ASSESSMENT OF MICROFINANCE BANK ON POVERTY ALLEVIATION IN NIGERIA
1.1 BACKGROUND OF THE STUDY
Microfinance has gradually developed to be a worldwide movement, no longer being a subject matter of microfinance practitioners alone. Governments, donors, development agencies, banks, foundations, corporations, business communities, civil societies, researchers, universities, consultants, philanthropists and others are taking an increasing interest in it (Sale Huddin and Hukinil, 2004).
The increasing level of acceptance of microfinance among the various groups of stakeholders worldwide presents the following questions: is microfinance becoming popular because it is a good business to make money or is it a powerful tool to fight poverty or is it because of both (Annibale and Bob: 2006). Since the concept was born is Bangladesh almost three decades ago, microfinance has proved its values in many countries, as a weapon against poverty and hunger. It really can change people’s live for the better, especially the lives of those who need it most (Ashmawians El-fouadh: 2006) it has been evidenced worldwide that microfinance helps the poor to overcome poverty and not through charity. It is a financial system that serves the poor with financial services in a most effective and productive way.
The experience of many microfinance institutions so far strongly suggests that it is possible for the institutions to reach the goal of serving people in extreme poverty without having to sacrifice their profitability. This is mostly because microfinance is designed with the poor in mind, while at the same time being founded on market principles of competitiveness, pricing and sustainability. There is nothing wrong in earning money while serving the poor, as long as earning money does not become the prime or the only goal of microfinance providers. Microfinance institutions throughout the developing world are proving small loans to the poor for self-employment and providing to be sustainable enterprises in the fight against poverty (Daley – Harris: 2006).
The global picture regarding microfinance outreach is quite impressive from a mere 7.6million poorest families in 1997, the micro-credit of more than 92million clients by December 31, 2004, this number includes 66.6million families who were among the poorest when they started with a program (Adams and Ivatury: 2004): of these 66.6million poorest clients, 55.7million or 83.6% were served by the 52 largest individual institutions, all with 100,000 or more clients. Among these largest microfinance institutions, 79% is in Asia, 17% are in Africa and only 4% are in Latin America.
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income and create wealth.
On July 1, 2001, Nigeria joined the ranks of developing nations adopting laws and policies to regulate the microfinance sector. Under the new microfinance policy of the Central Bank of Nigeria, community bank and microfinance institutions must increase their capital base from 5million naira (approximately 42,000 USD) to 20million naira (approximately 169,000 USD). The purpose of this policy is to create microfinance banks that are financially sound, stable, self-sustaining and integral to their communities with potential to attract more customers.
Microfinance is about proving financial services to the poor who are traditionally not served by the conventional financial services, the federal government through the Central Bank of Nigeria established community banks in every locality.
A reversal of that led to the establishment of microfinance banks to replace them, which is now better constituted and equipped to function. The SEEDVEST microfinance bank is an example of one of these micro-financial services institutions committed to poverty reduction within its jurisdiction.
1.2 STATEMENT OF THE PROBLEM
In envisioning the future of microfinance, it is important to know the rationale for microfinance movement. Poverty focused microfinance came into existence as a private initiative growing almost unnoticed through process of learning by doing.
The global concern for the level of poverty in Africa is well known to all. Africa is have lest hit by the crippling problems of chronic hunger and malnutrition. The great concentration of poverty is sub-Saharan African which is also a matter of concern for all. Despite such disappointing facts, microfinance in Africa is growing. A broad range of diverse institutions offers financial services to low income clients in Africa. These include non-government organizations, non-bank financial institutions, co-operatives, credit unions rural banks, Rotating Savings and Credit Associations (ROSCA), postal financial institutions, and increasing number of commercial banks.