ABSTRACT
This research is focused on impact of
microfinance bank on unemployment in Nigeria. Microfinance provides people with
capital to start and/or expand their businesses, as small businesses with
microfinance support have grown into medium enterprises creating employment
opportunities for others. Survey research design was used to carry out the
study. This study reveals that there is
a casual relationship between lending and loan recovery in microfinance banks
and there is a significant positive correlation between lending and loan
recovery in Nigerian microfinance banks. It recommends that banks should device appropriate strategies to
ensure adequate lending and loan recovery management, since not doing so could
spell doom for the banks in terms of profitability.
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
The word microfinance is being used very often in
development vocabulary today. Although the word is literally comprised of two
words: micro and finance which literally mean small credit; the concept of
microfinance goes beyond the provision of small credit to the poor. Christen
(1997) defines microfinance as 'the means of providing a variety of financial
services to the poor based on market-driven and commercial approaches. However
microfinance practices today still focus on micro-credit: providing the poor
with small credit with the hope of improving their labour productivity and
thereby lead to increment in household incomes.
Microfinance bank as noted by (UNDP 2003) is a set
of innovative and alternative financial service to the poor who do not have
access to formal institution, it is a banking institution established to
provide financial aid in the areas of micro credit, micro insurance to
individuals, group and institutions, non-governmental organization for the
purpose of development.
According to CBN (2005), “microfinance
is about providing financial services to the poor who are traditionally not
served by the conventional financial institutions’. Microfinance bank is
featured by three distinguishing factors these are:
1.
The absence of asset-based
collateral.
2.
The smallness of loans
advanced and or savings collected.
3.
Ease of operations.
Microfinance is strictly based on providing of timely, affordable,
diversified, and dependable financial services to the active poor which
otherwise would have little or no access to financial services. It is a
financial intervention that focuses on the low income group of a given society.
Microfinance perceived as a financially sustainable
instrument meant to reach significant number of poor people of which most are
not able to access financial service because of the lack of strong retailing
financial intermediaries. Access to financial services is imperative for the
development of the informal sector and also helps to mop up excess liquidity
through savings that can be made available as investment capital for national development
(World Bank-Africa Region, 1999). Microfinance as a sector has the potential to
reduce poverty by bringing a significant improvement in the lives of the active
poor who are largely women. The introduction of microfinance into the Country
has made it possible for operators of small businesses to access credit
facilities which hitherto were difficult to access due to difficult modalities
by the formal financial institutions. Even though the amount involved are
modest not huge, it supports their businesses to some extent.
Microfinance provides people with capital to start
and or expand their businesses. Small businesses with microfinance support have
grown into Medium Enterprises creating employment opportunities for others.
Microfinance projects and programs have gone a long way in building the
capacity of clients in the areas of loan management, customer care, pricing,
marketing and selling on credit as well as on social and community issues.
Extension of credit facilities is one of the major
activities of all Microfinance institutions including Savings and Loans
Companies, Rural banks, Financial Non-Governmental Organizations (FNGOs) and
credit Unions. This is usually evidenced by the large proportion that loans
constitute in the overall operating assets of these lending institutions.
Healthy loan portfolios are therefore vital for lending institutions in view of
their impact on Liquidity, lending capacity, earnings and profitability of the
Microfinance Institutions.
Nonetheless some of the loans given out by the
lending institutions unfortunately are not paid back and eventually result in
bad debts with adverse consequences for the overall financial performance of
the institutions. The issue of loan defaults becoming an increasing problem
that threatens the sustainability of microfinance institutions. The causes of
the problem are multi-dimensional and non-uniform among different literatures.
Unsettled loans are always a source of misery for
lenders because if a microfinance has too much of it on its balance sheet, it
can adversely affect its operations in terms of liquidity, profitability, debt-
servicing capacity, Lending capacity and ability to raise additional capital.
The incidence of non-performing loans in the Nigeria banking and non-banking industries
including microfinances has been on the rise in recent years as their loan
portfolio increases despite efforts by these financial institutions to deal
with it.
1.2 Statement
of the Problem
The sustainability of microfinance institutions
depends largely on their ability to collect their loans as efficiently and
effectively as possible. In other words to be financially viable or
sustainable, microfinance institutions must ensure high portfolio quality based
on 100% repayment ,or at worst low delinquency/default, cost recovery and
efficient lending.
However of late, there have been complaints by the
microfinance institutions regarding high rate of default/delinquency by their
clients; which presupposes that most microfinance institutions are not achieving
the internationally accepted standard portfolio at risk of 3%, which is a cause
for concern because of its consequences on businesses, individuals, and the
economy of Nigeria at large. Delinquency and hence default have started
creeping deeply into the operations of microfinance institutions in Nigeria
hence the study into the causes and control of loan delinquency/default in
microfinance institutions in Nigeria.
1.3 Objectives
of the Study
In
the course of this analysis, the main objective of this work shall be, to
determine the impact of lending and loan recovery on the performance of Nigeria
Microfinance bank, while specific objectives shall be
i.
To determine the correlation between
lending and loan recovery on the Nigeria Microfinance bank.
ii.
To ascertain the causality relationship
between lending and loan recovery in Nigeria microfinance bank.
1.4 Research
Questions
From
the aforementioned research objectives, these shall stand as the research
questions
i. What
is the correlation between lending and loan recovery on the Nigeria
Microfinance bank?
ii. What
is the direction of causality relationship between lending and loan recovery in
Nigeria microfinance bank?
1.5 Statement
of Hypothesis
This
research work will be conducted with a view of testing the following hypothesis
1. H01: Lending and loan recovery have no significant
correlation in Nigeria microfinance bank.
2. H02: There is no causality relationship between
lending and loan recovery in Nigeria microfinance bank.
1.6 Significant
of the study
The significance of the study is
derived from the basic feature of lending as an all-time important function of
most banks. The finding of this study is believed would be of great value to
the government, the industrial sector operators, other researchers, to students
alike and the society at large.
Government: this research work shall serve as an
eye opener to the government and its agencies, recommendations made on this
work shall stand to direct them during policy making and review process.
Industrial Sector: industrial sector shall stand to
benefit from this research work for it will educate them on the prospect of
returns on investment on any loan they want to embark on.
Other researcher: potential researcher on this topic
shall find this research work as a reference material and a guide to his/her
own work.
1.7 Scope of the Study:
This
work focuses on the impact of microfinance bank on unemployment between in
Nigeria, with special reference to Bethel Microfinance Banks in Enugu for a
period of 10 years, from 2007 to 2017. The study collects data on lending and
loan recovery from the bank of concern and evaluates its correlation.
1.8 Limitations
of the Study
The biggest challenges of this study were:-
Data availability:
- The ability of a user to access information or resources in a specified
location and in the correct format, this is the main problem of using questionnaires
as a method of data collection. Due to the fact that this is not a face to face
interview kind of questions, sometimes the respondents might not be willing to
give exact answers for some questions and they may refuse to respond to a
question on the grounds that they are scared on what will be done with the
questionnaire, either will send direct to the responsible companies.
Bureaucracy:
- This is another problem that the researcher was faced during the fieldwork.
Some respondents were not able to provide data until they got permission from
their superior. Even though bureaucracies sometimes seem inefficient or
wasteful, setting up a bureaucracy helps ensure that thousands of people work
together in compatible ways by defining everyone’s roles within a hierarchy.
Confidentiality of Data: - A property of
data, usually resulting from legislative measures, which prevents it from
unauthorized disclosure. The procedures in place to prevent disclosure of
confidential data, including rules applying to staff, aggregation rules when
disseminating data, provision of unit records some of the respondents were not
providing their true opinions during the interviews because they regard some of
the questions as sensitive. However, this group was small and the researcher
assumed it did not affect the overall results and conclusions.================================================================
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