BACKGROUND OF THE 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. This sector is dominated by micro, small, and medium-sized firms (MSMEs) as well as peasant farmers in need of financial help to grow their businesses and improve their living conditions. 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 within communities, with no outside support or services, using their own system and methods. The micro finance scheme arose as a result of commercial banks’ and the formal financial system’s incompetence or unwillingness to fulfill the needs of low-income people and small businesses. According to the Nigerian Central Bank (2005), the formal financial system serves roughly 35 percent of the country’s economically engaged population, while the remaining 65 percent are denied access to financial services. Looking back through history, Nigerians have always been involved in commercial activity. 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 finance is frequently used by the target groups to gain 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 segment of Nigeria’s productive population. 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 complement banking sector changes (Ojo,2007 and Anyanwu,2007). As a result, microfinance is projected to fill a gap in the financial system by assisting some underserved groups who would otherwise be unable to receive financing through the formal financial system. Since then, the CBN has licensed hundreds of microfinance institutions 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, poor risk assets, and insufficient supervision. Despite the interest generated, initiatives begun, and patronage engendered, a huge percentage 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 program was launched. When informal financial services like as savings clubs/pools, Esusu, Ajo, and money lenders are included, the total 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.
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 revenues, and promote ownership chances. Given the importance of the business 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. Despite well-defined policies and objectives, the viability and continuity of service delivery of micro financing banks in Nigeria is threatened by the following issues:
1. The Micro Finance Fund has been diverted.
2. Inadequate financial resources.
3. Unfavorable/frequent policy changes by the government.
4. High-risk, high-cost transactions, and rising loan losses
5. Microfinance has a poor capacity and technical skill set.
OBJECTIVES OF THE STUDY
The study’s major goal is to assess the operational issues that Micro Finance Banks face in Delta State, Nigeria. The study’s specific goals are as follows:
1. Investigate the operating architecture of microfinance banks in Delta.
2. To assess the operational issues that Micro Finance Banks in Delta State are facing.
3. To investigate the impact of these operational issues on the performance of microfinance institutions in Delta State.
4. To see if operational issues with microfinance banks in Delta state have an impact on microfinance access to small and medium-sized businesses in the state.
The following research questions were established in order to lead the study and meet the study’s stated objectives:
1. What are the operational frameworks of Delta State’s microfinance banks?
2. What are the operational issues that Micro Finance Banks in Delta State are dealing with?
3. What impact do operational issues have on the performance of microfinance banks?
4. Has access to microfinance by SMEs in Delta state been hampered by operational issues with microfinance banks?
Ho: There is no link between operational issues and the performance of microfinance institutions.
Hi: There is no link between operational issues and the performance of microfinance institutions.
SIGNIFICANCE OF THE STUDY
The report will assist policymakers in the state in developing policies to close loopholes in the operations of microfinance banks in Delta. The study’s findings and recommendations will emphasize the many operational issues that micro finance institutions in Delta state face, as well as how these issues can be efficiently addressed. If the many operational challenges outlined in the study are addressed, small and medium scale firms will have easier access to micro finance or loans. The research will also serve as a guide and a foundation for other student researchers who want to look into operational issues in other Nigerian financial institutions.
SCOPE OF THE STUDY
The research will be limited to a few selected microfinance banks in Nigeria’s Delta State. This is owing to a lack of funds and time, as the researcher was unable to cover a larger area.
DEFINITION OF TERMS
Micro-Finance Bank: This is a sort of banking service that is offered to unemployed or low-income individuals or groups that would otherwise be unable to obtain financial services. Operational Issue: An operational issue is one that is not related to financial, systemic, or market-wide risk. It is the risk that remains after financial and systematic risk have been determined, and it includes risks stemming from failures in internal procedures, people, and systems. A loan is a debt provided by an entity (company or individual) to another entity at an interest rate, and it is shown by a note that details the principle amount, interest rate, and repayment date, among other things. A loan involves the lender and the borrower reallocating the subject asset(s) for a period of time. Risk is the possibility of losing something valuable. When taking a risk, values (such as physical health, social standing, emotional well-being, or financial riches) can be obtained or lost as a result of a planned or unplanned action or inactivity. The intentional interaction with uncertainty can also be defined as risk. SME: Small and Medium Enterprise