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The role of micro-finance banks in the development of rural areas

BANKING AND FINANCE
Project Research
Pages: 65
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Project Research Pages: 65 Available Available 1-5 Chapters Abstract Available Available Instant Download NGN 5,000

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Project Research Pages: 65 Available Available 1-5 Chapters NGN 5,000 Abstract Available Available Instant Download
The role of micro-finance banks in the development of rural areas

CHAPTER ONE

Introduction

1.0  Background to the Study

A major development issue facing many developing countries has been the need to reduce the scale and depth of poverty among the growing population. Chandy and Gerts (2011) estimate that there were about 878.2 million people living below the poverty line in the year 2010. Of this number over 700 million live in rural areas. African has 369.9 million population or proportion of poor people the elimination and reduction of poverty is a key concern of development thinkers and practitioner (Coyle, 2007; Ifrpi, 2008).

The beginning of the 1970’s saw attention general towards improving the wellbeing of the rural poor who formed the majority of the population in developing countries, many governments and international and local agencies shifted their attention and channeled their resources towards development of rural area. This idea was motivated by the intention of reducing the levels of unemployment, increasing access to public goods and services by the development of rural population and more particularly, lowering poverty and overcoming income inequalities in most developing and least-developed countries according to brad show (2006), the explanation of poverty may be structural, personal, social or economic according to (Burgess & Pande, 2002). In the fight against poverty it is believed that the introduction of banks in rural areas enhance the livelihood of the rural dwellers. It is assumed that intervention will change human behaviors and practices in a way that will lead to the achievement of desired outcome.

According to (Van Santen, 2010) said that financial services for the poor have also been proven to be a powerful instrument for reducing poverty, enabling poor people to build assets and increase incomes, and reducing vulnerability to economic stress and shocks the idea of establishing micro-finance banks in Nigeria was initiated under the former head of state general Ibrahim Babagida in 1990 the   idea was to mobilize funds and sensitize people on the need for development particularly those in the rural areas. The micro-finance becomes effective on the 16th day of July 1991 with the Inauguration of the National Board for Micro-Finance Bank implementation committee and subsequent opening of the first Micro- Finance Bank in the country at Althen which was located in Kaduna state. Since then there had been major efforts at improving the understanding of Nigeria about the objectives and modalities of establishing micro-finance bank.

Many communities have established their own Micro-Finance Bank, already the country is having about 1,450 Micro-Finance banks as at the end of December 1999. Stood atN200m mostly is currently form of cash bank, balance loan e.t.c of the One Hundred and Five Bank Licensed before February 2004 about 52 fifty two have share capital of between N500,000 and N1million. Twenty seven banks, between N1billion andN3billion loan and advance range from 500,000 to 5.8million in zone. Over 20 micro-finance banks have asked to be allowed to increase their share capital to N1million while far ones are requesting to raise their share capital to N5million banks like Ibeto Micro-Finance Bank, Oganiru Micro-Finance Bank and so on have already assests worth over N10million each. As a mark of growth, so many micro-finance banks had qualified for a board matching loan repayment over a period of five years. The loan is being given to those banks that have met the condition of submitting the return for the first three months, board resolution requesting the loan and an understanding by the board of directors to guarantee the loan.

In 1993 precisely, there was a boom on establishing of Micro-Finance Banks, which then was regarded as the last hope of the rural dwellers, this encouraged customers to deposit and granting loan to rural dwellers thereby developing rural areas through investment by the rural people, it was within this period that Oko Micro-Finance Bank was registered with the National Board of Micro-Finance Banks. Oko Micro-Finance Bank has a staff strength of between 15-20 a share current capital of about N700,000 to N1million and numerous customers which are mainly students of the Federal Polytechnic Oko. Their function includes to lend loans to their customers, to help in export financing.

1.1  Statement of the Problem

Micro-Finance Bank could be powerful strategy or instrument among several others, for alleviating poverty in general and rural poverty in particular in developing countries. Although many developing countries, such as African have scored relative successes in using micro-finance bank as an instrument for alleviating poverty in general, and rural poverty in particular, it has not been so for many other developing countries.

Most of the micro-finance programs operated in these countries have left the so-called beneficiaries in debts. In a similar vein, most organization involved in providing micro-finance service, including government institution, co-operatives and Non Governmental Organizations (NGOs) have in most cases performed very poorly. High rates of non-repayment of loans by clients have on several occasions led to the collapse of micro-finance institutions. Notwithstanding this, micro-finance has continued to gain popularity among rural developers as a visible tool for improving rural agricultural practice and the diversification of economic activities of small- holder farming householders.

Lack of adequate loan funds, inadequate institutional capacities, poor coordination, little or no participation of the beneficiaries in the planning of micro-finances programs, lack of effective training programs for the both beneficiaries and operators of the programs are some of the reasons behind the ineffectiveness of micro-finance as a strategy for alleviating rural poverty in developing countries. 

1.2  Purpose of the Study

The main objective of this study is to critically examine how micro-finance can be used as an effective instrument or strategy to reduce the high level of poverty in the rural areas of respective developing counties especially in Africa. The researcher have to look at the Nigeria situation.

1.          To examine how micro-finance institutions operate in selected rural settings in the country.

2.          To analyze the strengths, weaknesses, opportunities, and threats of micro-finance institutions in the selected region.

3.          To access the problems encountered by micro-finance service consumers, in the rural areas.

4.          To investigate and analyze the types and nature of micro-finance service provided in selected rural settlements in the country.

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