THE PROBLEMS AND PROSPECTS OF MICRO-FINANCE BANK IN NIGERIA WITH PARTICULAR REFERENCE TO OGUI MICRO-FINANCE BANK

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The history of micro-finance sector is as old as when man started using money. People have always been borrowing, lending and saving, for as long as there has been money. This has always been done within communities, using their own system and methods without any external assistance or services. The micro finance scheme has primarily developed as a response to the inability or apathy of commercial banks and the formal financial system to serve the needs of low-income households and micro enterprise. According to the central Bank of Nigeria (2005:25), the formal financial system provides services to about 35% of the economically active population, while the remaining 65% are excluded from access to financial services. Looking back into history, one would see that Nigerians have always engaged in economic activities, but such activities continued for a long time on subsistence basis. Agriculture, for instance was in most cases carried out simply to feed the immediate family. Other activities such as pottery, weaving, etc were for personal needs and market within the locality (Oladele, 1988:12). Currently, these traditional rural occupations such as pottery, basket making, cloth dying, local brewing etc which used to keep people employed, have escaped the reach of small scale undertakers. This is because, these poor entrepreneurs do not have access to financial services, which will support their activities to enable them succeed in business and consequently reduce poverty and possibly bring about economic growth and development. Furthermore, UNDP Human Development Report (1997) estimated that 40% of Nigerians live in absolute poverty, with 80% of them living in the rural areas. The significance of this is that most of these rural dwellers have been denied access to banking facilities to enable them engage successfully in agriculture, handicra etc.

The aggregate micro credit facilities in Nigeria accounts for about 0.2 percent of Gross Domestic Product(GDP) and less than one percent of total credit to the economy. Most micro-finance funding go to the commercial sector to the detriment of the more vital economic activities, especially agricultural and manufacturing sectors which provide the foundation for sustainable growth and development. Currently, only about 14.1 and 3.5 per cent of total MFI funding went to these sectors, respectively, while the bulk, 78.4 percent, funded commerce (Anyanwu, 2004). Over the years, a lot of programs and policies have emerged in a bid to improve the living condition of the Nigerian population. The CBN, in consultation with other relevant agencies, included the microfinance policy as one of its initiatives that started in 2004. The policy was designed to boost capacity of micro, small and medium enterprises towards economic growth and development through financial intermediation (Nwaogazi, 2010:5). In December, 2005, the micro finance policy, regulatory and supervisory framework for Nigeria was released by the Central Bank of Nigeria. Its main objective is to support the delivery of very small, uncorrelated or less than normally collaterized loans or other financial services such as savings or insurance for low income clients. In spite of these programs and policies, most of the poor entrepreneurs are yet to have access to micro finance.