CHAPTER ONE

INTRODUCTION

In this chapter the following subheadings will be reviewed, background of the study, statement of problems, objectives of the study importance of the study research questions, scope of the study, limitations of the study, definition of terms.

1.1 Background of the Study

Microfinance as a specialized scheme aims at providing funds in form of loans to poor households who are mainly small savers that cannot afford obtaining loans from money deposit banks or other money lending institutions microfinance has been proven to be an effective and powerful tool for poverty reduction. It has sufficiently penetrated the poorer states of society especially in developing countries, though not rampant in Nigeria yet.

The microfinance policy was introduced in exercise of the powers conferred on the Central Bank of Nigeria (CBN) by the provisions of section 28, sub section (16) of the CBN Act 24 of 1991. the policy recognizes existing informal institutions and brings them within the supervisory purview of the (CBN) creating a platform for the regulation and supervision of microfinance banks through specially crafted Regulatory Guidelines. Though the microfinance policy and framework was launched on December 15th, 2005 which saw an unprecedented rise in microfinance institutions in Nigeria financing in micro set-ups is a practice that was culturally rooted and dated back to many centuries in Nigeria. These were in the form of self-help groups, rotating savings, co-operative set-ups (still existing) and money-lending activities. All these were means of getting access to credit and finances. Subsequently, most of these self-help groups grew into recognized community banks while some community banks were products of government programmes, most came into being through self-help gathering. The government induced community bank was an attempt to reduce the people’s poverty. But like all other government’s pro-poor projects, it also failed.

In 1986 Gen Ibrahim Babangida came and established Directorate of foods, Roads and Rural Infrastructure (DFRRI) to accelerate rural development under his regime, various projects such as the Peoples Bank of Nigeria as well as the Community banks were established.

But in Nigeria, the re-originated microfinance sub-sector, which was a welcome idea to many people had also failed. A MFB operator Olusanya, explained that those objectives behind the reformation in MFBs in the country namely; weak institutional capacity and capital base, need to increase savings opportunity and economic empowerment were the reasons why they failed. Payment default people wanted to return the loan but could not because of unyielding business investment due to lack of basic infrastructure. Without infrastructural facilities put in place, no reform of microfinance can work.

Since the Central Bank of Nigeria made a pronouncement for the establishment of microfinance system late last year with the aim of assisting the small scale entrepreneurs, several microfinance banks have sprang up in every nook and cranny of the country. The question poised by many Nigerians is, has the bank lived up to expectation in performing its responsibilities of meeting the yearnings of the average Nigerian entrepreneur? While many believe that the system is still far from touching the grassroots considering the fact that they are located in the cities and not rural areas where their services will be needed most.