CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

In Nigeria, the issue of financing active poor in both urban and rural areas through formal financial institutions is difficult (Ovia, 2007). Nigeria is facing various serious problems which are threats to the Nation economy (Anyanwu, 2004). According to National Financial Inclusion, in the provision of financial services, Nigeria lags behind many African countries. In 2010, 36% of adults – roughly 31 million out of an adult population of 85 million –were served by formal financial services. This figure compares to 68% in South Africa and 41% in Kenya/. This is because formal financial institutions deny the poor in both urban and rural areas access to financial services. In order to breach this gap, Nigerian government established various institutions as well as programmes to enhance the standard of living of people, make poor people self–reliance and turn out more entrepreneurs than job seekers in the country. Some of these programmes includes Directorate of food, Roads and Rural Infrastructure (DFRRI), Better Life/Family Support Programme, Family Economic advanced programme, Peoples Bank and Community banks. These programmes failed to achieve their objectives due to poor implementation, corruption and host of other factors. Government did not relent in their efforts to make financial services accessible to the poor, thus, the emergence of microfinance banks as an alternative credit system for the poor (Helms, 2006).

According to CBN (2005), “microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions’. There are three features that distinguish microfinance from other formal financial products. These are:

· the absence of asset – based collateral;

· the smallness of loans advanced and or savings collected, and

· ease of operations.