For your custom-made paper, report, or article; kindly call 0703 022 8325. The government can do this by improving the capital base of these banks in order to make them able to give loans to a wider number of Nigerians. With access to these financial savings and credit services, members can start new businesses or improveon the existing businesses and engage in any other productive activities as well as learning how to use money wiselyand consequently improve on their revenue. Credit understanding of rural people is not so good. Governments and donor agencies have expanded funding for microfinance programs in low-income countries and more articles appear in the Western media about the success of this new approach in assisting the poor. Tables and simple percentages were used in data presentation. This will promote the outreach of these banks to Nigerians.
This class of staff lack orientation as to the essence of microfinance. The mechanics of microfinance are simple. As borrowers defaulted and investors fled, the microfinance sector collapsed. Due to poor addressal of these risks these organizations continued to face issues of credibility, transparency and default. The quality of manpower in these banks is reflected in the poor performance of many of them, inefficiency and high levels of frauds and forgeries. Either a cause or the consequence of these crises, the vulnerability of millions of micro-entrepreneurs and the growing precariousness of salaried employment for the middle classes are the two major challenges facing socially sustainable development and economic growth. Apart from this, other internal risk posed in this industry is lack of skilled manpower to effectively assess the performance of firms and execute remedial strategies.
The more these small scale businesses are supported through loans from microfinance banks, the more the Nigerian economy is promoted. Today, an estimated 190 million people are funding activities through microfinance. This is done by providing them with financial support and credit services Lyuirika, 2010. In 2007, commercial banks were consolidated; they became so big obviously leaving the not too wealthy client segment to microfinance banks. Today banks have been reclassified into regional, national and international, fuelling fears that the regional banks might be in direct competition with microfinance banks. Due to the overwhelming poverty in India, government gave special attention to the development of rural credit. Third, regulation has mostly failed to keep up with growth in the microfinance sector.
Both savings and credit services were rated moderately. This includes failing to assess credit risk of customers, lending aggressively beyond the repayment capacity of the borrowers, charging high interest rates and adopting coercive collection practises. The paper shows that microfinance banking in Nigeria faces enormous challenges in infrastructural inadequacies, social misconception, poor legal and regulatory framework, unbridled competition from other financial institutions,abandonment of core microfinance function and paucity of qualified manpower. The microfinance banking subsector in Nigeria is therefore relatively young having taken-off in 2007. Their effects are felt both by the poor and increasingly by the middle classes in both emerging and advanced economies.
Scholars are unanimous in their agreement that there exist a large untapped market for microfinance banks. Since the religious precepts of many people in that part make them abhor interest on loans, the banks should provide them with interest free loans. The content on the InfoGuide Nigeria is provided as general information only. This he ascribed to the inability of the sector to adequately remunerate staff. Any action taken as a result of information, analysis, or advertisement on this site is ultimately the responsibility of the reader. The local politicians and the industry were in deep disagreement due to which the politicians appealed to the local people not to repay the loans taken from small scale microfinance institutions.
Bullion, 32 1 , 26-34. These approaches may have sufficed in the traditional society but the growth in the sophistication of the economy and the increasing incidence of poverty among citizens has revealed the shortcomings of this approach. This is to ensure that they do not drag the subsector under as was the case of previous microfinance schemes of government. Despite the growing number of threats to its operations, the industry can reap the benefits of certain moves like facilitating micro-insurance and micro-pensions for their clientele to diversify their funding portfolio. It was therefore to make up for the shortfall in the financing of the entrepreneurial poor and their small businesses that microfinance banks were established. To these staff microfinance banking is just an extension of the commercial banking they know.
Interest rates were regularlised by the central bank in 1990 and this was a politically sensitive issue. Unfortunately, these banks are also forced to incur additional costs to provide themselves with electricity and water. This reduces borrower risk by creating an incentive for group members to monitor one another and to select other group members carefully. The researcher concludes that microfinance institutions world over and especially in Nigeria are identified to be one of the key players in the financial industry that have positively affected individuals, business organizations, other financial institutions, the government and the economy at large through the services they offer and the functions they perform in the economy. Microfinance banks offer their services in such a way that the customers are able to support their small scale business. At the global level, some 3 billion people are excluded from the traditional financial system.
I like to deal on innovative things. The study was guided by the following research questions: Who has access to credits? This is due to the fact that the central banking system in Nigeria is yet to realize that microfinance banks are one way of promoting the Nigerian economy. The sector still does not quite have enough resources to ensure its professionalisation and regulation. The Nigerian Accounting Horizon, 2 1 , 54 — 70. The paucity of human capacity in the microfinance sub-sector in Nigeria has been an issue from the days of community banking. Furthermore, geographical diversity of these institutions increase in fraud by staff and vulnerability towards repayment of loans. Structures in each of the microfinance banks vary and this is dependent on the nature and type of the bank.
An example is group lending, in which borrowers are grouped together and given loans sequentially. Despite this plethora of challenges, the study identified several areas where opportunities exist for these banks. Corruption Corruption has wrecked havoc in many sectors of the Nigerian economy. In particular, microfinance made it possible for many women to become entrepreneurs, enhancing their role in the family unit, which for far too long has been dismissed by society. They ought to know the essence of loans and other functions of microfinance banks and the role it plays in developing their business. No doubt, microfinance institutions have shown impressive growth and have been instrumental in the cause of financial inclusion, but a lot remains to be achieved.
While programs aim to bring social and economic benefits to clients, few attempts have been made to quantify benefits rigorously. Another point of divergence between the community banks and their microfinance successors is in those which the regulatory guideline allows to own them. The constant government policy changes offer its set of challenges to the microfinance banks. This increases the chances of default as in case of agriculture loans there are chances of moral hazard and adverse selection and natural calamities leading to loss of crop. Small scale microfinance institutions , under sudden pressure from investors to increase their sales, resorted to poor management practices. On the other hand, the Central Bank of Nigeria has constantly assured the public that it will not allow any commercial bank to fail;this, places the microfinance banks at a great disadvantage by tilting public confidence in favour of commercial banks that are normally bigger and stronger.