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This paper investigates the issues and potential of MFLS in Nigeria. The significance of MFLS in the Nigerian economy cannot be overstated, as it plays a critical part in the financial intermediation process as well as the lives of low-income earners, who account for more than 70% of the Nigerian population. The sample size for random selection is 262, and the sample will be chosen using the simple random sampling technique.

The study’s goals are to mobilise savings for intermediation, or to provide payment services such as salaries, bonuses, and pensions to various levels of government. Percentage was used to examine data collected, and it was discovered that MFLS’s outreach performance (financial and otherwise) is disheartening, and MFLS in Nigeria face varied degrees of difficulty.

The following findings were made: microfinance banks have a better probability of weathering the banking heat in Nigeria because of lending. As a result, C.B.N officials were unable to appropriately monitor and supervise microfinance banks on a regular basis.

Some recommendations were made, the most important of which was that C.B.N. should live up to their function, which is critical to the survival of the microfinance, by: employing adequate staff to enable adequate and regular monitoring and supervision of the microfinance banks, so that this microfinance bank does not die immediately after conception.



This chapter will go through the following subheadings: background of the study, description of problems, aims of the study, importance of the study research questions, scope of the investigation, limitations of the study, and definition of terminology.

1.1 The Study’s Background

As a specialised plan, microfinance strives to provide funds in the form of loans to impoverished households, who are primarily small savers who cannot afford to get loans from money deposit banks or other money lending institutions. Microfinance has been shown to be a powerful and successful instrument for poverty reduction. It has sufficiently reached the poorer sections of society, particularly in emerging countries, however it is not yet widespread in Nigeria.

The microfinance strategy was implemented in accordance with the authorities granted to the Central Bank of Nigeria (CBN) by Section 28, Subsection (16) of the CBN Act 24 of 1991. The policy acknowledges existing informal institutions and brings them under the supervision of the (CBN), thereby creating a platform for the regulation and supervision of microfinance banks via specially prepared Regulatory Guidelines. Though the microfinance legislation and framework were established on December 15th, 2005, resulting in an extraordinary increase in microfinance institutions in Nigeria, funding in micro set-ups is a culturally ingrained practise that dates back many centuries in Nigeria. These took the shape of self-help groups, rotating savings, co-operative setups (some of which are still in operation), and money-lending activities. All of these were methods of obtaining credit and finances. As a result, the majority of these self-help organisations blossomed into recognised community banks. While some community banks were the result of government schemes, the majority were formed through self-help gathering. The government-induced community bank was an attempt to alleviate poverty. However, it, like many other government pro-poor schemes, failed.

In 1986, General Ibrahim Babangida arrived and established the Directorate of Foods, Roads, and Rural Infrastructure (DFRRI) to expedite rural development. During his tenure, the Peoples Bank of Nigeria and Community banks were founded.

However, in Nigeria, the resurrected microfinance sub-sector, which had been welcomed by many, had also failed. Olusanya, an MFB operator, indicated that the failure of the reformation of MFBs in the country was due to the following objectives: poor institutional capability and capital basis, the need to improve savings opportunities, and economic empowerment. Payment defaulters wanted to repay the loan but were unable to do so because to stubborn business investment due to a lack of essential infrastructure. There can be no microfinance reform without adequate infrastructure.

Since the Central Bank of Nigeria announced the development of a microfinance system late last year with the goal of aiding small scale entrepreneurs, many microfinance banks have sprouted up around the country. Many Nigerians are wondering if the bank has lived up to expectations in terms of meeting the aspirations of the average Nigerian business. While many argue that the system is still far from reaching the grassroots due to their location in cities rather than rural areas where their services will be most required.

1.2 Statement Of The Problem

In Nigeria today, prior to the approval of this policy, all licenced community banks must convert to microfinance banks licenced to operate as unit banks by meeting the stipulated new capital and other conversion requirements within 24 months of the policy’s approval.

Any community bank that fails to fulfil the new capital requirement within the specified time frame will cease to be a community bank. If a community bank achieves the specified capital and other conversion conditions, it can apply to convert to a micro finance bank licenced to operate in a state.

We have repayment issues at microfinance banks. Loan delinquency is the fatal virus that afflicts MFLS and is a huge danger to institutional viability. Delinquency demoralises employees and deprives recipients of valued services.

Delinquency is a sign of ineffective leadership. Small units of service confront the difficulty of high operational costs, several loan applications to complete, numerous accounts to manage and monitor, and repayment collections must be done from multiple locations, particularly in remote places. Also, people’s savings habits and credit availability.

The aforementioned issues have forced a thorough analysis into the entire system in order to identify solutions on how to improve the system.

1.3 Objectives Of The Study

The overarching goal of this research is to assess the issues and possibilities that microfinance banks confront, as well as to highlight case opportunities that abound within their operations and derive conclusions with special reference to Ogbete Micro Finance Bank in Enugu State. This will be accomplished by the following precise goals:

(i) To provide the active poor with diverse, inexpensive, and dependable financial services in a timely and competitive manner, allowing them to engage in and build long-term, sustainable entrepreneurial activity.

(ii) To mobilise savings for the purpose of intermediation.

(iii) To boost the productivity and job prospects for the country’s active poor, consequently improving their individual household income and raising their standard of living.

(iv) To improve the poor’s organised, methodical, and focused engagement in socioeconomic development and resource allocation processes.

(v) To provide substantial funds for the administration of government and high-net-worth individual microcredit initiatives on a non-recourse basis. This policy, in particular, requires state governments to spend at least 1% of their yearly budgets to microfinance bank on-lending activities in favour of their inhabitants.

(vi) To provide payment services for various levels of government, such as salaries, bonuses, and pensions.

1.4 Importance of the Research

Such studies typically provide insight into the operations of these institutions, including their challenges and potential.

(i) It is a poverty alleviation strategy: poverty was a key issue confronting the country, and all efforts should be directed towards its abolition. Microfinance would enhance prospects for the poor, and three major obstacles confronting the poor were recognised as access to capital, information, and a stable market. He highlighted the expected roles of stakeholders for microfinance to succeed in the fight against severe poverty, which included:

(a) The CBN should establish policy guidelines and provide monitoring to ensure a strong, formal, and long-term microfinance industry.

(a) The government should coordinate and promote microfinance services through community economic enlightenment, strategic partnership development, and effective grassroots participation.

(c) Development partners should help close capacity shortages; and

(d) Microcredit and microfinance services should be owned, expanded, and successful by the private sector and civic society.

(ii) It helps the working poor accumulate productive assets.

(iii) It promotes a saving culture.

(iv) It enables the active poor to earn their way out of poverty.

(v) It contributes to overall economic growth.

1.5 Research Issues

(i) Is it possible for a cosigner to borrow from the MFB?

(ii) Is it necessary for the poor to offer physical collateral/security when lending?

(iii) Are the MFB deposits secure and insured?

1.6 Scope Of The Study

The study includes all of the microfinance banks’ activities, including savings, credit, and project funding, as well as partnerships in trade and industry. Microfinance is an economic development method that aims to provide financing services to the poor and low-income consumers, such as microinsurance, microleasing, and payment services.

To improve the flow of financial services to Nigeria’s rural areas, the government has previously launched a number of publicly financed/rural credit projects and policies aimed at the poor.

1.7 Limitations Of The Study

We restrict ourselves in this study to the operations of banking services and government regulations of these institutions, as well as the prospects and issues within the area of banking activities.

Because of a lack of loanable money, subpar performance by some institutions, and commercial banks’ reluctance to participate in microfinance, informal financial institutions’ reach is limited.

Some respondents’ negative and discouraging attitudes were a severe challenge for this investigation. These attitudes ranged from failing to keep appointments with the researcher to outright refusal to complete questionnaires or grant oral interviews. Despite the researchers’ earlier guarantee that all information provided would be maintained confidentially, some respondents did not provide accurate answers to the questions.

1.8 Definition Of Terms

MICRO FINANCE BANK: A company licenced by the Central Bank of Nigeria to provide microfinance services such as savings, loans, domestic funds transfer, and other financial services required by economically active poor, small and medium enterprises to conduct or expand their business.

THE CENTRAL BANK OF NIGERIA (CBN) is the country’s central bank. This bank regulates all money deposits in the nation’s banks and functions as the bankers’ bank. It is also the government’s bank, and it regulates the money in circulation through treasury bills and other means.

MICRO FINANCE: The provision of loans, savings, and other essential financial services to the poor.

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