Importance Of Microfinance Banks

The importance of Microfinance banks in Nigeria's economy cannot be over-emphasized; this is because it plays a vital role in the financial intermediation process and also in the lives of the low income earners whom constitute over 70 per cent of the Nigerian population. Some of these important roles include:

a.     Credit Delivery: This is perhaps one of the most important roles of Microfinance banks, as the loans extended are used to expand existing businesses and in some cases to start new ones. According to CBN (2008) microfinance loans granted to clients is increasing from 2007 to date and most of it goes to financing microenterprises in rural areas. Ketu, (2008) observed that microfinance banks have disbursed more than N800 million micro credits to over 13,000 farmers across the country to empower their productive capacities. As such it is expected that agricultural output will increase with the increase in funding. The entrepreneurial capacity of the farmers will thus improve.

b.    Boosting Small Scale Enterprises/Agriculture: About 60 percent of poor people in the country live in the rural areas and 80 percent of them are farmers and artisans (NBS, 2005). Microfinance banks have therefore been the main sources of funding to these less disadvantaged groups. Rural people are empowered through microfinance loans and services, and hence small scale agricultural practice and microenterprise is developed. Governments go into co-operatives to partner with the microfinance banks to raise bulk loans to be disbursed to the beneficiaries, in so doing the banks are increasing and sustaining the number of people going into small businesses.

c.      Employment Generation: Agriculture and microenterprises contributes immensely to job creation, and are of particular interest to all Microfinance Bank in rural areas. Microfinance banks have so far engaged in extending credits and other services to many rural enterprise and hence generating employment and promoting entrepreneurship. The promotion of employment in rural areas by microfinance banks covers the following areas; blacksmithing, gold-smiting, watch repairing, bicycle repairing, basket weaving, barbing, palm wine tapping, cloth weaving, dyeing, food selling, carpentry, brick-laying, pot-making, leather works and drumming. Even though found in urban areas, these industries are more prominent in the rural areas.

d.    Improvement in Skill Acquisition: Improvement of the condition of women through the provision of, skills acquisition and adult literacy is another role played by microfinance banks. This is done through building capacities for wealth creation among enterprising poor people and promoting sustainable livelihood by strengthening rural responsive banking methodology and the introduction of simple cost-benefit analysis in the conduct of businesses. In most cases a profit sharing agreement is entered between a bank and an entrepreneur and new methods and innovations are passed to the prospective entrepreneur by the banks professionals, while at the end of the production period the proceed is being shared and the entrepreneur if so wishes can continue on his own after the necessary skills and production techniques are acquired. (Umar, 2008).

e.      Facilitates Poverty Alleviation: Employment and income generation are important aspects of poverty alleviation efforts. Microfinance banks have accelerated the operation of government poverty alleviation programmes and in doing that promising entrepreneurs are supported and new ones emerged. The federal governments National poverty  Eradication Programme (NAPEP) and National Economic Empowerment and Development Strategy (NEEDS) to mention a few aimed at achieving the United Nation’s Millennium Development Goals (MDGs) by 2015 required these microfinance institutions for success. The success of these programmes and projects for advancement of the MDGs are linked with the promotion of entrepreneurs in rural areas and subsequent reduction in the level of poverty (Ketu, 2008).

     Definition and Objectives of Microfinance         Banks

        Definition of Microfinance Banks

Microfinance is defined as the provision of thrift, credit and other non-financial services and product in very small amount to the poor to enhance them raise their income level and improve their standard of living (Eluhaive, 2005). It is the provision of very small loans that are repaid with short period of time and is essentially used by poor individual and household who have few assets that can be used as collateral. A Microfinance bank therefore,  may be construed as a company licensed to carry on the business of providing microfinance services such as saving, loans, insurance, money transfer service and other financial service that are needed by the economically poor, micro-, small- and medium enterprises (CBN, 2009).

Microfinance recognizes the peculiar challenges of micro-enterprises and of their owners. It recognizes the inability of the poor to provide tangible collateral and therefore promotes collateral substitution. Disbursement and repayment are structured to suit credit need and cash flow pattern of small businesses (Aderibigbe, 2001).  Kimotha, (2005) also defined microfinance simply as the provision of every small loans (micro- credit) to the poor, to help them engage in new productive business activities and or to grow or expand existing ones. However, overtime microfinance has to include a broader range of services. These include mainly credit, savings opportunities, insurance and money transfer, as practitioners came to realize that the poor who lacked access to the traditional formal financial institutions needed and required a variety of financial products to achieve meaningful improvement in their business activities.

 

According to the United Nation Capital Development Fund (UNCDF), the government of Nigeria identified microfinance as an effective tool in achieving the three objectives of:

i)       A strong and focused emphasis on economic growth;

ii)    Better access by the poor to social service and adequate infrastructure; and

iii)  Targeted interventions to protect low-income population or the most vulnerable, because it helps poor people to expand their business, increase their revenue and augment employment thereby contributing to the economic development of the country.

 

According to CBN (2005) microfinance is defined as a means of providing the economically active poor and low income households with financial services such as credit (to help them engage in income generating activities or expand their small businesses), savings, micro leasing, micro insurance and payment transfer.

 

Micro finance banks are basic instrument through which the whole concept of micro finance is executed. According to the basis of micro finance, it is a term, which is related with promoting the habit of savings. At the same time, the concept also aims at providing loans and insurance and other traditional service to the poor people to support their business, which can also be termed as micro business. The prime aim of these banks is to provide institutional financial services to those people who are denied from all these because of their poverty.

However, Microfinance Bank is any company licensed by the Central Bank of Nigeria to carry on business of providing microfinance services such that are needed by the economically active poor, micro, small and medium enterprises to conduct or expand their businesses as defined in the guideline for MFBs in Nigeria. This is to create vibrant micro-financing that provide the necessary stimulants for national growth and economic development.

        Objectives of Microfinance Banks

The objectives of the microfinance Banks in Nigeria in line with CBN (2005) provision among others include to:

i.          Promote rural development through financial intermediation

ii.        Stimulate of productive activities in the rural sector

iii.     Develop banking habit in rural dwellers and ensuring the development of an integrated national financial system.

iv.     Improve the economic status of small-scale producers in the rural and urban areas

v.        Provide diversified, dependable end timely financial services to the economical active poor

vi.     Create employment opportunities

vii.   Render payment services such as salaries, gratuities and pension on behalf of various tiers of government

viii.Increase access to credit as well as productive assets and enhance opportunities for ownership through savings mobilizations

ix.     Increase the financial capacity of participating organization to provide micro finance services to the economical active poor

x.        Develop co-ordination and collaboration between the different actors in the microfinance sector and promote an appropriate regulatory framework

xi.     Contribute to the development of knowledge, expertise and information in microfinance

xii.   Enhance the local capacity to provide technical assistance on a sustainable basis and ensure the continuity of the initiatives taken in the pilot programme.

CORPORATE FRAUD AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA

CORPORATE FRAUD AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA

ABSTRACT

The study examines the impact of corporate fraud on the performance of micro finance banks in Nigeria. This is premised on the increasing fraudulent activities and practices in the banking sector which translate into the inability of microfinance banks to meet the expectations of various stakeholders. The population of the study comprised fifty staff of Nasarawa Microfinance Bank. The findings of the study revealed that corporate fraud has significant effects on microfinance bank performance in Nigeria. Consequent upon this study, it was recommended that there should be improvement in internal control systems to enable staff detect and prevent fraudulent activities, the regulatory and supervisory bodies of banks in Nigeria should improve their supervision on microfinance banks using all tools including ICT banking software at their disposal to appropriately check and curtail the incidence of fraud in the banking industry.

CHAPTER ONE

INTRODUCTION

1. Background to the study

Fraud is a global occurrence even though, it is not peculiar to banking industry. This is because the collapse of foremost international corporations like Enron in the United States of America, collapse of NITEL, Nigeria airways, and some distressed bank in Nigeria such as Savannah bank, Africa International Bank (AIB) were all product of fraud. Also, the recent financial mismanagement in Nigeria banking sector which made the Central Bank to inject 620 Billion naira tax payers fund and take over some commercial banks (known as troubled banks) namely Oceanic Bank Plc, Fin Bank Plc, Afri bank Plc, Bank PHB, Spring Bank and Intercontinental Bank can also be traced to fraud. The occurrence of the fraudulent practices in the most commercial bank in Nigeria have negatively affected the mindset of most shareholders and investors, and may take a long time before it can be corrected (Obafemi, 2016).

Frauds and corruption usually result in huge financial losses to banks and may affect the confidence of most investors and shareholders, infact, the frequent occurrence of frauds could, in extreme cases, could lead to the closure of some banks, which was the case of most of the closed commercial banks in Nigeria. Furthermore, fraud and corruption in today’s banks certainly constitutes one of the most serious threats to the practices and spread of bank in Nigeria. It has assumed such an alarming proportion that there is no visible sign that the tread will be reversed. In legal terms, fraud is seen as the act of depriving a person of something, which such a person would or might be entitled to, it can also be seen as an act of trickery which is intentionally practiced in order to gain illegitimate advantage. Therefore, for any action to constitute fraud there must be deceitful objective to benefit (on the part of the perpetrator) at the disadvantage of another person or group. Fraud typically requires stealing and manipulation of accounts, frequently accompanied by cover up of the theft. It also involves the translation of the stolen resources or property into own resources or property.

Cases of fraud are on the increase in the Nigerian banking sector today, despite the clamp down on fraudulent bank executives by the Central Bank of Nigeria in 2010 CBN, (2010). Till date no effective measure can be said to have been put in place to prevent fraud in its entirety anywhere in the World Wikipedia, (2017). Many Nigerian commercial banks continue to accumulate high financial deposit base without actually effectively lending in a commensurate way to investors and business organizations in the real sector. Many a times the rules for lending are very stringent making the lending process very cumbersome for private businesses genuinely in need of access to capital for further production purposes. In the last quarter of the last decade bank regulation in Nigeria became so lapse that bank officials were able to accumulate private wealth of unthinkable proportions and commercial banks often found it difficult to distinguish between its assets and those of major shareholders who incidentally became the CEO of such banks leading to a high spate of banking irregularities particularly at the management levels in banks Paul, Ikpefan & Deborah, (2014). The banking sector has become one of the most critical sectors and commanding heights of the economy with wide implications on the level and direction of economic growth and transformation and on such sensitive issues as the rate of unemployment and inflation which directly affect the lives of our people CBN, (2010).

Today, the very integrity and survivability of these laudable functions of Nigerian banks have been called into question in view of incessant frauds and accounting scandals. The incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry Oseni, (2006). Owing to the fact that fraud affects the performance and reputations of banking institutions, to minimize or control the alarming rate of fraud in the banking industry. It is against this background, that this study seeks to examine the corporate fraud and performance of Microfinance Banks in Nigeria.

1. Statement of the Problem

Banks generally have been experiencing fraud since its evolution. This affects the performance and the profitability of banks and may possibly lead to distress. The inability to identify the immediate and remote causes of continuous cases of bank frauds in Micro Finance banks in Nigeria is one of the problems brought to bare. Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their day operation for effective intermediation. Though there were known cases of fraud in the sector, one major question still remain unanswered which is what is the nature and different ways through which fraud can be perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with corroboration of an insider. Banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is devoid of fraudulent practices; this is relevant if the banking sector is to gain public trust and goodwill. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. Evidence from the NDIC Report (2008) reveals that the report of the examinations and special investigations showed that some  banks were still bedeviled with problems of fraud, weak board and management oversight; inaccurate financial reporting; poor book-keeping practices; nonperforming insider-related credits; declining asset quality and attendant large provisioning requirements; inadequate debt recovery; non-compliance with banking laws, rules and regulations; and significant exposure to the capital market through share and margin loans. Okpara (2009) found that one of the factors that impacted the most on the performance of the banking system in Nigeria was fraudulent practices. This study thus, examine corporate fraud and performance of Microfinance Banks in Nigeria

1.3       RESEARCH OBJECTIVES

The general objective of this study is to evaluate corporate fraud and performance of Microfinance Banks in Nigeria. However, it is set to achieve the following specific objectives.

1. To determine the extent to which fraud has affected the profitability of micro finance banks.
2. To ascertain the influence of fraud on the capital base of micro finance banks.
3. To determine the extent to which fraud has affected the liquidity position of micro finance banks.

1. RESEARCH QUESTIONS

To guide the conduct of this research, the following questions are raised:

1. To what extent  does fraud affect the profitability of micro finance banks?
2. What are the impacts of corporate fraud on the capital base of micro finance banks?
3. To what extent does fraud affect the liquidity position of micro finance banks?

1.5       Research Hypotheses

A research hypothesis is a generalized and verifiable statement about a state of phenomena which may be true or false. Therefore, these research null hypotheses will be empirically tested in this research work.

H0: Corporate fraud has no significant impact on the performance of Microfinance Banks in Nigeria.

H1: Corporate fraud has significant impact on the performance of Microfinance Banks in Nigeria.

1.       Scope and Limitations of the study

Scope

The scope of this study will be limited to examining the impact corporate fraud on the performance of Microfinance banks in Nigeria. The study will examine the causes of fraud and its impact on the performance of Microfinance Banks in Nigeria.

Limitations

The researcher encountered problems at the time of carrying out this research. The following limitations are inherent in the study:

1. Time: Since there is no time set aside for writing this project, researcher has to combine the writing of the project with her normal academic and other commitment in the academic environment.
2. Finance: Finance hinder the researcher from expanding the scope of this study beyond Nasarawa Microfinance Bank as this will involve more money which is not at the disposal of the researcher.
3. Lack of adequate materials: Arising from inadequate reading materials and uncooperative attitude of a few respondents.

1.       Significance of the Study

The findings of this study would be beneficial to the management of commercial banks, bank customers, investors and the Banking Industry in Nigeria. The result of this study would also be of immense benefit to researchers who may be interested in carrying out further research on similar topics.

Banks / Stakeholders: The study will be of invaluable benefits and useful to all categories of bank managers, financial information users such as existing and potential shareholders, they are the direct beneficiary of companies and they will get bonuses if the companies operate successfully. The use of fraud management will reduce the risk of fraud and increase the bank’s profit which will reflect on the dividends of the shareholders. Also, creditors and fund providers will also benefit from the presence of fraud prevention and control system in the Nigeria banking system as the will guaranteed of the safety of the funds.

Researchers: Besides, researchers and students in the field of accounting, banking and finance who want to know more about frauds, its causes and possible ways of preventing it. They will also find the study beneficial as it will add to the existing stock of knowledge for students and serve as a reference point for subsequent researchers.

Government/Policy Makers:  The findings of this study will be of great importance to the policy makers especially the Central bank of Nigeria in their efforts to deter, prevent and at worst detect fraud timely, as the threat of fraud in Nigeria can be contained by taking the right steps.

1.       Definition of Key Terms

Fraud: Fraud is an act of or course of deception deliberately practiced to gain unlawful or unfair advantage deception directed to the detriment of another.

Financial Services Sectors: This involves all financial institutions such as banks, insurance company etc.

Bank: Is an establishment saddled with keeping money and valuable safely, the money being paid out of the customer order?

Fraud management: This involves the use of various management techniques to control and prevent fraud.

Financial fraud: This involves the financial account transaction such as bank account including a consumer clone or credit card account.

Fraud prevention: This involves taking steps that best protect against identity theft and other external treats targeting company.Fraud ring: A group of individuals who scheme together to execute fraudulently activities.

THE ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA

THE ROLE OF MICROFINANCE BANKS IN THE ALLEVIATION OF POVERTY IN NIGERIA.

( A Case Study of Oha Microfinance Bank Ogui Road Branch, Enugu State)

ABSTRACT

This study explores the immense role of the microfinance banks in the alleviation of poverty in Nigeria. The researcher revealed that the rate at which rural dwellers deposit their money in their pillows rather than in microfinance banks is high. Data were collected through primary and secondary sources. As regarded to primary sources, questionnaires and interviewed were used. The chi-square (x²) method was used for testing of hypotheses. Responses to the questionnaires were analyzed using percentage method of analysis. Based on the findings of this study, an attempt on the role of microfinancing as stimulus to poverty alleviation in Nigeria may lack adequate knowledge of various financial transactions available and how the rural dwellers can access them. In conclusion, it hoped that the recommendation will help the microfinance banks to strengthen its weakness for better and effective services in order to achieve its sets of goals and socio-economic advancement for the alleviation of poverty in Nigeria.

CHAPTER ONE
INTRODUCTION

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 microfinance 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).

1.2: STATEMENT OF PROBLEM

Nigeria consists of different classes of individuals, who are either enterprising or industrial low class that account for over half of the population who do not have access to formal banking services. Savings have continued to grow at a very low rate particularly in the rural areas of Nigeria. One of the problems brought to bear is the inability of rural dwellers to channel their savings into banks. Most rural people keep their resources under their pillows.

This method of keeping savings is risky because it might be stolen, lost or wasted in extravagant spending. Moreover, returns which would have accrued to the depositors in form of interest are forfeited.

The contribution of government to alleviate poverty through the establishment of microfinance banks appears a little progress. Inspite of the establishment of microfinance banks, it was observed that most people are not able to obtain loan. This is attributed to a number of challenges such as the high level of interest rate, lack of collaterals required by the commercial banks before loans can be granted which necessitated the establishment of Microfinance to address these economic imbalances. If the banking industry continue to meet the demands of Nigerians especially the rural poor, this shows that there is a gap which need to be filled and this can be done through the contribution of government by establishing more microfinance banks in Nigeria to help in alleviation of poverty.

Another problem observed is the inability of prospective borrowers of most microfinance banks to repay their loans as at when due. This may be attributed to high rate of poverty in the country. The high rate of poverty is noticeable in such area such as unemployment, high rate of inflation, non-payment of salaries, mismanagement of loan granted to rural dwellers, infrastructural deficiencies, such as power, road network, etc. and all kinds of political, economic and bureaucratic bottlenecks.. Also Nigerian economy consists of individuals who feed from hand to mouth. The loans when granted are channeled to other areas such as feeding, payment of bills, school fees, hospital bills and others instead of using it for the intended business purpose.

1.3: OBJECTIVES OF THE STUDY

The broad objective of this study is to find out the role of microfinance banks as a palliative in the alleviation of poverty in Nigeria. They are as follows:

1. To find out the rate at which rural dwellers deposit their money in microfinance banks rather than putting it under pillows.

2. To find the contribution of government in alleviation of poverty through the establishment of microfinance banks.

3. To find out the rate at which rural dwellers are able to repay their loans.

1.4: RESEARCH HYPOTHESIS

The following hypotheses have been developed around which this research would revolve:
H0: The rate at which rural dwellers deposit money in microfinance bank is low than they keep under their pillows.
H1: The rate at which rural dwellers deposit money in microfinance banks is high than they keep under their pillows.

H0: The government has not assisted microfinance meet the needs of rural dwellers and communities.
H1: The government has assisted microfinance meet the needs of rural dwellers and communities

H0: Microfinance borrowers react negatively towards loan repayment.
H1: Microfinance borrowers react positively towards loan repayment.

1.5: RESEARCH QUESTIONS

1. What is the rate at which rural dwellers deposit their money in microfinance banks rather than putting it under their pillow?
2. What is the contribution of government in alleviation of poverty through the establishment of microfinance banks in Nigeria?
3. Why do most Microfinance borrowers react negatively towards loan repayment?

1.6 : SIGNIFICANCE OF THE STUDY

This study will benefit the following groups:

a. Government; The findings of this study will be useful to government in that it will help them to know the importance of MFI thereby knowing ways of improving the quality of their services. The result of the study will also bring out the areas that need improvement and make suggestions for improving on them.

b. Owners; It will also be useful to those planning to open Microfinance banks to know the usefulness of microfinance banks as catalyst or stimulus for poverty alleviation in rural settings as way of developing rural banking.

c. Scholars; Students also will find it very useful in some research work on project issues by boosting their knowledge about microfinance banks in the alleviation of poverty. Those who need referencing material materials on role of micro financing in alleviating poverty will find this study useful.

1.7 : SCOPE OF THE STUDY

The research on the role of microfinance banks in poverty alleviation which requires a thorough analysis of the Oha Microfinance Bank, Ogui Road branch in Enugu State.

1.8: LIMITATIONS OF THE STUDY

In the course of this research work, the researcher encountered different problems such as:

1. Inadequate finance: As a student, financial difficulties limit the researcher from studying the activities of all banks and also limit the volume of data collection; e.g. the funds available will not be enough in transporting and facts findings.

2. Time constraint: There was no time to conduct an enormous research.

3. Inability to get access to some Microfinance banks to get more information about their records and some other useful information about the work also limit the research data collections.

4. Environmental constraint: The environment in which the research work was written restricted the researcher from going out and so the researcher was faced with the problems of how to reach out the field of research and coordinate activities as planned.