas which is a criteria aimed at measuring economic standard. Owing to the fact that researcher has aimed at pinpointing the ways in which micro finance bank can help in the revamping of the nation’s economy, the findings of this research work will be of great help to most developing countries who may wish to toe the part of Nigeria in MFB development. It will also serve as a reference point for future researchers who in one way or the other will try to unveil the role and impact of micro finance bank to economic development.

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