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EFFECTIVENESS OF MICROFINANCE INSTITUTIONS IN PROVIDING CREDIT TO THE POOR RURAL SOCIETY (CASE STUDY OF OFFA MUNICIPALITY)

EFFECTIVENESS OF MICROFINANCE INSTITUTIONS IN PROVIDING CREDIT TO THE POOR RURAL SOCIETY(CASE STUDY OF OFFA MUNICIPALITY)

ABSTRACT

The implementation of financial reform and the subsequent privatization of the government owned financial institutions have made things worse to the majority of the rural poor households and small enterprises. The government focuses to strength banking system in low risk urban based clients in order to improve their portifolio performance rather than reach out smaller clients located in rural areas. The main objective of the study was to assess the effectiveness of microfinance institutions in providing crerdit to the low income rural society, to determine the constraints of MFIs in Nigeria, to assess how these small income earners have access to loan and also to assess whether the conditions and procedures of loans and credit granting set by the MFIs favour the rural poor house holds and small enterprises. The purpose of using both methods is to be able to examine further into the data set to understand its meaning and to use another method to verify findings from other methods. This study used descriptive and cross-sectional design. The purpose of descriptive design was to observe, describe, and document aspect of situation, naturally as they occur in a given population. The findings of the study revealed that most of the rural poor house holds and small enterprises are not accessible the financial services. Some conditions such as high interest rates, securities of the loans and other procedures such as formalities, lack of training have made them not benefited by loans. The researcher recommended that the government to establish rural financial services, government to have the awareness programs on MF services to poor rural house holds and small enterprises, interest rates should also be reduced and rural properties such as houses should have ownership deeds.

EFFECTIVENESS OF MICROFINANCE INSTITUTIONS IN PROVIDING CREDIT TO THE POOR RURAL SOCIETY(CASE STUDY OF OFFA MUNICIPALITY)

CHAPTER ONE

Background of the Study

Formal credit and savings institutions for the poor have also been around for decades, providing customers who were traditionally neglected by commercial banks a way to obtain financial services through cooperatives and development finance institutions. One of the earlier and long-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift’s idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland (Hollins and Sweetman, 1976). Their principal purposes were making small loans with interest for short periods.

The rise of Microfinance as an important policy goal is due to the fact that access to financial services can induce a positive difference in the lives of the poor households. From the field, the evidence comes in the form of rapid take-up of financial services when they are made available to poor households and the very high rates of repayment that the poor exhibit in order to maintain access. The results of the Financial Diaries Project; summarized in the recent book “Portfolios of the Poor”, by Collins, Morduch, Rutherford, and Ruthven (2009); show how dependent the poor are on various financial instruments, both informal and formal, to manage what little money they have on a day to day basis.

Nigeria’s financial sector and the microfinance industry in particular, are relatively young. In the recent years, the financial sector as a whole has undergone major changes from the originally state-owned and -controlled system to a liberalized financial sector. Principal elements of reform included liberalization of interest rates, restructuring of state-owned financial institutions, strengthening the BOT’s role in regulating and supervising financial institutions, and allowing entry of local and private banks into the market. However, despite the progress, Nigeria’s financial sector remains relatively small, and access to financial services remained stunted for the majority of Nigerians especially to rural households (Triodos-Facet 2007).

During 2000 the government of Nigeria developed the National Microfinance Policy in line with the overall financial reforms initiated in 1991 where by the policy aims at enabling low-income earners through their SMEs to access financial services. Microfinance Institutions (MFIs) have become alternative sources for financing SMEs in place of Formal Financial Institutions (FFIs) (URT, 2000, Severine & Urio, 2006). Although there is financial sector reforms and implementation of National microfinance policy of May, 2000 there still a gap towards the achievement of the microfinance service to poor rural households, this is due to the fact that most of MFIs operate their business in urban areas while leaving the poor rural households and enterprises in the deep darkness of lacking the financial services.

So after revealing this situation the government of Nigeria has developed” The second-generation Financial Sector Reform Action Plan approved by Cabinet (2006 – 2011,with $22 million funding from WB and DFID) whereby among other things aims to review the current National Microfinance Policy to the Financial inclusion policy and develop the rural financial services strategy to ensure the financial services are accessible to the poor rural households and enterprises (Triodos Facet,2007,BOT,2010).

 Statement Of Research Problem

The theoretical and empirical literature shows that many studies have been conducted to determine the effectiveness of MFIs in providing loans to poor rural house holds and small ernterprises in Nigeria, both in rural and urban areas. The literature has demontrated that most of the scholars analysed the effeciency of microfinance institutions in providing loans to the low income earners. Despite those efforts done by the scholars to address the problem of financial services in Nigeria, particularly in rural areas, the credit delivery has been still a problem.

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Step 1: make payment of N2,000 to the below bank details


NAME:                       TITUS AYANI SOLA
BANK:                       FIRST BANK PLC
ACCT NO:                  3111741042
ACCOUNT TYPE:       SAVINGS
AMOUNT:                  N2000

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Updated: 24th October 2018 — 9:55 am

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