THE IMPACT OF MICRO FINANCE BANKS IN RURAL DEVELOPMENT IN NIGERIA
Microfinance banks are banks that provide banking or financial services other than services provided by commercial banks targeted at people living in the rural dwellers. Microfinance banks have able to improve the banking habit of the rural dwellers I,e the degree at which the rural dwellers make use of banking service or patronize banks. In view of even economic development, microfinance banks have played a great role by providing banking and financial services to peasant low income earners, rural dwellers, and small scale business.
Micro finance has evolved as an economic development approach intended to benefit low income women and men. The term refers to the provision of financial services to low – income earners, including the self – employed. Financial services generally include savings and credit; however, some microfinance organizations also provide insurance and payment service. In addition to financial intermediation, many MFIs provide social intermediation services such as group formation, development of self confidence, and training in financial literacy and management capabilities among members of a group. Thus the definition of microfinance often includes both financial intermediation and social intermediation. Microfinance is not simply banking, it is a development tool.
Micro finance activities usually involve:
– Small loans, typically for working capital.
– Informal appraisal of borrowers and investments.
– Collateral substitutes, such as group guarantees or compulsory savings.
– Access to repeat and longer loans, based on repayment performance
– Streamlined loan disbursement and monitoring
– Secure savings products
Although some MFIs provide enterprise development services, such as skills training and health care, these are not generally included in the definition of micro finance.
MFIs can be non governmental organizations (NGOs) savings and loan cooperation’s, credit unions, government banks, commercial banks, or non bank financial institutions. Micro finance clients are typically self employed low income entrepreneurs in both urban and rural areas. Clients are often traders, street vendors, small farmers, service providers (hairdressers, rickshaw drivers) and artisans and small procedures, such as blacksmiths and seamstress. Usually their activities provide a stable source of income (often from more than one activity). Although they are poor, they are generally not considered to be the poorest of the poor”.
Money lenders and relating savings and credit associations are informal microfinance providers and important sources of financial intermediation.
1.1 BACKGROUND OF THE STUDY
Microfinance in the 1980s as a response to doubts and research findings about state delivery of subsidized credit to poor farmers. In the 1970s government agencies were the predominant methods of providing productive credit to those with no previous access to credit facilities people who had lien forced to pay usurious interest rates or were subject to ransacking behaviour. Governments and international donors assumed that the poor required cheap credit and saw this as a way of promoting agricultural production by small landholders. In addition to providing subsidized agricultural credit, donors set up credit unions inspired by the Raiffeisen model developed in Germany in 1864. The focus of these cooperative financial institutions was mostly on savings mobilization in rural areas in a attempt to “teach poor farmers how to save”.