AN INVESTIGATION OF OPERATIONAL PROBLEMS FACING MICRO FINANCE BANK
- Project Research
- 1-5 Chapters
- Quantitative
- Correlation
- Abstract : Available
- Table of Content: Available
- Reference Style: APA
- Recommended for : Student Researchers
- NGN 3000
BACKGROUND OF STUDY
Nigeria is a country rich in natural and human resources, with a population of more than 140 million people primarily engaged in agriculture and small-scale business. Micro, small, and medium-sized firms (MSMEs) and both peasant farmers who want financial support to develop their company and enhance their livelihoods dominate this sector (Shark, 2010). Microfinance has a long history dating back to when man first used money. For as long as there has been money, people have been borrowing, lending, and saving. This has traditionally been done inside communities, with no outside support or services, using their own system and techniques. The micro financing scheme arose as a result of commercial banks' and the formal financial system's incompetence or unwillingness to fulfill the requirements of low-income people and small businesses (Bush, 2000). According to the Nigerian Central Bank (2005), the official financial system serves roughly 35 percent of the country's economically engaged population, while the other 65 percent are denied access to financial services. Looking back in time, one can see that Nigerians have always engaged in economic activities, although these activities were mostly subsistence based for a long period. Agriculture, for example, was usually done just to feed one's close family. Other pursuits, like as pottery and weaving, were done for personal use and for the local market (Oladele, 1988). Microfinance aims to provide financial services to the active poor who have been turned down by traditional banking institutions because to a lack of collateral, unstructured companies, and small transaction quantities. Microfinance banks provide a variety of services, including savings, microcredit, money transfers, leasing, and insurance. Only 35% of Nigeria's economically engaged population has access to formal financial services, according to data. Micro financing is frequently used by the target populations to acquire access to financial services for the first time, according to Pauline Nsa (2010) and Fabanwo A.O. (2010). Making financial services broadly available in rural and low-income urban regions assists the poor in building wealth, improving their financial stability, empowering women, creating jobs, and promoting long-term development. On December 15, 2005, the CBN introduced the Microfinance Policy, Regulatory, and Supervisory Framework in response to the aforesaid disparity. The policy's explicit goal is to make financial services available to a significant proportion of Nigeria's productive people. The purpose of the new policy, according to Lemo (2006), is to ensure that financial services reach the over 80 million Nigerians who are not served by formal financial institutions, particularly the economically active poor and low-income households who are unable to access formal financial institutions' services. As a result, microfinance policy is intended to support banking sector changes (Ojo, 2007 and Anyanwu,2007). As a result, microfinance is projected to fill a vacuum in the financial system by assisting some underserved groups who would otherwise be unable to receive financing through the official financial system. Since then, the CBN has licensed hundreds of microfinance firms to provide these services to the target market. However, a substantial number of these banks have underperformed expectations due to a lack of expertise, insufficient capital, bad risk assets, and insufficient oversight. Despite the interest generated, initiatives begun, and patronage fostered, a huge number of Nigerians are still excluded from financial services, according to Attah J.A.A (2010). According to the 2010 EFInA STUDY, the number of people served by the formal financial market increased marginally from 35.0 percent in 2005 to 36.3 percent in 2010, five years after the microfinance policy was launched. When informal financial services like as savings clubs/pools, Esusu, Ajo, and money lenders are included, the overall access percentage for 2010 was 53.7 percent, implying that 46.3 percent of Nigeria's adult population, or 39.2 million people, were financially excluded.
1.2 STATEMENT OF THE PROBLEM
Every micro finance program aims to boost the active poor's access to relevant financial and non-financial services in order to improve their economic activities, raise their earnings, and promote ownership chances (Bran, 2009). Given the significance of the industry and the knowledge of clients seeking finances, one could assume that the volume of credit disbursed has increased, but it is still not where it should be. Micro finance banks in Nigeria are threatened by sustainability and continuity in service delivery, despite well-defined policies and objectives, due to the following issues: diversion of micro finance funds, insufficient policy, unfavorable/frequent changes in government policies, high risk, high transaction costs, mounting loan losses, and low capacity and technical skills in micro finance.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to appraise the operational problems of Micro Finance Banks in Delta Sate, Nigeria. Specific objectives of the study are:
1. To examine operational structures of Micro Finance banks in Delta state.
2. To appraise operational problems of Micro Finance banks in Delta state.
3. To examine the effects of these operational problems on the performance of Micro finance banks in Delta state.
4. To determine if operational problems of Micro finance banks in Delta state affect micro finance access to Small and Medium Scale Enterprises in Delta state.
1.4 RESEARCH QUESTIONS
In-order to guide the study and achieve the stated objectives of the study, the following research questions were formulated:
1. What operational structures exist in Micro finance banks in Delta state?
2. What are the operational problems facing Micro finance banks in Delta state?
3. How do operational problems of Micro finance banks affect its performance?
4. Have operational problems faced by Micro finance banks affected access to micro finance by SMEs in Delta state?
1.5 RESEARCH HYPOTHESIS
Ho: There is no significant relationship between operational problems and performance of Micro finance banks.
Hi: There is no significant relationship between operational problems and performance of Micro finance banks.
1.6 SIGNIFICANCE OF THE STUDY
The study will aid policy makers in the state to develop policies that will help block loopholes in the operations of Micro finance banks in Delta state. Findings and recommendations from the study will highlight the various operational problems facing micro finance banks in Delta state and how these identified problems can be effectively tackled. Access to micro finance or credit will also be improved for small and medium scale enterprises if the various operational problems identified in the study will be addressed. The study will also serve as a guide and foundation for other student researchers who may wish to further examine operational problems in other financial institutions in Nigeria.
1.7 SCOPE OF THE STUDY
The study will be delimited to some selected Micro-finance banks in Delta State of Nigeria. This is due to financial and time constraints as the researcher could not cover a wider area.
1.8 LIMITATION OF THE STUDY
This study was delimited be so may constrains which include; financial constrains, material and time constrains.
1.9 DEFINITION OF TERMS
Micro-Finance Bank: This is a type to banking service that is provided to unemployed or low income individuals or groups who would otherwise have no other means of gaining financial services.
Operational Problem: Operational problem is the problem that is not inherent in financial, systematic or market-wide risk. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people and systems.
Loan: In finance, a loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.
Risk: Risk is potential of losing something of value. Values (such as physical health, social status, emotional well-being or financial wealth) can be gained or lost when taking risk resulting from a given action or inaction, foreseen or unforeseen. Risk can also be defined as the intentional interaction with uncertainty.
SME: Small and Medium Enterprise.
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