A Study of the Microfinance Institutions Essay

One agentive role inhibiting the attainment of maturement goals in less developed countries is the populaces general inability to accession factors of production, in particular finance. This limits the entrepreneurial ability of the mountain, especially the despicable. Consequently, potential habit opportunities and sign of the zodiac prospects for creating wealth and improving income be lost. minor(ip)credit has been unrivalled framework adoptive to address this problem. Its evolution reflects acknowledgement of credit market failures especially in the formal pecuniary empyrean.There has been, therefore, a translation from the formal financial sector to littlefinance Micro finance practice has had a long history in Nigeria and Africa as a whole, long in the first place economist and world financial analyst recognized it as machine against poverty. The practice of low finance in Nigeria is as old as man it has been a long-term practice in our context. It is mos tly do in less developed countries, where per capita income is very low. In the mid twentieth, theorists were relate over the poverty and process of schooling with specific attention on under developed nations as developing countries were then tagged.According to the instauration Banks World increment Report 1999/2000 Entering the twenty-first century, in 1998, about 1.2 billion people 24 percent of the state in developing and transition economies lived on less than $1 a day. In 1999, 4.5 billion people of 75 percent of the worlds population lived in low-and-lower- mediate income economies. Of these, 2.4 billion were from low income economies with an average annual receipts National Product (GNP) per capita of $410, while 2.1 billion lived in lower middle income economies with an average annual GNP per capital of $1,200 (World Bank, 2000/2001). W.W. Rostows, a leading proponent on state of progression or addition, noted that the critical stop off stage recognize certain min imal rate of investing to take place, to foster development and better the standard of living(a) of individuals.In an attempt to improve the live of the poor people and to raise the standard of living in the coarse, the United states Agency and Implementation Development (USAID), 1995), recognizes while giving medication are involved in different broadcasts because most governance wishing to encourage the development ofbusiness, to supplement general, insurance goals that apply to business, with specific policies and programs aimed at micro and small enterprises. More also, policies that d acceptplay the costs of licensing and registering a business, impart easy access to information about laws and regulations, and facilitates commercial codes, which establish rules to minimizethe cost of doing business by defining the rights and responsibilities of all parties to a transaction. indeed the involvement of Federal Government, and opposite inter bailiwick agencies in the progr am of reducing the poverty level amongst Nigerians. Such programs as Directorate for Food, Roads and hoidenish Infrastructure (DEFRRI), Nigeria Agricultural Cooperative Bank (NACB) and Peoples Bank of Nigeria e.t.c. The aim of the program was to assist and deliver financial go and development to rude communities. The use of this paper is to take a cursory look at microfinance institutions and their cause on funding of small outperform enterprises in Edo State. supposition of Micro Finance Micro finance can be specify as a development tool used to create access for the economically b peril poor to financial services at a sustainably abideable price (CBN, 2005). Eluhaiwe (2005) opined that micro finance is the provision of thrift, credit and other financial services and products in very small amounts to the poor to modify them to raise their income levels and improve their standard of living. Micro finance has also been delimitate as the provision of very small loans that are repaid within condensed period of time and is essentially used by low income individuals and households who induct few assets that can be used as collateral (Ukeje, 2005).Micro finance is basically a tool designed to improve the capacities of the economically active poor to participate in the extensiver economy. The economically active poor are either micro entrepreneurs who operate in the open sector (trading, farming, food catering, craftsmanship and artisanship) or people earning wages. Such poor people earn their living in either rural or urban areas and the financial services for which access is sought are generally savings and loans (Idolor, 2007). Micro finance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. more features distinguish micro finance from other formal financial products. quintuplet of these are the smallness of loans advanced or savings collected, the absence of asset- stall d collateral, and informality of operations (Kimotha, 2005). Others are its targets as the marginalized group of borrowers, and its general employment of a group lending approach (Igbinedion and Igbatayo, 2004). The group lending approach has insinuation for the pressure that the members of the group bring to bear on one some other to ensure loan repayment, so that the group can continue to adore borrowing or loan facilities. In developing countries, a legal age of the population do not curb access to financial services and thus constitute the group that micro finance tries to reach. Nigeria, like both other developing country, is saddled with the problem of rural urban migration, passel illiteracy, poor infrastructures, poverty and lowaccess to formal financial services. whence the need for the governments micro finance policy, aimed at expanding the financial infrastructure of the country to meet the financial requirements of the footling and mean(a) Enterprises (SMEs) as hale as the rural and urban poor. The policy has created a political platform for the nerve of Micro Finance Banks (MFBs) geared towards enhancing the provision of diversified micro finance services on a short-term or long-term and sustainable basis for the poor and low-income groups. It would also help create a vibrant micro finance sub-sector that would be adequately integrated into the mainstream of the national financial system and post the stimulus for poverty reduction, economic growth and development (CBN, 2005).It also has the potential of not only urbanrural but ruralrural migration as Nyberg and Rozelle (1999) noted with attentiveness to China. Small and intermediate descale Enterprises Small and Medium Scale Enterprises are sub-sectors of the industrial sector which play crucial roles in industrial development (Ahmed S. 2006). Following the adoption of Economic reform programme in Nigeria in 1981, there have been several decisions to switch from capital intensiv e and large scale industrial projects which was based on the philosophy of import development to Small and Medium Scale Enterprises which have better prospects for developing domesticated economy, thereby generating the required goods and services that will propel the economy of Nigeria towardsdevelopment. It is base on this premise that Ojo .O. (2009), argued that one of the responses to the challenges of development in developing countries particularly, in Nigeria, is the encouragement of entrepreneurial development scheme. Despite the abundant natural resources, the country still finds it very difficult to discover her developmental bearing since independence. case and adequate infrastructural provision has remained a night-mare, the real sector among others have witnessed downward performance while unemployment rate is on the increase. Most of the poor and unoccupied Nigerians in order to better their lots have resorted to the establishment of their own businesses. Consequen tly, Entrepreneurship is fast becoming a household name in Nigeria. This is as a outcome of the fact that the so called white collar jobs that people clamour for are no longer there.Even, the touted sectors (Banks and companies) known to be the largest employer of get the picture are on the down-turn following the consolidation crisis and fraudulent practices of the high and powerful in the banking sector. The companies of course are folding up as a result of erratic power supply, insecurity and persistent increase in interest rate which has lead to high cost of production and undermines salary making potentials of companies operating in Nigeria. As a result of banking sector practices and continuous folding up of companies, a lot of Nigerians are impel into unemployment which inevitably detriment the economic situation of the country.Since the office jobs that people hope are no longer there for the teeming population, and the few ones that succeeded in getting the jobs are t hrown out as a result of the factors identified above, the need for the government and the people to have a afterthought on the way-out of this mess became imperative. Hence, the need for Small and Medium Scale Enterprises (SMEs) became a reality as a means of ensuring self independent, employment creation, importsubstitution, effective and efficient utilization of local raw materials and component to the economic development of our dear nation (Nigeria). All the aforestated benefits of Small and Medium Scale Enterprises cannot be achieved without the direct intervention of the government and financialinstitutions. everywhere the years a number of policies have been formulated by the government with a view to developing Small and Medium Scale Enterprises. The Nigerian government under the then leadership of Chief Olusegun Obasajo promulgated micro-finance policy and other regulatory and supervisory frame work in 2005. support of Small Scale Enterprises done the Microfinance Insti tutions in Edo State Among the economically active population of Edo State, there is a strong expect for small scale financial services. Micro finance institutions try to couple the gap by accessing credit to low income people to improve household and enterprise management, increase productivity, smooth income flows andconsumption costs, enlarge and diversify their micro businesses, and increase their incomes.Using LAPO Microfinance Bank as a reference point, the challenges thus far faced by most small scale business owners in accessing finance in the state have trim back drastically. Before, most small scale business found it extremely difficult to expand in the first place due to the lack of access to loans from financial institutions. This inability is mainly as a result of the stringent conditions attached to such loans. One of the conditions demanded by financial institutions before loans are granted is the provision of the necessary collaterals. The inability of small inv estment owners to provide such collaterals has often led to the nonexpansion of their businesses.With the establishment of microfinance institutions in the state, all that challenges in accessing needed funds for businesses have been reduced to the bearest minimum. This is so because these various microfinance institutions in the state have been able to provide small and medium scale entrepreneurs with more funds for their business ventures. methodological analysis In writing this paper the researchers principally used existing literatures and ledger relevant to the subject matter of this paper. Using deductive approach, the researchers were able to trace conclusion having critically reviewed salient issues in existing literatures and records.This method was adopted because time would not permit the use of questionnaire which ordinarily has to be administered to a sizeable number of small and medium scale Enterprises, as well as micro finance banks across the state. However, revie wing related works by other researchers gave a deeper insight to the researchers whichenabled us to draw reasonable conclusion. finis There is absolutely no doubt that small and medium scale Enterprises contribute tremendously to the nations economic development. Small and Medium Scale Enterprises constitute essential ingredients in the lubrication and development of any economy.In Edo State, the story makesno remarkable difference as Small and Medium Scale Enterprises dominate the economy. Though access to funds by small business owners in the state is still poor, the various microfinance institutions, vis--vis, microfinance banks have been able to provide easy access to the needed funds to small scale enterprises. The mainstream Banks which are suppose to complement andimplement government policies on the development of small scale enterprises also clamour for huge collaterals which likely poor borrowers usually do not have even borrowers who could afford to provide benefiting c ollateral are further discouraged by continuous increase in interest rate which make borrowers vulnerable to the risk of continuous indebtedness to rich lenders.REFERENCESCBN (2005), Micro Finance form _or_ system of government, Regulatory and supervisory Framework for Nigeria. Abuja Central Bank of Nigeria. Eluhaiwe, P. N. (2005), Poverty decrement Through Micro Financing The Case of India. CBN Bullion, Vol. 30, No. 3, pp. 42-51. Idolor, E. J. (2007), Micro Financing in Nigeria Challenges and Prospects. Nigerian Journal of Business Administration, Vol. 9, No. l&2, pp. 134144. Igbinedion, O. J. and A. S. Igbatayo (2004), Micro recognize and Poverty Reduction in Sub-Saharan Africa Challenges and Policy Framework in Nigeria. Nigeria Journal of Business Administration, Vol. 6, No. 2, pp. 15-35. Kimotha, M. (2005), National Micro Finance Policy Framework and its Expected Impact on the Micro Finance grocery in Nigeria. CBN Seminar to Mark the International Year of Micro Credit in Nig eria, 15-16 December, Abuja. Nyberg, A. and S. Rozelle (1999), Accelerating Chinas Rural Transformation. Washington, D.C. World Bank. Ukeje, E. U. (2005), Poverty Reduction Through Micro Financing The Case of Uganda. CBN Bullion, Vol. 30, No. 3, pp. 52-63. Ahmed S. A.(2006), the role of SMEs in developing economy, Abuja, Omotayo and co. ltd. Ojo O. (2009), Impact of Micro Finance on Entrepreneurial Development A case of Nigeria. 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