1.1 BACKGROUND OF THE STUDY
A robust economic growth cannot be achieved without putting in place well focused programme to reduce poverty through empowering the people by increasing their access to factors of production.
The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income and create wealth. Micro-financing has existed for years before the introduction of conventional banking in Nigeria and the later part of nineteenth century. (Ekot, 2008).
The traditional Nigerian society has a system of group savings and assistance to one another. The practice was that a group of people who had needs for some form of capital or lump sum to execute a particular project which they could not raise adequate savings on their own, usually come together to form a savings group. The group may be named after the leader who is usually the initiator of the venture. The traditional microfinance institutions provide access to credit for the rural and urban low-income earners. These are mainly the informal self-help groups such as Isusu,women association like one obtainable during popular August meetings, Umu-ada progressive women association. Other providers of microfinance services include savings collectors and co-operatives. (CBN brief, 2005)
The unwillingness and inability of the formal financial institutions is to provide financial services to the urban and rural poor, coupled with unsustainability of government sponsored development financial schemes, contributed to the increase in number of private sector led micro finance in Nigeria. Thus, before the emergence of microfinance institutions, informal microfinance activities flourished all over the country. The Central Bank of Nigeria (CBN) as at end of December 2009 gave an approval to 840 microfinance banks to begin operation in the country. (CBN briefs, 2008-2009)
Microfinance banking is about providing financial services to the economically active poor and low income household, who are traditionally not served by the conventional financial institutions. These services include credit savings, micro-leasing, micro-insurance and payment transfers to enable them engage in income generating activities. (Asemota, 2002).
However, the microfinance policy launched on 15th December 2005 defined the framework for the delivery of these financial services on a sustainable basis to the micro, small and medium enterprises (MSMES) through privately owned microfinance banks. The Non-governmental Organizations or Microfinance institutions (NGO-MFIS) are also expected to transform to microfinance banks. (Dinye, 2006)
Existing Community banks and NGO-MFIS that want to convert and transform respectively to a microfinance bank but do not have the required minimum capital base can increase the share capital by capital injection, merger and acquisition. These would not only enhance monetary stability but also expand the financial infrastructural development of the country to meet the national financial system and provide stimulus for growth and development (Benson, 1985). It would also harmonize operating standards and provide a strategic platform for the evolution of microfinance institution, promote appropriate regulation, supervision and adoption of best practices.
The establishment of microfinance banks has become imperative to serve the following purposes: Improve, diversified and create a dependable financial service to the active poor, low-income earners in a timely and competitive manner that would enable them to undertake and develop long-term, sustainable entrepreneurial activities, mobilize savings for intermediation, create employment opportunities and increase the productivity of active poor and income earners in the country. Thus increasing their individual household income and capacity standard of living, enhance organized and systematic but focused participation of the poor in the social-economic development and resource allocation process. It will also provide veritable avenues for the administration of the micro credit programme of government and high net worth individual on non-resource basis. This policy ensures that state government shall delegate an amount of not less than 10% of their annual budgets for on-lending activities of microfinance banks in favour of their residents and render payment services such as salaries, pension for various tiers of government (Luck,2011).
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