THE ROLE OF MICRO FINANCE BANKS TOWARDS THE DEVELOPMENT OF NIGERIA ECONOMY

Over the years, microfinance has emerged as an effective strategy for enhancing economic growth across developing countries. Micro, small and medium enterprises are turning to Microfinance Institutions (MFIs) for an array of financial services. Credit allocation is a powerful instrument to fight  poverty, increase productivity, output and enhance economic growth. Access to financial services enable poor households to move from everyday-for-survival to planning for the future, investing in better nutrition, their children’s education and health and empowering women socially (Ehigiamusoe, 2005).

 

Microfinance banking and Economic stability has a nexus that cannot be overemphasized. This is because the growth of economy is dependent on the availability of liquidity (in terms of small credit niche) to small and medium scale enterprises. Government has in the past initiated series of publicly-financed micro/rural credit schemes and policies targeted at rehabilitating the poor. Among the programmes of government aimed at reducing poverty were rural banking programmes, sector allocation of credits and concessionary interest rate which were executed through agricultural credit schemes represented mainly in the institutional arrangements of the Nigerian Agricultural and Cooperative Bank Limited.

According to Obasi (2015), “Microfinance banking is a micro credit support services of banking operations that is concerned with small unit fund collection, allocation, administering, and management, for socio-economic growth, poverty alleviation on benefiting societies and political tranquillity.” According to Dandana and Nwele (2011), “microfinance banking service that is well implemented play important role in modern society, as it provides micro credit loans to small and medium scale farmers and enterprises. It reduces poverty growth level and creates an enabling environment for social and political tranquillity. Because microfinance lending when properly managed benefits the poor rural farmers, small and medium scale enterprises, artisans, et cetera, it helps to aid economic growth of its beneficiaries and their society through poverty reduction. Microfinance programmes that are well channelled help to improve economy, so, if the principles and ethics of microfinance banking are followed in implementations in Nigeria, economy will grow and the poverty profile of Nigeria would reduce properly.

 Microfinance according to the Central Bank of Nigeria (2005) is about providing financial services to the poor who largely constitute the 65% excluded from access to financial services of conventional banks. More so, lack of access to credit has been identified as the reason behind the growing level of poverty in many developing countries. This further emphasizes the crucial role microfinance institutions play in economic growth especially in their service for unserved and underserved markets (economically active person in rural and urban areas) to help meet economic and development objectives which include to reduce poverty (considered as the most important). Create employment, help existing businesses to grow or diversify their activities, empower women and other disadvantaged groups and even encourage the growth of new businesses (Khander, 2003).

 In 2005, the Central Bank of Nigeria (CBN) formulated a new policy framework to enhance the access of financial services to micro-entrepreneurs and low income households who require such facilities (soft loans and investable funds) to expand and modernize their operations and their contribution to economic growth and development in Nigeria. The objective is in line with the institution’s policy in ensuring financial inclusion for all, such that financial services reach the poor whether in rural or urban communities as this would help improve their productivity level and also help contribute to the nation’s gross domestic product (GDP). 

In 2004, the Central Bank of Nigeria asserts that the emergence of microfinance institution has been largely due to the inability of the formal financial institutions to provide financial services to both the rural and urban poor. In view of the need for financial inclusion, both the government and non-governmental agencies have, over the years, implemented series of microfinance programmes and institutions as well as governmental agencies providing policy strategies needed to improve the productivity of micro, small and medium scale enterprises.