ASSESSMENT OF THE ROLE OF MICRO-FINANCE BANKS IN BUSINESS DEVELOPMENT IN ADAMAWA STATE
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Background of the Study
With all the measures implemented to encourage new business, help existing businesses grow and to ultimately improve the economy, there is still a growing concern of business development. As a means to address this concern, microfinance banks were introduced to cater especially for the poor low income earners who are underserved by conventional commercial banks. According to Echo Microfinance, microfinance banks are institutions licensed by the Central Bank of Nigeria (CBN) to operate as financial institutions that offer savings, loans, local funds transfer and other financial services needed by the poor economically active Small and Medium sized Enterprises owners, to operate and expand their businesses. A large share of the total population of poor SME owners are excluded from services rendered by conventional financial institutions. According to CBN, a study by EFinA back in 2010 showed a slight increase in the rate of those served by formal financial market. The study revealed an increase of 1.3 percent within the first five years after launching microfinance banks. All economies of the world are characterized by commercial activities which consist of all businesses or business operations in the economy. Despite the great desire by Nigerians to become entrepreneurs, only 40% actually start up businesses and only 20% of these start ups survive (UNIDO, 2015). The modern society cannot exist without business as it contributes to improvement in the standard of living, utilization of resources, production of goods and services, employment opportunities and economic growth. Small and Medium Scale Enterprises (SMEs) which are the most common types of business are the engines for growth and development of any society or nation, specifically, developing nations. This is because of the facts that they have become major sources of employment for the unemployed youths, wealth creation, provision of varieties of goods and services and improvement of Gross Domestic Product (GDP) and Gross National Product (GNP) for developing economies of the world. It is also becoming an instrument for ensuring peaceful coexistence among societies (Ekpudu, Posu and Olabisi, 2014). SMEs represent the sub-sector of special focus in any meaningful economic restructuring programme that targets employment generation, poverty alleviation, food security, rapid industrialization and reversing rural-urban migration (Olowe, Moradeyo & Babalola, 2013). The importance of microfinance institutions in the reduction of poverty and development of a nation cannot be overemphasized. It is a tool employed as a means of getting small capital to small businesses that find it difficult to survive and grow beyond their capacity. Microfinance services are thus vital in the lives of the rural poor because most of the income earners either small or medium scale entrepreneurs in rural areas mostly lack the necessary financial services and support (Abdulmumini, 2012). Provision of financial services by microfinance institutions to SMEs in developing countries has aided the growth of businesses as well as the economy. Interest on SMEs would contribute to creation of jobs, reduction in income disparity, production of goods and services in the economy, as well as providing a fertile ground for skill development and acquisition, serve as a mechanism for backward integration and a vehicle for technological innovation and development especially in modifying and perfecting emerging technological breakthroughs (Olowe et al, 2013). It can be ascertained that for an economy to progress, microfinance banks are essential to provide financial services to business owners who can use their potentials to impact on the standard of living and quality of life of hundred people in such economy. Establishment of Micro-finance banks as an effort by the government to improve the access to loans and savings services for poor people is currently being promoted as a key development strategy to develop businesses at the grassroots and develop the economy ultimately (Shreiner, 2005). The size of the unserved market by the existing financial institutions is large. The aggregate micro-credit facilities in Nigeria are very marginal, accounted for about 0.2% of Gross Domestic Product (GDP) and less than one percent of total credit to the economy (CBN, 2011). In 2008, 79 percent of the total population in the country had been unbanked out of which 68% were rural dwellers (CBN, 2011). This showed that financial services are not provided for the poor entrepreneur and household, and this has further increased the level of poverty in the country. In this direction, Olowe, Moradeyo & Babalola, (2013) noted that Microfinance Banks (MFBs) emerged as a substitute to the formal banks, as they are effective and powerful instruments for poverty reduction among people who are economically active but financially constrained. The international year for microcredit in 2005, stressed on the relevance of microfinance as integral part of collective efforts at achieving the Millennium Development Goals (Ekpudu, Posu and Olabisi, 2014). The Central Bank of Nigeria (CBN) introduced microfinance bank policy option having used a number of failed fiscal and physical credit options in the past in an attempt to empower the vulnerable and poor group of people to have access to credit facilities to start up new or expand existing businesses. This led to the approval of licenses to two categories of microfinance banks in Nigeria- those licensed to operate within a local government and those to operate within a state or federal capital territory, with a minimum capital requirement of N20 million and N1billion respectively (Ekpudu, Posu and Olabisi, 2014).
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