Full Project – The marketing challenges of microfinance bank services as a tool for grassroots development
The robust economic growth could not be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production especially credit. The talent capacity of the poor for entrepreneurship would be significantly enhanced through provision of microfinance service to even engage economic activities and be more self-reliant, increase employment opportunities to enhance household income and to create wealth.
Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions.
In Nigeria, the formal financial provides service to about 35% (percent) of the economically active population while the remaining 65% (percent) are excluded from an access to financial services. This 65% (percent) is often served by the informal financial sectors, through non-governmental organizations (NGOs). The micro finance institutions, the money lenders, friends, relatives and the credit unions. The non-regulation of the activities of some of these institutions had serious implications for the Central Bank of Nigeria (CBN) ability to exercise one aspect of its mandate of promoting monetary stability and sound financial system.
The microfinance was defined by Gert Ven Maneen, a microfinance expert, as “banking the unbankable, bringing credit, saving and other financial services with the reach of hundreds or millions of people who are poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral”
In conclusion, it is understood that microfinance is meant to lift the poor from their current level of poverty to a level of productivity and self sufficiency.
1.1 Background to the Study
The community banks metamorphosed into the microfinance banks according to the microfinance policy released by the Central Bank of Nigeria (CBN). The microfinance policy was launched by the ex-president and commander-in-chief of armed force of the Federal Republic of Nigeria, Chief Oulsegun Obasanjo (GCFR) on 5th December, 2005 at the Transcrop Hilton Hotel, Abuja.
The policy stipulated that the minimum paid up capital for micro finance bank licensed to operate in a local government area was twenty million naira (N20,000,000) while those licensed to operate state wide was ten billion naira (N10,000,000,000).
Hitherto, community banks operated as single unit banks with a capital base of five million naira (N5,000,000) but with their conversion to microfinance banks they could operate branches and cash centers while currency centers did not requires any stipulated provision of minimum of shareholders fee fund opening of fully fledged branches were subjected to the available of twenty million naira (N20,000,000) free funds of the banks for each new branch under the new micro finance policy, states and local government were now required to contribute one percent of their budget to microfinance banks for on-lending to the productive rural poor and other micro, small and medium scale entrepreneurship in their jurisdiction.
In Nigeria, over 7% (percent) of the population live in poverty and staggering 65% (percent) of the economically active populace to adequate formal production, credit had continued to repair the economic potentials of this category of the population and hence their contribution to grassroots development. The new microfinance policy could provide the base for enhancing the flow of credit and other financial services in these sectors.
To narrow it down to the area of the project “the marketing challenges of microfinance bank services as a tool for grassroots development, using Okengwe microfinance bank, Okengwe as a case study”.
The bank located at No.1 Lagos Road in Okengwe district of Okene Local Government Area of Kogi State.
The initiative for the establishment of the bank was from the company and allied matter act as in decree 50 of 1990. The bank was initially as a community bank in august 1993 before the CBN migrated it to microfinance bank limited in august 16, 2006. The federal government thought it wise that economic growth cannot be achieved without bringing the banking industry nearer to the poor people at grassroots level and also to enhance rural banking in other to embrace the rural dwellers who have no access to conventional banks.
The bank commenced its operation with initial share capital of five million naira in 1993 and by 2007, its capital base raised to twenty million naira presently it has increased to fifty million naira.
1.2 Statement of the Problems
- Inspite the effort of the federal government and the central bank of Nigeria to develop the grassroots area, the rural dwellers still encounter problems of lack of time and insufficient services offered by the microfinance bank.
- Another problem encounter was lack of awareness as the investors require information on the success and reliability of the converted microfinance bank as guarantee for attractive return before they stake their resources.
- Moreso, the microfinance bank felt that the rural people would have no access to credit facilities if collateral was required before granting them loan.
- In addition to the above problems, on the side of customer (s), they dealt with “active poor” people who find funding difficult or how to come by.
1.3 Purpose of the Study
The objective of this project work was to determine the challenges of microfinance banking play for grassroots development. In effect, the researcher had to find out the following
- To ascertain whether financial services could be accessible to a large segment of the potential productive Nigeria population which otherwise would have little or no access to finance.
- To sensitize the rural dwellers on the benefit they would derive by transacting business with the microfinance bank.
- To make loan available to their customers without demanding for collateral.
- To create employment to both the staff and customers within the community through the expansion of credit facilities to them.
1.4 Research Hypotheses
For the purpose of the study the following hypotheses were formulated.
Ho: The banking habits of the rural dwellers do not improve the life of the people.
Hi: The banking habits of the rural dwellers improve the life of the people.
Ho: The unwillingness of the rural dwellers to save their money in the banks for credit creation does not affect the microfinance bank’s challenges to assist small and medium enterprises in rural community.
Hi: The unwillingness of the rural dwellers to save their money in the banks for credit creation affect the microfinance bank’s challenges to assist small and medium enterprises in rural community.
Ho: The expansion of credit facilities by the micro finance does not attract high patronage amongst the rural population.
Hi: The expansion of credit facilities by the micro finance attracts high patronage amongst the rural population.
1.5 Significance of the Study
The importance of the study like this could not be over noted, thus the segments of the beneficiaries could gain a lot as follows.
- To the government that had inaugurated the programme, this project work would give the government deep insight on microfinance banking services, its operations or financial requirements and management. It would invariable go along way in formulating effective policies towards enhancing smooth operation of micro finance banking services should there be urgent need for attentions.
- To the community in which the project work was based, the study would help to develop the area by granting loan which would help to reduce poverty level
- It would help any enterprise that would enter into micro finance banking services to understand the structure, problems and financial requirement of the system of banking.
- It would also be useful to researchers that would carry out studies in the similar areas.
1.6 Scope of the Study
The focus of the study is on micro fiancé services and its (with a particular relevance to Okengwe branch) challenges to grassroots development. It would find out the amount of loans that was distributed and the sector that received the greater part of the facility.
1.7 Limitation of the Study
The researcher encountered some problems while carrying out the study. The most cumbersome of these problems include:
- Time Constraint: The time available for the researcher to undertake the study was too short for the acquisition of the necessary data for the study.
- The non-challant attitude of the respondents also placed a limitation to this project work as they (respondents) felt that their responses would not be kept confidential.
- The researcher also had financial problem as there was no enough fund to travel out to collect the necessary data to aid the project work.
- In addition, there was not enough funds to type and photocopy some necessary materials for this work.
1.8 Definition of key Terms
This section of the study defined some of the technical terms used which might present some difficult to readers in their proper understanding of this work.
Collateral: Suitable property which can be pledge as a guarantee for repayment of loan or bank draft.
Loan: It is the lending out of certain sum of duration of time before repayment.
Conventional Financial Institution (Main Stream): These are financial institution that issues out credit based on viable negotiate collaterals.
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Full Project – The marketing challenges of microfinance bank services as a tool for grassroots development