ABSTRACT
Dwindling nature of deposits mobilization
in microfinance industry necessitated
this study. It is to establish the effect of deposit mobilization on the
financial performance of micro finance banks in Nigeria: A study of Umuchinemere
Pro-credit micro finance bank Nigeria limited 2005 - 2014. The main objective
is to examine the effect of customer deposit on the financial performance of the
bank and one specific objectives. Two hypotheses were formulated, two research
questions, The research design used is ex-post facto. The population of the study was all
microfinance banks in Enugu and a sample of one (1)microfinance
bank was considered. The data was sourced from the annual report of Umuchinemere
pro-credit micro finance bank. Regression analysis and correlation techniques were
used to analyse the data. The analysis was carried out using statistical
package for social sciences(SPSS).One of the findings of these work is that Customer deposit has effect on the financial performance of Microfinance bank in Nigeria and that Interest rate charges has effect on the financial performance of Microfinance bank in Nigeria. In conclusion Micro Finance Banks are
essential in the development of financial system in Nigeria. I recommend that the bank should give due emphasis to its
deposit mobilizing tasks since mobilizing deposit is a way to survival and managing
deposits is not possible without knowing and controlling the fundamental factors
affecting it.
CHAPTER
ONE
INTRODUCTION
1.1
Background to the Study
The
desire to enlarge banking facilities in the rural areas of Nigeria started with
the rural banking scheme in the 1970s, and up to the 1980s. However, by the end
of the 1980s, it became clear that the conventional banks were no longer
willing to open more rural branches; this was simply because such branches were
mostly unprofitable. Opening them therefore ran contrary to the profit objective
of the owners. In facing this challenge, Nigeria, like most other countries of
the world have adopted the concept of micro financing as a means of mobilizing
deposits in the rural areas. Microfinance banks in Nigeria operate in diverse
environments where they render various categories of services and products to
the target clients.
Microfinance banking is a type of banking
service that is provided to unemployed or low income individuals or groups.
Microfinance banking as a means of creating economic and social development has
come a long way in Nigeria. Various comprehensive surveys of the diversified
activities of microfinance banks have been provided since 2005 when the policy
guidelines became operative. Since its inception, Microfinance Institutions
(MFIs) has contributed in a special way in supporting small and medium
enterprises by
effectively
channeling the idle funds obtained through deposit mobilization to the general
public in the forms of loans (short, medium or long term loan), so that it is
being put into valuable production and other investment projects helping people
to reach their goals.
The
importance of Microfinance Institutions can never be overemphasized. Deposit
mobilization is one of the major objectives of banks. Deposit is the foundation
of all banking activities. However, microfinance banks as well as the banking sector
in general do depend on customer’s deposit to advance its clients.
Since
the proclamation of the term Micro financing in Nigeria in the mid-term 1970’s,
several countries have copied this model, mostly in the developing world.
However, the government of Nigeria adopted this policy in the year 2005 and
inaugurated the microfinance scheme. The main objective for the promulgation of
this policy is to provide finance to the economically active poor, excluded
from financing from conventional banks, provide employment, engender rural
development and reduce poverty. More so, in Nigeria it is important to note
that there are over nine hundred (900) Microfinance banks today in Nigeria and
they are regulated and supervised by the Central Bank of Nigeria.
Bello (2005) is of the view that banking
system is the backbone of financial intermediation through the mobilization and
channeling of financial resources. Therefore, Micro-finance Banks acts as a
financial intermediary; by financial intermediary the Microfinance Banks serves
as a middleman for parties in a financial transaction. It consolidates deposits
and uses the funds to transform them into loans.
Deposits are indispensable tool Microfinance banking use to enhance its
profitability through advancing deposits to its customers in form of loans
which yield interest to the banks. The lending
activity is made
possible only if
the banks can
mobilize enough funds from their customers.
According
to Sharma (2009), the bank credit and bank deposits are very closely related
with each other that they represent, roughly speaking, two sides of the same
coin, and the balance sheets of banks. Banks all over the world thrive on their
ability to generate income through their lending activities. The lending
activity is made possible only if the banks can mobilize enough funds from
their customers. Therefore, in order to thrive in their ability to generate
income through their lending activities, most microfinance banks have adopted
different strategies or techniques which would help to facilitate their goals
of mobilizing enough funds from their customers. This is made possible through
improving their services, initiating modern technological banking system
processes, locating the banks at strategic places where their services are
needed, adopting appropriate promotion strategy and imposing a considerable
interest rate on loans.
Mohan
(2012) stated that mobilization of deposits is one of the important functions
of banking business. Mobilization of deposit plays an important role in
providing satisfactory services to different sectors of the economy. The
success of the micro-finance banking greatly lies on the deposit mobilization.
The
performance of Microfinance bank can be measured through various indicators
which could be financial and social performances. These indicators help the
financial institutions to measure their success in terms of their returns and
to ensure that they also positively benefit the lives of their clients. That is
to say, sound finances and good returns are important indicators of success;
however, social performance is another increasingly important benchmark used to
assess many institutions.
1.2
Statement
of the Problem
In
the Nigerian financial sector, according to EFIA Access to financial services
in Nigeria 2016 survey, indicated that about 40.1 million Nigeria adults,
representing 41.6% of the adult population are financially excluded. That is,
they do not have access to Deposit Money Banks, Microfinance Banks, Mobile
Money, Insurance and Pensions. Therefore, banks have the sole responsibility to
approach this group of persons and make them understand the importance and benefits
of saving. Notwithstanding the above importance of micro financing in Nigeria.
To the best of my knowledge as a researcher, not much work has been done to
find out the relationship between deposit mobilization and the financial
performance of micro financing in Nigeria. This therefore informs the necessity
to investigate this relationship as a contribution to knowledge and an attempt
to fill the research gap; hence, the decision to embark on this study.
Therefore, this study is carried out to determine, if really, the financial
performance of Microfinance Banks are affected by deposit Mobilization.
1.3 Objectives
of the Study
The
general objective of this study is to determine the effects of deposits
mobilization on the financial performance of Microfinance banks in Nigeria with
particular reference to Umuchinemere Pro-credit Micro Finance Bank Nigerian Limited. The
specific objectives are:
i.
To examine the effect of customers deposits
on the financial performance of Microfinance bank in Nigeria.
ii.
To evaluate the effect of interest rate
charges on the financial performance of Microfinance Banks in Nigeria.
1.4 Research Questions
In the light of the objective of the research, the following research
questions were considered pertinent:
i.
What is the effect of customer deposit on the
financial performance of Microfinance bank in Nigeria?
ii.
What is the effect of interest rate charges
on the financial performance of Microfinance Banks in Nigeria?
1.5 Research
Hypotheses
In the
light of the forgoing research question some hypotheses were formulated to
guide the study:
H1: Customer
deposit has no effect on the financial performance of Microfinance bank in Nigeria.
Ho: Customer deposit has effect on the financial performance of Microfinance bank in Nigeria.
H1: Interest
rate charges have no effect on the financial performance of Microfinance
bank in Nigeria.
Ho: Interest rate charges have effect on the financial performance of Microfinance bank in
Nigeria.
1.6
Significance of the Study
This research is significant in many aspects.
The subject matter of the effects of deposit mobilization on financial
performance in microfinance banks in Nigeria has drawn so much attention and
interest among Nigerians at home and abroad.
This research would be of immense benefit to
the banking sector of the Nigeria economy, enabling them to understand the
essence of using numerous techniques or strategies in ensuring that the
required amount of deposit is mobilized to meet the lending
volume required by the public and at the same time maintain extra cash for
withdrawals by depositors.
The research is expected to portray the banking customers’ response to
the changing banking operation, that is introduction of new technology,
techniques and strategies towards giving the customers qualitative and
efficient banking services (meeting the customers need).
Finally, the findings from this research will be useful to future
researchers in related areas, government agencies, students, bankers and even
the public at large.
1.7 Scope of the Study
The case study has been considered appropriate for this research as a
result of the way its branches are situated at every strategic business unit in
Enugu, Nigeria. Thereby, giving way to a better assessment and analysis of data
to arrive at a high degree of accuracy through the collection of data. The
study covers a period of ten (10) years (2005– 2014).
1.8 Definition of
Terms
a) Interest rate: Is the amount of interest due per period, as a proportion of the amount
lent, deposited or borrowed. It refers to the interest rate in microfinance
bank. (Homer, Sylla, R.E; Sylla, R.
(1996)
b) Salary Account: Salary account is a type of saving account
where your salary gets credited. The salary accounts are aimed at helping a
person manage their salary. It is specially designed for people who live from hand
to mouth; hence in most instances, a salary account allows a minimum balance of
zero. This means that the person can withdraw all of the money from their
salary account and not have to pay a penalty. (Kazi, 2012)
c) Deposit Money Bank: Are
resident depository corporations and quasi-corporations which have any
liabilities in the form of deposits payable on demand, transferable by cheque or
otherwise usable for making payment. The bank here refer to Umuchinemere
pro-credit micro finance bank. http://esa.un.org/unsd/sna/1993/introduction.asp.
d) Microfinance
Bank: A Microfinance Bank is any company licensed by
the Central Bank to carry on business of providing Microfinance services that
are needed by the economically active poor, micro, small and medium
enterprises. It refers to Umuchinemere Pro-credit Microfinance Bank.
www.echomicrofinance.com
e) Commission on
Turn over: A monthly percentage Charge on current
account usually depends on the frequency of transactions within the period.
(Kazi,2012).
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