Microfinance aid Alleviate Poverty in Nigeria

Introduction

The poverty issues are one of the main concern in many countries or nation we can say, mainly to the countries which are growing or developing. In this poverty is defined as such a situation or a section where residents or segment of the inhabitants is capable to meet only its bare survival, the fundamentals of food, clothes, and shelter which are the basic needs of the human beings in order to keep up the normal standard of living for people because many cannot even afford them. Around the globe natives are being excluded from the financial system and Nigeria is one of them.  One of the Nigeria peculiarities is economic dualism. To meet the finanacial needs of the poor in the formal way the Microfinance was developed.  In this research we will disucss the aid of microfinance in Nigeria to alleviate poverty.

Many parts of Nigeria summarised,  poverty in mutually relative and absolute terms as a situation where a character is not able to meet the terms adequately for his or her fundamental requirements of food, cloth, shelter, meet economic and social obligation  lack productive employment skills assets and self-esteem and had restricted to the economic and the social  infrastructure (Kaka and Abidin, 2014). The poor lack critical infrastructure such as the health, education, sanitation and potable water.  As a result has a partial chance of  advancing his/her benefit to the edge of his/her inadequate access to the economic and social infrastructures and the major problem is poor people lack capability.

Poverty Alleviation and Microfinance in Nigeria

The microfinance is essential to eliminate poverty, made the central government of Nigeria  adopt it as the major source of poverty diminution in Nigeria. Inspite  of the number of microfinance benefeciaries banks of microfinance is not important proportion of people in need of the services related to the microfinance. Microfinance is the prerequisite of the fiscal services to the underprivileged people who are conventionally not served by the conventional banks. (Onoyere, 2014)These fiscal services include micro-leasing savings, credit,  payment services and transfers related to money. The facts that differentiate microfinance from the other forms of the formal economic products are; small amount of the loans and the advances, the savings collected, and absence of the collateral based on assest and simplicity of operations (Noruwa and Emeka, 2012).

Across the Globe microfinance institutions (MFIs) are considered as the major source of backing the micro enterprises. Microfinance institutions (MFIs) act  is the official credit and savings institution for the underprivileged  around the world  who were conventionally neglected by the commercial banks  to gain the fiscal services.

Microfinance institution emerges as the major source of reducing poverty in the Nigeria (Posthumus, 2007). Despite this, the quantity of beneficiaries of the microfinance banks is an inconsequential percentage of the community in need of the services which are related to the Microfinance.

Microfinance Banks in Nigeria 

In Nigeria,  the prescribed economic system renders services, approximately  35% of the total  economic active population and the other 65% is under the control of the  casual financial sector, such as the  money lenders, Non Governmental Organisations (NGOs),  friends, Cooperative, relatives and the Thrift societies. Hence, for the  developing country like Nigeria, it’s important to endorse an alarming finance policy which will help in the integration of the activities of the existing informal financial institutions and to bring them under the one roof of the Central Bank of Nigeria regulation (Kasali, Ahmad and Ean, 2015). This will help with the financial stability and in a great way will result in the effective economic growth and success with the help of the adequate finance of the small, micro, medium and small scale enterprises.

 In the Annual report of  December 2005, the Central Bank of Nigeria affirms that many of the  microfinance banks encompass of the fragile institutional competence, a disappointed demand in the market and the  insufficient capital base (Ihugba et al., 2013).  In June 2013, the National Association of Microfinance Banks (NAMB) in Nigeria, in the third Annual General Meeting  claims that around 222billion amounts is invested in the economy of the Nigeria and also 22,000 jobs are provided to the population from these activities (International Monetary Fund, 2005).

 The Nigerian government cued into this admired thinking in 2005 when it inaugurate the schemesof microfinance banking. The banks were licensed in 2007 to start the operations and existing NGO microfinance institutions and community banks that met the circumstances spelt away by CBN for the license were permitted to transform into the microfinance banks.  This was founded to make available finance to the efficiently active poor, expelled from financing by the conventional banks to reduce poverty.

Role Of Microfinance 

Through the estimation, the official microfinance bank only serve less than one million clients in the  country where 70 % of the country’s residents of 140 million  are below the povery line (International Monetary Fund, 2005). Therefore, it is necessary to assume an evaluation of the extent at which the institutions of microfinance have impacted reduction of povery in Nigeria.  It has also been told that micro financing is not successful to reach the group mainly prone to the destination, the vulnerable poor.

Microfinance lenders need to implement a credit score rating system on the borrowers to the destination , the vulnerable poor.  Every borrower should originally be given the benefit of the doubt, but their credit score would increase or decrease depending on upon their performance. The rating system would;  It enables lenders to determine whether or not to give whichever borrower more loans in the future. It also disables a borrower’s ability to become over-indebted. Microfinance institutions need to place a much lower cap on interest rates (Simanowitz, 2003). The current high-interest rates lead to borrowers taking out loans to pay off.

The main purpose of the study was to research how to reduce the poverty with the help of facilities like microfinance banks on rural financial markets and how it can be implemented on the rural economy. What is the main role of a microfinance institution in reducing  poverty? To make recommendations for the efficient and effective realization of the scheme so that it can be implemented (O. and Ayodele, 2015)To assess the level of the operations of the microfinance banks in the building of the nations through the allevation of the poverty.

All the governments in the world are intervening expansively in the financial markets in rural and general financial markets, in particular, to provide funds in rural areas or to people who are living before poverty line (Greeley, 2003). The extent to which governments have intervened has varied from indirect measures which have aimed to improve the policies which are made to improve the environment.

Secondly, their major task is to find out whether the people who are below the poverty line do they work and if not, why not and then further, how can we improve them so that they start working or the main focus is how to make them work.

 The Challenges against the Microfinance Banks in Nigeria

The main challenges faced by the microfinance include-

Inadequate awareness and Communication gap

Insufficiently supports from governments

Inadequate fundings of donor.

Less attention on financial sustainability of MFIs

High turnover of MFIs staff

Less no of the equity capital or the adequate loan to increase loanable funds

Lack of standardizing reporting

Limited support  for institutional capacity and human building.

Initially, microfinance banking in Nigeria faces enormous challenges such as the absence  of basic infrastructure, social misconception, corruption, regulatory framework, poor legal and  unbridled competition from the other institutions related to finance which results in high costs of the opersations because of their nature of the business (Idolor and Ajao, 2006). Dealing with many of the small microfinance banks clients’ transaction costs are mainly higher as compared to the conventional banks.

The lack of the culture rrelated to the banking in the areas which are rural and amongst the urban poor is also an obstacle for microfinance banks.

Many of the community banks faliure and the removal of the license of 224 microfinance banks in 2010 have badly damaged public confidence in these banks and customers of these banks have refrained from dealing with them.

Despite these challenges, still there are opportunities for these banks. The growing awareness of the entrepreneurial, increasing interest of the government, large rural area which are unbanked  and high population of the underprivileged people was identified as some of these opportunities. There are almost nine hundred banks related to the microfinance today in Nigeria, which are supervised and regulated by the Nigeria Central Bank.

Microfinance Banking Prospects in Nigeria 

Many opportunities are present in the sector related to the  microfinance in Nigeria. There exists a large untapped market for microfinance banks. Almost 70% of the population of the Nigeria is occupied in the casual sector or agricultural manufacturing. Going by the country’s population of over one hundred and fifty million people, one can assume that about one hundred and five million are in this sector (Akangbe H. O., 2012). Microfinance banks in Nigeria only serve less than one million people against the over 40 million that require their services. The facilities related to the microcredit in Nigeria account for about 0.2 percent of GDP and less than one percent of entire credit to the financial system.

Almost 65% of the total population of Nigeria has no access to the services related to the banking. his leaves a lot of room for the existing banks of the microfinance to increase their capacity of operations and for new ones to cross the threshold.

Microfinance is the provision of financial services to the clients with the low-income, which includes the self-employed and the consumers, who traditionally lack the access to the services which are related to the banking (Ogunleye, 2010).  The poorest can be benefited from Microfinance from both sides which are the socio well-being and an economic  opinion so that this was able to be done devoid of the jeopardizing the fiscal sustainability of the Micro-financial institution. 

Conclusions And Recommendations 

To conclude, it is said that the  microfinance strategies has the potential to alleviate the poverty, especially in the rising level of income and dropping vulnerability. It will encourage people to increase monetary capacity and being sustainable expansion (Clementina and Kelvin, 2015).  Microfinance can be a more practical strategy for  the sustainable poverty mitigation, if more is  done on programme outreach and depth. The programme requirements is to accommodate the underprivileged in the nation. The regime should also arrange the enable situation for the programmes related to the microfinance by ensuring the political volatility with low inflation rates.

 Although Nigeria has a lot of resources despite this large number of  Nigerians still live in poverty. To come out of this situation the government formulated the microfinance policy guidelines in 2005 and started giving license to microfinance banks. The microfinance banking subsector in Nigeria is therefore relatively young and  started in 2007 (Olakojo and Olanipekun, 2011). Microfinance comes out in  Nigeria  as a powerful tool for poverty alleviation.  Like the other tools of the development, microfinance has sufficiently penetrated the poorer strata of society.  Microfinance is one of the great ways to structure the capacities of the poor people and developing or moving the poor people towards the self-employment activities by providing them with the financial services like credit, savings, and insurance. To provide the services related to the micro-finance or the other sustain services, MFIs should be able to sustain themselves for a long period. There is a significant effect of a microfinance institution in the reduction of the  poverty from the Nigeria by increasing the income and also changing the economic status of people. 

References

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