ABSTRACT

This research study concerns itself basically with the investigation with microfinance bank institution to capital formation in Nigeria, in analyzing this research study, unitary test was adopted and the instrument used for obtaining the data is secondary data from CBN statistical bulletin. The information collected from the secondary data, helps the researcher to analyse how micro-finance bank work and meet the expectation of the government and the people. Having the dependent variable as gross fixed capital formation testing the strength of independent variables inflation, loans and advances and interest rate which shows 65 percent change in the dependent variable. The researcher therefore went ahead to recommend that the importation of goods which can be produced in Nigeria should be banned as this will give our indigenous investors the zeal and challenge to do more exploits in research. Finally the researcher therefore concluded that financial support to micro-businesses, small and medium scale industries SMIS in developing countries like Nigeria.

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENT

Title Page							i
Approval Page							ii
Dedication							iii
Acknowledgement							iv
Abstract							vi
Table of content CHAPTER ONE: INTRODUCTION							vii
Background of the study							1
Statement of the problem							3
Objectives of the study							4
Research questions							5
Hypothesis formulation							5
Significances of the study							7
Scope of the study							8
Limitation of the study							8
Organisation of the study							9
Definition of terms							10
	CHAPTER TWO
Literature review							12
Introduction							12
Background of the study							13
Overview of microfinance activities in Nigeria							16
Justification for the establishment of microfinance bank							18
Operational guideline for microfinance institution							27
Evaluation of microfinance bank							28
Evaluation of microfinance banks in other countries							35
Improving microfinance banking in Nigeria							39

The contribution of microfinance banking to capital formation

in Nigeria                                                                                                                    44

Effective credit supply of microfinance                                                             59

CHAPTER THREE

Research design                                                                                                       68

Overview                                                                                                                   68

The model                                                                                                                  69

Specification of variable                                                                                        70

Economic apriori                                                                                                     71

Evaluation techniques                                                                                            71

Econometrics                                                                                                            72

CHAPTER FOUR

Presentation and analysis of result                                                                  74 Battery test                                                                                            74

Presentation and interpretation of result                                                         74

Economic apriori  criteria                                                                                      78

Statistical criteria (first order test)                                                                     79

Econometric criteria                                                                                               83

CHAPTER FIVE

Summary                                                                                                                   89

Conclusion                                                                                                                 92

Recommendation                                                                                                    94

Bibliography

Appendix

 

 

ACKNOWLEGDGEMENT

I wish to acknowledge my profound gratitude to God Almighty for his Ebere and grace without whom this work would not have been consummated and to my mother of perpetual help who stood at the gate of mercy for me all through my stay in school.

I am also grateful to my able supervisor Mr. Ezekiel .O. Uche who used his endowed pearls of wisdom and fatherly love to supervise this project.

My thanks goes to Barr. P.C. Onwudinjo the head of department of Economics, Caritas University.

I am greatly indebted to my evergreen loving parents H.R.H. IGWE  S.C.O. UDEOGU [F.C.A.I.] AGU GBURU GBURU 1 OF EMEORA NEKE and UGOEZE  EUCHERIA UDEOGU for investing in me.

Will not forget to appreciate the reason why i came to be in the persons of LATE

ELDER UDEOGU NNAMANI [ONYEISHI UMU-UHUTA NEKE] grand dad  And LATE

MRS. NWAEZE UDEOGU [NEE AGBO NNAJI OKARIA] grand mom, And LATE CHIEF

ELIAS OKPO [NWA AGABAH] grand dad And  MRS. FLORENCE OKPO [mama eha] My thanks goes to my siblings PRINCESS NDIDIAMAKA ANN [nwaeze Udeogu],

PRINCESS CHINENYENWA PERPETUAL [nwa mummy], PRINCE AMUCHE

[Ammynido de neatest] and the last but not the least PRINCE CHINONSO [cash moni]  For their prayers and support  throughout my stay in school.

My heart filled thanks goes to my love EDEANI PHILIP NKEM for his emotional balance, prayers and support towards the success of this career.

Worthy of thanks to my lecturers  prof. ONAH, prof. UDDBAH, DR. UMADI, Mr.

ODIKE, Mr.RICHARD OJIKE, Mr. AUGUSTING ODOH, Mr. ODIONYE  and Mr

OSODIURU. And to my numerous friends, I can only mention but a few, KINGOGOKE CHINYERE FRANCES [SLASH], IBE UGOCHUKWU WINNER, ABOH SHARON, CHIGBU IJEOMA PERPETUAL, INAKWU USHANG baby and many others.

 

            

CHAPTER ONE

1.0       INTRODUCTION

1.2       BACKGROUND OF THE STUDY

Microfinance has emerged as an effective strategy for poverty reduction. Across developing countries (Nigeria for example) micro, small and medium enterprises are turning to microfinance institutions (MFIS) for an array of financial service-microfinance is acknowledged as one of the prime strategies to achieve the millennium development goals (MDGs)- access to sustainable financial service enable owners of micro enterprises to increase their capital base, build assets and reduce their vulnerability to external stocks. Access to financial services enable poor household to move from everyday struggle for survival to planning for the future, investing in better nutrition their children’s education, health and empowering women especially.

However, the potency of microfinance as a development strategy is

contingent upon the existence of microfinance institutions which:

1. Have adequate outreach and more impact on poverty
2. Achieve financial and operating self-sufficient
3. Deliver responsive services to micro and small enterprise

Microfinance is the study of loans, savings and other basic financial services to the poor who are traditionally not served by the conventional financial

institution.

These owners of micro and small enterprise require a diverse range of financial instruments to meet working capital requirement, build assets, stabilize consumption and shield themselves against risk. According to Ehigiamusoe (2008) microfinance primarily focuses on alleviating poverty through provision of financial services to the poor or owners of micro enterprises. Services users include artisans, small holder farmers, food processors petty traders and other persons who operate micro enterprises according to (Okereke et al 2009). The financial services include working capital loans, consumer credit, savings pension etc. in practice, microfinance is much more than disbursement management and

collection of little bits of loans.

Microfinance is not charity organization despite its application as “poverty lending”. Primarily microfinance seeks to create access to credit for the poor who ordinarily are locked out of financial services in the formal financial market for reasons of their poverty that is lack of command over assets. If therefore places obligation on the borrowers for proper utilization and complete repayment of the borrowed amount even at commercial interest rate.

Microfinance is not new especially history we come across schemes and social arrangement, which enable people to poor their financial resources for onward distribution to co-operating and needy individual. Example includes “adachi” and several variants of “esusu”. Nigerian microfinance institutions have also intergraded best practice of traditional schemes into the operational procedures.

1.2       STATEMENT OF THE PROBLEM.

Although microfinance services have Endeavour to offer financial services to the vulnerable groups, (youth, women especially), their impact on the economic activities of the beneficiaries still remain low due to its high operating cost, repayment problem, in adequate experienced credit staff, client apathy and dropout, internal control challenges etc. for instance the percentage dropout rate of FINCA wobulenzi beneficiaries stands at 33% on average (FINCA internal annual management report 2004).

Some dropout may be due to improvement on welfare of the bank or the interest rate while in other cases some have lost –even the little they used to own (Nakalnesi, 2003) this therefore sets the basis for the study.

1.3       OBJECTIVES OF THE STUDY

The study was guided by the following objectives:

1. To examine the nature of financial services offered by microfinance institutions to the rural communities
2. To identify the indicators of growth in economic activities of microfinance beneficiaries in Nigeria.
3. To establish the contribution of microfinance banking to capital formation in Nigeria.
4. To design appropriate strategies that will increase the outreach of microfinance institutions so as to enhance economic development and growth in Nigeria.
5. To solve the problems of inadequate experienced credit staff, client apathy and dropout, high operating cost repayment problems etc.

 

 1.4      Research Questions

The following research questions are formulated to enable us find lasting solutions to the problems of this study:

1. Of what importance are the contributions of microfinance banks?
2. How does a microfinance bank credit a small and medium scale enterprise on capital formation?
3. Do microfinance banks enhance individual household ability to accumulate assets and create wealth?
4. Is it important for microfinance banks to aid in the facilitation of rural transformation?
5. How do microfinance banks engage in making finance assessable to enlarge segment of the Nigerian population?
6. How do microfinance banks create capital?

1.5       HYPOTHESIS FORMULATION

For a purposeful data collection and interpretation the following hypothesis are hereby formulated

Hypotheses 1

Ho:     Microfinance banks loans and advances to rural people have not contributed much to capital formation

Hi: Microfinance banks loans and advances to rural people have contributed much to capital formation

Hypotheses 2

Ho: Microfinance bank credit to small and medium scale enterprise of agriculture and fishery don’t have much impact on capital formation

Hi: Micro finance bank credit to small and medium scale enterprise of agriculture and fishery have much impact on capital formation.

Hypotheses 3

Ho:               Microfinance bank investments are not good tools for the formation of

capital.

Hi:                     Microfinance bank investments are of good tool for the formation of

capital

            

1.6       SIGNIFICANCE OF THE STUDY

Poverty is a major challenge facing Nigeria as a country. Many people continue to suffer deprivation even as reforms continue successful. This condition is being addressed to avoid a divide that can engulf Nigeria as a country and the only way to curtain this divide is by expanding opportunities to the poor through microfinance.

Microfinance itself is not a new phenomenon in the Nigerian society as evidence by some cultural economic activities like the “Esusu”, “Aso”, “Otataje”, etc. which were practiced to provide funds for producers in our rural communities. What is current however is the effort of the government of Nigeria to modernize micro financing in our rural and urban communities so as to improve the productive, capacity, enhance their economic standing which alleviate the level of poverty and aggregate to improve development of the national economy. Therefore the significance or importance of this research is to look at how micro financing through the help of the government can help improve the lives and standard of living of individuals or citizens in the rural and urban areas.

There by helping to alleviate poverty and ensuring economic development of the nation at large.

1.7       SCOPE OF THE STUDY (1992-2010)

The research work study expected to appraise the contributions of

microfinance banking institution to capital formation in Nigeria. As a result, all works microfinance banks instituted at Mberi in Owerri was chosen as a case study out of the numerous microfinance banks in Imo state.

1. Time: This constitutes a major problem for the research due to the fact that the study was carted out during the academic period, it became a huge problem attending lectures and going about the organization of the study.
2. Lack of information: there was also difficulty in getting the required information especially from workers of the firm. Also laying hands on literatures that has treated these matters was also an impediment to the flow of the required information.
3. Inadequate materials: this constitutes a hindrance to an effective research work. The insufficient supply of literatures such as books, journals was also

a problem. Even when seen, they are either out dated or out of use for referencing purpose.

4. Financial resources: Cost implication on conducting and presenting this research work was enormous. Buying materials needed for this study cost a

lot.

Notwithstanding these constraints, the research was well conceived and packed to serve the purpose of which it is intended, which is to look at the various contribution of microfinance banking institutions of capital formation in Nigeria.

1.9       ORGANIZATION OF THE STUDY

In the course of achieving the stated objective of this study, this work has been arranged under five chapters to deal with the relevant issues f the topic.

Chapter one gave an average of the background of the study significance of the study, the limitation, scope of the study, organization of the study and definition of terms.

Chapter two reviews the relevant literature by explaining the conceptual framework of the topic in question. Chapter three contains the research methodology used in the research including the design, source of data and method of data analysis, while chapter four dealt with the presentation and analysis of data, which highlighted the data collection, the data was properly analyzed and discussed therein.

Finally chapter five dealt on the summary of findings, conclusion and recommendations. Hence bibliography and relevant areas for further reading inclusive in the research.

1.10 DEFINITION OF TERMS

Engle: To surround, cover some body or something completely

Constraint: A thing that limits or restricts something or your freedom to do something

Alleviation: To make something less sever

Potency: The power that somebody or something has to affect your body or mind.

Vulnerability:            Week and easily hurt physically or emotionally

Disbursement: To pay money to somebody from a large amount that has been collected for purpose

Utilization: To use something especially for a particular purpose

Sustainability: Involving the use of natural product and energy in a way that does not harm the environment or that can continue or continued for a long time.

Dequincy: Bad or critical behaviour, usually of young people

Appellation: A name or title