Microfinance Banks and Rural Development

Abstract

The Central Bank of Nigeria (CBN) launched the microfinance banking scheme on December 2005 as part of government strategies to achieve one of the cardinal agendas of the Millennium Development Goals (MDGs) of reducing extreme poverty by 2015. The microfinance banks (MFBs) were promoted to provide financial services to the economically active poor in the society and to create an environment of financial inclusion to boost the capacity of micro, small and medium enterprises that abound in our rural areas. The impact of the MFBs in rural development in Nigeria was empirically evaluated in this study using some performance indicators. These include growth in deposit mobilization, aggregate credit extension, loan per rural person (LPRP), total assets of MFBs, etc. The ordinary least square econometrics was used to generate the regression coefficients and other statistics. Data for the study were gathered from the Annual Report and Accounts published by the MFBs and collated and analyzed by the CBN in the Statistical Bulletins. The impetus for the study was largely derived from the renewed interest in microfinancing by the World Bank, International Development Institutions, the Nigerian Government and other International Development Partners. The results of the study show that MFBs have impacted positively on our rural economy. The regression coefficients for all the key factors analyzed in the research were positive though not statistically significant. This means that the full impact possibilities of these institutions as catalyst for rural development are yet to be realized. The findings also provide significant support to the rationale earlier canvassed by the CBN for the recent re-engineering of the various microfinance institutions in the country in order to improve their impact possibilities. The researchers noted that the recent re-engineering and retooling of the MFBs scheme is one step in the right direction and recommends that government should provide key infrastructures especially electricity and ensure stable macroeconomic environment to enable micro and other business enterprises to thrive in the country.

Keywords

Microfinance banks poverty alleviation rural development economic development

References

Abacha

1994. ‘An Address’ at the Occasion of the 3rd Anniversary Conference of Community Banks held at Durbar Hotel, Kaduna, 26 April, pp. 3–6.

Adewunmi

2006. ‘Challenges and Strategies for Effective Rural Finance Intermediation through Micro-finance Banks’, Report of CBN/AFRICAN Rural Agricultural Credit Association Workshop, 12–16 May, Abuja.

Babangida

I.B.

1989. ‘Why Another Bank’ being text of an address delivered at the commissioning of first Branch of Peoples Bank at Ajegunle, Lagos State, pp. 5–10.

Babangida

I.B.

1992. ‘Community Banking in Nigeria’, An Address Delivered at the Community Banking Anniversary Conference held in Kaduna, pp. 2–8.

Bamisele

2011. ‘Microfinance—A Tool for Rural Development’, Paper Delivered at a Seminar for Small and Medium Scale Enterprises (SMEs) organized by SMELDA, pp. 2–4.

Central Bank of Nigeria (CBN). 2005. Microfinance Policy Framework. Abuja: Government Printing Press.

Central Bank of Nigeria (CBN). 2006. An Assessment of Microfinance Banks and Institutions in Nigeria. Abuja: Government Printing Press.

Central Bank of Nigeria (CBN). 2010. Review of Microfinance Policy Framework. Abuja: Government Printing Press.

Central Bank of Nigeria (CBN). 2011. Performance Review of Microfinance Policy Framework. Abuja: Government Printing Press.

10.

Desai

Mellor

1993. ‘Institutional Finance for Agricultural Development: An Analytical Survey of Critical Issues’, Food Policy Review I, International Food Policy Research Institute, pp. 28–30.

11.

Ebubechukwu

I.D.

2006. Impact of Community Banking Scheme in Rural Intermediation in Nigeria: A Case Study of South Eastern States of Nigeria, A Ph.D. dissertation. Nsukka: University of Nigeria, pp. 20–27.

12.

Gujarati

N.D.

Porter

D.C.

2009. Basic Econometrics, 5th ed. Boston: McGraw Hill International Edition.

13.

Ijere

M.O.

1982. New Perspectives in Financing Nigerian Agriculture. Enugu: Fourth Dimension Publishers.

14.

Ijere

M.O.

1983. New Perspectives in Financing Nigerian Agriculture. Enugu: Fourth Dimension Publishers.

15.

Ijere

M.O.

1992. Leading Issues in Rural Development. Enugu: Acena Publishers.

16.

Ijere

M.O.

2008. Leading Issues in Rural Development. Enugu: Acena Publishers.

17.

Jomo

1997. Profitability Performance of Regional Banks from 1978 to 1980, Prejan 11; 247–256, National Institute of Bank Management, Bombay.

18.

Levine

Zervos

1998. ‘Stock Markets, Banks and Economic Growth’, American Economic Review, 88: 537–542.

19.

Mabogunje

A.L.

1991. Understanding Community Bank Operations. Abuja: NBCB Press.

20.

Mbata

T.O.

1982. Rural Financial Intermediation: Problems and Prospect. Lagos: Cendron Publishers.

21.

Mokezie

C.I.

2003. ‘The National Banking System: Historical Perspective’, Nigeria Journal of Banking & Finance, 3 (6): 23–25.

22.

National Board for Community Banks (NBCB). 1989. Understanding Community Banking System. Abuja: NBCB Press.

23.

National Board for Community Banks. 1990. Appraisal Manual for Operations Staff of National Board for Community Banks. Abuja: NBCB Press.

24.

National Population Commission (NPC). 2010. ‘Nigerian Population Growth Estimates’, in Census Bulletin. Abuja: National Population Commission.

25.

Nigeria Deposit Insurance Corporation (NDIC). 2011. Annual Reports and Accounts. Abuja: National Printing Press.

26.

Nigeria Deposit Insurance Corporation (NDIC). 2012. Annual Reports and Accounts. Abuja: National Printing Press.

27.

Njoku

1990. ‘People Bank: So Far So Good’, Daily Star, Thursday 1 March, p. 3.

28.

Ocho

L.O.

1997. ‘Re-engineering Community Banking for Sustainable Grassroots Economic Development’, An invited paper at Annual Conference of Community Banks Directors at Modotels, Enugu, 18–19 December, pp. 10–12.

29.

Odu

2006. ‘Challenges and Strategies for Effective Rural Finance Intermediation through Community Banks’, Report of NBCB/AFRICAN Rural Agricultural Credit Association Workshop, held in Zodiac Hotel, Enugu, 12–16 May, Abuja: NBCB Press.

30.

Ohaegbunam

U.C.

2009. ‘Impact of Micro-finance Banks on Rural Development—Case Study of South Eastern States of Nigeria’, An Unpublished M.Sc dissertation. Nsukka: Department of Banking & Finance, University of Nigeria.

31.

Okafor

F.O.

1992. ‘Strategies for the Survival of Community Banks in a Depressed Economy’, Paper Presented at the 3rd Anniversary Conference of Community Banks held at Hotel Presidential, Enugu.

32.

Okafor

F.O.

1997. ‘Enhancing the Impact Possibility of Community Banks’, Paper Presented at Annual Conference for Community Banks Directors held at Modotels, Enugu, 18–19 December, pp. 5–8.

33.

Okafor

F.O.

1999. ‘Investment Opportunities Available to Community Banks’, Paper Presented at a Seminar on Improving the Profitability of Community Banks in the Next Millennium organized by Citizen Bank Limited, Enugu, 6 November, pp. 12–14.

34.

Okafor

F.O.

2004. ‘Emerging Trends and Future of Community Banking in Nigeria’, Paper Presented at Annual Conference of Community Bank Directors held at Hotel Cordial, Enugu, 2–3 December, pp. 8–12.

35.

Okigbo

P.N.C.

1981. ‘Nigeria’s Financial System: Structures and Growth’, CBN Bullion, II (48): 34–37.

36.

Okorie

2006. ‘Micro-credit and Rural Development in Nigeria’, Economic Development and Culture Change, pp. 27–32. New York: Praeger Publishers.

37.

Olashore

2009. ‘Rural Banking: Strategies and Policies of Government and Central Bank’, CBN Bullion, 20th ed., July: 24–25.

38.

Owo

F.A.

2002. ‘Esusu Clubs and Their Performance in Mobilizing Rural Savings and Extending Credit’, Technical Report AETR/76-1. Ibadan: Department of Agricultural Economics, University of Ibadan, pp. 76–77.

39.

Philips

G.O.

1972. Rural Financial Intermediation: Problems and Prospect. Australia: Neoman Publishers.

40.

Ragazzi

2001. ‘Rural Development Indices in Nigeria: Facts behind the Figures’, Paper Presented at the Economic Seminar organized by Economics Department University of Lagos, Akoka, Lagos, 20–22 August, pp. 16–20.

41.

Sadeque

J.K.

2010. ‘Rural Finance in Nigeria’, The American Journal of Economics, 10 (17): 32–34.

42.

Sagbamah

J.E.L.

1997. ‘Community Banking: The Nigerian Experience’, CBN Bullion, 2 (April–June): 28–32.

43.

Stock

J.H.

Watson

M.W.

2007. Introduction to Econometrics, 2nd ed. USA: Pearson Education Inc.

44.

Stock Watch. 2012. ‘Money Held outside the Banking Sector in Nigeria’, in Market Report published by Stock Watch Newspapers.

45.

Soludo

2001. ‘Performance Appraisal of Rural Banking Scheme’, Seminar Paper Delivered at University of Benin, Edo State, pp. 18–21.

46.

Soludo

2005. ‘Re-thinking Micro-financing Institutions in Nigeria’, CBN Bullion, 9 (July–November): 20–26.

47.

Soludo

2007. ‘Credit and Risk Management in Minimising Distress in Nigeria’s Financial Sector’. Paper Presented at a Public Lecture Organised by the Institute of Credit and Risk Management of Nigeria, Lagos, 17 November.

48.

Tanko

S.K.

2007. Profits and Profitability of Indian Commercial Banks in Seventies, pp. 24–25. Bombay: National Institute of Bank Management.

49.

Ujunwa

Salami

O.P.

Nwakoby

Umar

A.H.

2012. ‘Financial Structure and Economic Growth in Nigeria: Theory and Evidence’, International Journal of Economics and Finance, 4 (4): 227–238.

50.

Ukpong

G.E.D.

1998. ‘Rural Finance Policy: Framework and Practice in Nigeria’, CBN Bullion, 22 (2), April–June: 1–7.

51.

Umoh

1984. ‘Rural Banking Practice in Nigeria’, Business Times, 6 February, p. 14.

52.

Virmani

2004. ‘Evaluation of Financial Policy: Credit Allocation in Bangladesh’, World Bank Staff Working Paper No. 672. Washington, DC: World Bank.

53.

World Bank . 1999. ‘Doing Business 2000: Reforming through Difficult Times’. The World Bank.

54.

World Bank. 2004. ‘Agriculture for Development’, in World Development Report. Washington: World Bank.

55.

Yaron

1992. ‘Successful Rural Finance Institutions’, World Bank Discussion Paper 150, Washington, DC.

56.

Yaron

Piprek

1997. ‘Rural Finance: Issues, Design and Best Practices’, Environmentally and Socially Sustainable Development Studies and Monographs, Series 14. Washington, DC: World Bank.