PROBLEMS AND PROSPECTS OF MICROFINANCE
BANKS
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
A microfinance institution is a semi
formal organization. It can be non government al or community development
initiative. It is a subset of flexible structures and system which provide a
wide range of financial and saving needs of small scale enterprises in
developing countries where top town formal financial institutions have failed
to address the credit need off the real sector of the economy.
The Nigeria microfinance institution
have come along way, a central bank
study has identified as at 2001, 160 registered microfinance institutions in
Nigeria with aggregate savings worth N99.4m and outstanding credit of N649.1m
indicating huge business transactions in the business (Anyanwu, 2004).
Institutional structures for the provision of micro credit vary and may be
government, NGO supported, traditional, or mixture of two or more of these,
there are all those that operate on the line of informal models. They are
credit and savings association which are based on the traditionally experience,
they provides savings and credit services to their members.
Despite the availability of microfinance
and the establishment of microfinance institutions in Nigeria, there
are yet no established government policies and mechanisms for regulating and
supervising activities in the sector (Anyanwu, 2004). In 2000, a national
conference on microfinance was organized by the federal government of Nigeria
and the world bank recommended that the central bank of Nigeria to take up the
responsibility of developing an appropriate Policy as well as regulatory and
supervisory frame work for the operation of microfinance institutions. The
workshop recognized that the development of appropriate microfinance policy was
critical to the development of sustainable microfinance institutions and by
implicated through micro enterprises in Nigeria. (CBN, 2001).
1.2 STATEMENT OF THE PROBLEM
The
establishment of microfinance banks in Nigeria provide an additional finding
source to small and medium scale enterprises on lending basis. This is so
because the microfinance banks have grassroots orientation and greater
expertise in financing small and medium scale enterprises. But inspite of the
prospect of microfinance banks in financing small and medium scale enterprise,
they are constraint with myriad of problems ranging from managerial to their
inability to properly evaluate loan application and improper credit risk
management which has resulted to a high degree of unpaid debt and consequently
the closure of so many micro finance bank in the recent past. It is against
this that the subject matter is seen as a empirical problem worthy of being
investigated.
1.3 OBJECTIVES OF THE STUDY
i. To
find out the causes of unpaid debt in Gyelesu Microfinance bank.
ii. To identify the techniques used in
evaluating loan application and
credit management in Gyelesu
Microfinance Bank.
iii.
To examine the prospect
of Gyelesi Microfinance bank in financing
small and medium scale enterprises.
iv. To
identify the constraint militating against the effect management of Gyelesu micro
finance bank and recommend workable solution.
1.4 SIGNIFICANCE OF THE STUDY
The
study would be beneficial to microfinance bank and government agency incharge
of microfinance institution and capacity building for small and medium scale
enterprises, especially and they utility the finding of this research as basis
for policy formulation. The study would also contribute to the existing
knowledge on the problem and prospect of microfinance bank in financing small
and medium scale enterprises. The study will also be a spring board for further
research.
1.5 RESEARCH QQUESTIONS
i. What are the causes of unpaid debt in
Gyelesu microfinance bank
ii. What
are the techniques used in evaluating loan application and credit management in
Gyelesu micro finance bank.
iii. What
are the prospect of Gyelesu micro finance bank in financing small and medium
scale enterprise?
iv. What
are the constraint militating against the effective management of Gyelesu micro finance bank and how can it
be solved?
1.6 SCOPE OF THE STUDY
The
study covers the examination of the problems and prospect of Gyelesu micro
finance bank scale enterprises. To this end investigation would be made into
the prospect of microfinance bank in financing small and medium scale
enterprises as well as the problems militating against microfinance bank in
financing small and medium scale
enterprises. The study shall cover a time from 2007 to 2011.
1.7 LIMITATION OF THE STUDY
For
the fact that the study is restricted Gyelesu micro finance and the survey
design as well as questionnaire is used as the research design as well as
instrument of the study, it is no certain if the study is conducted on other
area or other design and instrument is used would yield the same result, other
constraint arise from the uncooperative attitude of some respondents as well as
constraint in access literatures on the subject matter.
1.8 DEFINITION OF KEY TERMS
Microfinance banks:
This are small scale bank that
specializes in giving loans and mobilizing savings from small and medium scale
enterprise as well as low income earners.
Small scale enterprise:
A firm that is independently owned and operated on a small and which is not
dominant in its field of operation.
Medium scale enterprise:
A firm that is higher than a small scale but not up to a large scale
enterprise. A firm with a total capital employed of not more than N50 million
including working capital.
Loans:
These are advances giving to individual or lenders by financial institution
Economic Growth:
the nations expansion capacity to produce goods and services.
Risk Management:
This are precautionary measures taken to prevent default in loan and losses.
Loan Appraisal:
This are criteria used in evaluating the loan proposal.