CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The setting up of micro finance bank is a major attempt by government to stimulate grass root banking in order to encourage economic growth through the provision of credit to enhance investment. The establishment of these banks emerges because the former urban based western type of banking system have been found to have failed, to adopt and sufficiently satisfy the needs of citizens for saving and credit facilities, thus creating a gap in the Nigerian financial system.
According to Ojo (2006), these had adversely affected the promotion of the development of indigenous small industrial enterprises and agricultural activities, all of which have to be developed before Nigeria can achieve any meaningful economic growth. The gap in the financial system led to the chronic shortage of institutional credit in the country, and this in turn adversely affected the development of indigenous smallscale enterprises.
According to Lawrence (2000), ‘finance is a powerful development tool which greases the productive channels of industry and stimulates their smooth operation. It is a universal lubricant which keeps the enterprise dynamic, develops product keeps men and machine at work, encourages management to make progress and create value.
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The development of grass root banking therefore was prompted by the need to allow all Nigerians greater access to institutional credit grass root banking is seen as an important aspect of integrated economic growth approach already in operation in Nigeria.
This approach is believed to be the most promising to foster economic growth as its primary objectives are the mobilization of both human and material resources which will involve the stimulation of active participation of all and sundry.
As a result of this for the grass root banking system to facilitate such integrated economic growth, it must be effective in mobilizing savings as well as facilitating the provision of credit to the populace for onward investments. This is where the community banking concept is considered suitable for the establishment of banks which most inhabitants are quite familiar with and seen as their own as well as being more ready in financing their production and investment activities. Thus it becomes totally necessary to properly identify investment opportunities in communities within the scope of small-scale enterprises and tailor financial services to their needs.
According to Mogbo (2002) small and medium scale enterprises have been found to be an engine of growth and in fact they are most conducive to the creation of jobs per unit of naira investment.
From this point of view, it is absolutely expected that the emergence of micro finance banks on the Nigerian financial scene is bound to have a catalytic impact on the stimulation of investments, especially in the area of small-scale enterprises and this will eventually lead to the structural transformation that would put the Nigerian economy on the path of self-reliance and sustainable economic growth.
1.2 Statement of the Problem
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Originally, it was expected that the establishment of micro finance banks would bring banks nearer to the people. What should also be obtainable is that people should find it easy to learn how to bank their money and even utilize banking facilities i.e. deposit money and even obtain bank credits for business purpose.
However, the fundamental issue is to ascertain the extend to which indigenes of Nigeria have with the presence of micro finance banks in their areas patronized the banks by cultivating banking habits, deposit more money for investment and encouraged others to do so which add up catapult the nation to economic growth.
a. Have the micro finance banks deposits increased?
b. Have the micro finance banks been effective in giving credits to their community dwellers?
c. Have the repayment rates (cost of capital) been relatively attractive to their clients?
d. Have banking culture and investment lead to the economic growth of Nigeria?
1.3 Objective of the Study
The main objective of this work is to investigate the effect of Micro Finance Banks in every aspect of the economy. However, the specific objectives of this work are to:
i. Investigate the effect of Micro Finance Banks in financing small-scale enterprises to facilitate economic growth.
ii. Critically evaluate the sources of finance available to small-scale enterprises in Nigeria.
iii. To determine the problem militating against the operation of Micro Finance Banks in Nigeria
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iv. Attempt to proffer plausible solution to the problems identified in order to improve the operation of Micro Finance institutions in Nigeria to achieve economic growth.
1.4 Statement of Research Question
The focus of this research is articulated around a number of questions begging for answer to includes.
a. Does micro finance bank assist small scale enterprise in facilitating economic growth?
b. How does small scale enterprise facilitate their
c. Has Micro Finance Banks contributed to the encouragement of banking habit among the citizens of Nigeria
d. Can it be said the Micro Finance Banks loans depend on their total deposits
e. Is there a significant relationship between the effective monitoring of loan usage and the repayment of loans among clients?
f. Does small-scale enterprises obtain financial support from other sources?
1.5 Statement of Hypothesis
For the purpose of this study, three hypotheses are to be tested. The hypotheses are stated in null and alternative forms as shown below:
HYPOTHESIS I
Ho: Micro finance bank assist small scale enterprise to facilitate economic growth
Hi: Micro finance bank does assist small scale enterprise to facilitate economic growth.
HYPOTHESIS II
Ho: Micro Finance Banks contributed to the encouragement of banking habit among the citizens of Nigeria
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H1: Micro Finance Banks contributed to the encouragement of banking habit among the citizens of Nigeria
HYPOTHESIS III
Ho: There is no significant relationship between the total deposits of Micro Finance Banks and the amount granted as loans.
H1: There is significant relationship between the total deposits of Micro Finance Banks and the amount granted as loans.
1.6 Significance of the Study
i. There are many benefits to be derived from this research. In evaluation of performance of this topic is significant in the following ways:
ii. This study proffers recommendations which would place Nigeria on the improved side of sustainable economic growth.
iii. This study will also add to the existing literature on the credit need of the community inhabitants.
iv. This study also hopes to help in policy making that solves the problems of Micro Finance Banks and promote economic growth.
v. This study will inevitably trigger off further researchers in Micro Finance Banks operation and efficiency.
1.7 Scope of the Study
This study is restricted to West end micro finance bank in Igbesa which have aggregately met the requirement of the Central Bank of Nigeria.
Furthermore, this study will dutifully consider the activities of these Micro Finance Banks as related to small-scale enterprises which are situated within these existing Micro Finance Banks.
1.8 Definition OF Operational Terms
1. Investment: – This is known as the process of postponing the immediate consumption in the expectation that greater return will be gained on investment and greater consumption in the future (Okeke 2003).
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2. Credit Facilities:- This refers to those facilities granted by a bank such as loan, overdraft and guarantees given to clients for investment ventures.
3. Private Sector: -This is described to mean the production that is in private hands, 1.e. the organization that performs production and owned by households or other firms (Lapse 2001).
4. Capital Structure:-This can explained as the way in which the capital of a firm is divided among various sources by agreement or policy of the concerned firm.
5. Derivatives: -This can be said to be instrument based on the underlying securities of bonds and ordinary shares which enable investors and foreign exchange rates security prices and commodity prices or to enhance returns on their securities.
6. Capitalization: -This is the total number of shares traded on the floor of the Securities and Exchange Commission and other Foreign Exchange institutions.
7. Economy: – This is connected with the trade, industry and development of wealth of a country an era or a society. In other words, it is the relationship between production, trade and the supply of money in a particular region or country.
8. Economic Growth;- This can be defined as the process by which the productive capacity of an economy increases over a given period leading to a rise in the level of the national income (C.E. Ande 2008).
9. Business:-This is seen as the sum total of all activities involved in the creation and distribution of goods and services for personal profit (Kaniu, 2003).
10. Small Scale Business:-This is described to mean a firm with total employed capital of #1.5 Million but not more than #50 Million including working capital excluding cost of land and labour size of 10 to 100 workers.
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11. Industrialization:- This is known as the process of transforming an economy based on extractive activities into one based on manufacturing. (C.E. Ande, 2008).
12. Capital: – This may be defined as man-made assets, wealth or groups used to produce other goods and services.
13. Cheque: – This is an order written by the drawer to a bank to pay on demand a specified sum of money to the person named as payee on the cheque.
14. Credit Facilities: – These are means by which banks lend money to their customers in form of loan, overdraft and discounting bill of exchange in order to increase the volume of money in circulation there by promoting economic growth.
15. Stock Exchange Market:- This can be referred to as a highly organized market where investors can buy and sell existing securities like shares, stocks, debentures, gilt edge, and bond (C.E, Ande, 2008).
1.9 Organization of the Study
The research project covered five chapters. Chapter 1 was about the introduction of the study, the statement of the research problem, research objectives and research questions of the study and the scope of the study. Chapters 2 dealt with the literature review and provide information on the areas of study Chapter 3 showed how the research work was designed. It further indicates the method of sampling of questionnaire, data collection & analysis of data. Chapter 4 was devoted to research findings of the field of study. Chapter 5 presented the summary of findings and conclusions to the study.
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