CHAPTER ONE 1.0 INTRODUCTION
In the past, government has initiated series of micro programmes targeted at the poor with the overriding objective of making credit readily available to those who were traditionally denied access to credit. Such credits in the world over were used for the development of small and meduim scale enterprise, which has been described as the springboard for sustainable development. In all emerging economies like Nigeria, the government has shown a great concern for the development of small and meduim scale enterprise because of the underlying socio economic factors plaguing the nation. some of the reasons include: the past policies failed to generate efficient self sustaining impetus needed to uplift the country to the ‘take-off’ stage of growth, the increased emphasis on self-reliant approach to the development and the recognition that dynamic and growing petty-business can contribute substantially to a wide range of developmental objectives. However, the full potential of the micro business in the development process have not been realized owing to numerous bottlenecks. In the light of this, the Central Bank of Nigeria (CBN) as part of its reform agenda, initiated Micro Finance Banks, a policy initiative aimed at bringing credit to the door step of the poor who do not have such access under the conventional financial system. The thrust of this project is to articulate the prospects of the micro finance banks towards boosting the performance thereby reducing the level of poverty and enhancing employment generation.
Micro finance banking institution were conceived and came into been in December 2007. It was packaged to address the issue of cultivating appropriate modern banking habits in the rural area, through the social local institution such as community social clubs and other individuals who are encouraged to be co-owner of the bank through the purchase of shares. The government came in as a second tier supervisory agency through the National Board of Micro Finance Bank (NBMFB) to oversee the establishment and operation. From December 2007, a total of 402 community now micro finance Banks came into being with a total deposit of =N=20 million. Loan and advances disbursed to individuals and enterprises stood at (=N= 155.1million) all these are with share capital cash of (=N=239.8 million). To complement the efforts of microfinance banks in mobilizing the rural infrastructures and directorate for social mobilization (MAMSER) by virtue of their grass roots oriented programmes conducted extensive research into the introduction of the microfinance banking system in area that it will be of good benefit to the people. Okafor (1992), in his reports for micro finance banks being the main link between the formal and informal financial sectors.
It is now common knowledge according to Egbe (2000) that the 1980s witnessed a rapid growth of commercial banking activities in many Nigerian rural communities where banking habits, culture, commitment and community development was poor if not non-existent. It is instructive to note that during this period, community funds among rural dwellers were hardly gathered for savings and loans in order to stimulate domestic investment. Suffice it to say that in rural communities, the rural business class hardly seeks formal institutional credits to improve their economic base.
It would be observed that, despite the presumed developments in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema, 2006). More so, its industrial growth is not quite impressive. Before the emergence of formal microfinance institutions, informal microfinance activities flourished all over the country. Traditionally, microfinance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives, government owned institutional arrangements, poverty reduction programmes etc (Lemo, 2006). The Central institutions in Nigeria are relatively new, as most of them never registered after 1981.
Before now, commercial banks traditionally lend to medium and large enterprises which are judged to be credit-worthy. They avoided doing business with the poor and their micro enterprises because the associated cost and risks are considered to be relatively high (Anyanwu, 2004).
Barbara (1999), posit that the need for microfinance banking among rural dwellers has been on the increase, and as such, between 1989 and 1990, the Federal Government initiative aimed at actualizing this growing need expanded the rural banking scheme with the launching of Peoples Bank and Community Bank respectively. To make borrowing easy enough for rural communities, these banks do not require sophisticated collateral for borrowing. Also, interest on borrowed money was made as low as possible by the two banks to enable small-scale rural community industrialist and agriculturist to borrow with ease. Today, many rural communities in Nigeria have one or more of this microfinance bank, and they have had far more reaching implications for the entire socio-economic development of rural communities in Nigeria. It is worthwhile to note, according to Usang (2006), that many would recall how lack of funds often caused the collapse of small businesses and the extinction of ingenious ideas before they could be translated into reality.
It is now widely believed that following government’s acclaimed policies on rural development, rural investment will be given a boost via microfinance banking as all frustrations of our hardworking, devoted but under-privileged masses would come to an end. However, the idea behind microfinance banking is to encourage rural development through rural commitment in modern financial institutions within the rural environment.
Thus, microfinance banking is supposed to be the machineries for financial and economic emancipation as its growth is connected with the community in which it serves. It is therefore not certain whether or not micro-finance banks actually impacts on small and meduim scale businesses in the rural communities.