CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
It is know fact that banks help to accelerate the growth and development of a developed and developing economy. Consequently, finance becomes an important ingredient in the economic development of a nation and communities alike. Thus, the relevance of microfinance banks (formerly known as community bank) in promoting economic, programmes has become very basic and appreciated. In fact, the banks have the ability to mobilize funds in response to the dynamics of the societal requirements for growth and development. Therefore, there is the need for a proper functioning of microfinance banks as the pre-supposes a partial fulfillment of the requirement for development.
There is no gain saying the fact that at every stage of the state (Edo) effort towards economic development and advancement, the microfinance banks are called upon to assist in their capacities in response to this call, they provide available services in the areas of financing enterprises through small, medium and long term lending without prohibitive collaterals, in addition they equally provide veritable advisory function to assist various individuals engaged in business undertakings. It is worthwhile to mention here that the microfinance banks perform advisory services to our rural dweller on one proper utilization of soft loans granted especially in trading and agricultural production since the fundamental objective of the banks is to bring development close to the people (grass root development).
Edo State which is the focus of the study was created out of the former Bendel State in 1991 as contained in (Edo State Investment Guide). It is surrounded by Kwara State in the North, Benue State in the East, Ondo in the West and Delta State in the South. The State has eighteen (18) local government areas with corresponding headquarters. To state the obvious, funding has been a limiting factor as most of these organizations and enterprises are grossly underfunded. Even the government is almost unable to provide the needed funds to obliterate them from their financial predicament.
The microfinance banks tend to fill this yawing financial gap faced by the industries, organizations and other enterprises within the state. Often times, it is painful to note that the microfinance banks demand collaterals that most of the entrepreneurs are unable to provide apart from poor financial base of the ailing banks. This is in addition to the mismanagement of the resources of the banks by the unwholesome practices of the directors. Most painful is the inexperience investors are often considered on the priority list of the beneficiaries of the banks. These problems tend to mitigate the economic development of most of the micro finance banks, include Afenmai microfinance bank which is the focus of this study. Again, this study is mainly designed to explore the roles of microfinance bank in the economic development of Edo State, with a focus on Afenmai microfinance bank, Uzairue, Etsako West Local Government Area, Edo State.
1.2 STATEMENT OF THE PROBLEM
The relevance of microfinance towards achieving the economic development of Edo State cannot be overemphasized until the advent of the microfinance banks in Edo State, on rural dwellers had no access to modern banking facilities; hence they mostly saved their money in pots, holes underneath their mats and rugs. Furthermore, most of the bank lacked standard capital base to sufficiently meet the demand of their customers. It is also disgusting to know that the capital assets of the majority of the banks were and are still being mismanagement by the unscrupulous board chairman and directors. These problems are further compound by the recognition and support given to the bank by financial authorities; Central Bank of Nigeria (CBN), the Mortgage Bank of Nigeria Deposit Insurance Corporation (NDIC) and NICON. The resultant effect is that most of the banks are thus unable to accomplish the fundamental objective of providing credits/loan facilities to their customers. These constitute the statement for the study. Anchored on these problems, the researcher would want to examine the relevance which the microfinance bank play in the following specific areas.
i. Accessibility of soft loans by small scale industries
ii. Safe custody of deposits
iii. Accessibility to soft loan for agricultural production
iv. Monitoring the usage of loans granted to the rural dwellers
v. Overdraft facilities and bad debts
1.3 RESEARCH QUESTIONS
The following are the research question of this project.
i. What is the relationship between microfinance banks and small business enterprises in Nigeria?
ii. What are the challenges of microfinance bank in Nigeria?
iii. What are the effects of lack of financial support on small business?
iv. How can microfinance institution be responsive to small business enterprises demands?
1.4 OBJECTIVES OF THE STUDY
The main objective of this study is to ascertain the extent to which microfinance banks in Edo State contributed towards the economic development of state. This study is however limited to the Afenmia Microfinance Bank, Uzairue, Etsako West Local Government Area of Edo State.
Other related objective of the study are:
i. To bring to light areas where microfinance banks in Edo State have not been alive to their function or responsibilities.
ii. To ascertain the problems confronting microfinance bank in the execution of their functions.
iii. To proffer suggestions on how microfinance banks can improve their services.
1.5 STATEMENT OF HYPOTHESIS
In order to carryout an in-depth study and to actualize the objective of this research work, the following hypotheses stated in null formal have been adopted.
Hypothesis One
H0: Microfinance banks are not agents for economic development.
H1: Microfinance banks are agents for economic development.
Hypothesis Two
H0: Soft loans and advances to rural community by microfinance banks are not sources of funds for grass-root development.
H1: Soft loans and advances to rural community by microfinance banks are sources of funds for grass-root development.
Hypothesis Three
H0: Services like revenue collection rendered by the microfinance banks are not the source of obstacles to the banks.
H1: Services like revenue collection rendered by the microfinance banks are the source of obstacles to the banks.
1.6 SIGNIFICANCE OF THE STUDY
If economic development is a continuous process which we assume it to be, then it is essential that we identify and evaluate factors relating to such development. Therefore, this study is significant in all its ramifications as a basis for economic growth and development. Most significantly, the understanding of the relevant of microfinance banks in Edo State is not only useful for the reconstruction of Edo State, but also other state in the country and the world at large. Significantly too, the study will be a basis for further studies in areas related to scope of this research. Above all, it will be a reference source of information to significantly contributed to the existing literature in the area of the study.
1.7 SCOPE OF THE STUDY
This study is limited in scope for the period of 5 years from (2008 – 2012). The relevant of microfinance banks towards the economic development of Edo State. The researcher is developed, using library research and collecting data and information using questionnaire and conducting oral interviews and discussions with some of the bank officials.
1.8 LIMITATIONS OF THE STUDY
In the process of carrying out this study, the researcher encountered some difficulties which acted as obvious limitation to the research. First, were the problems of time and money which of course are the essential constraints to students while in school. Therefore, these should be recognized as limitations to the study. Second was the limitation of acceptance especially when dealing with supposedly suspicious group of people like the banks officials and other business people in the society. They often do not vive the desired cooperation needed. This constituted a limitation to this study. It was almost impossible getting the data needed from administrative files and bank transactions as regarded as classified.
Third, was the problem of getting the actual data information from the respondents (bank official and customers) alike. No mater the manner questionnaire are framed and oral interviews conducted, respondents to the as subject to individual bias and selfish judgement. These also constituted limitations to this study. In spite of the pragmatic limitations encountered in the process of this study, the researcher did here best to overcome them. Therefore, the authoritativeness and the reliability of this study should not be under scored by its potential users.
1.9 DEFINITION OF TERMS
In carryout out this study, the researcher made use of some technical but related terms. For ease of understanding and application of these terms, the following functional definitions have been given:
Economic Development: This should be regarded as a process and transforms a stagnant society with low average real income into one in which income rises more or less continuously as technology is embodied in accumulated capital. Yet it can also be defined as mere growth; while others of the opinion that it involves both growth and structural changes.
From the foregoing definitions of economic development, it can be rightly deduced that the general problem encountered by the research in trying to evolve a concrete definition is the representation of economic development as either one or a combination of any of these factors.
– Economic progress
– Economic growth
– Economic change
– Economic advancement
– Structural transformation of the society
Therefore, in this study, economic development should be taken to constitute and hence consist of factors identified above.
2.Bank: This is a depot that deals on monetary and other precious deposits for economic transaction. It is of many types, but in this work, it means the microfinance bank, selected, unless otherwise stated.
3.Indigenous Bank: These are banks set up by Nigerians and government. In this study, the Afenmai Microfinance Bank, Uzairue (focus of this study), Uchi Microfinance Bank, Auchi, Ogida Microfinance Bank and Okogbo Microfinance Bank (both in Oredo Local Government Area) are examples of the banks.
4.Rural Banking: This includes all banking taking place in area distant from the urban centres.
5.Urban Banking: This is the act of collecting savings (money) and other valuables from people and facilitating their subsequent transactions. This is intended to promote their living standards and enhancing their economic growth.
6.Expatriate Banks: These are financial organization (banks) set up an expatriate or foreigners. These banks/organizations since 1970 have been indigenized. A good example is United Bank for Africa (UBA).
7.Cooperatives: These are organizations owned by and operated for the benefit of those using their services.
8.Micro Credit: This simply refers to small loan made to low income individuals to sustain self employment or to start up very small businesses.
9.Micro Finance: This is the act of providing financial services to the poor who are traditionally not served by the conventional financial institutions. It is the provision of small loans (micro credit) to the poor, to help them engage in new productive business activities.
10.Micro Finance Bank: This is a financial institution licensed to provide credit banking and other financial services to a designated “catchments area” or community.
