chapter One

1.0 Introduction

1.1 Research background

Despite doubts about the development of the Nigerian economy, it is observed that the country is still largely considered a developing country (Onyema, 2006). Moreover, the growth of that industry is not very impressive.

Before the emergence of formal microfinance institutions, informal microfinance activities flourished throughout the country. Traditionally, microfinance in Nigeria has involved traditional informal practices such as local lending, revolving loans and savings practices, loans from friends and relatives, government institutional arrangements and poverty alleviation programmes. (Lemo, 2006). A 2001 study by the Central Bank of Nigeria found that the activity of former microfinance institutions in Nigeria is relatively recent, with most of them not registered since 1981. So far, commercial banks have traditionally extended loans to medium- and large-sized companies that are considered creditworthy. They avoided doing business with the poor and their microenterprises as the associated costs and risks were considered relatively high (Anyanwu, 2004).

The federal and state governments recognize that strengthening the finances of rural areas as a haven for the overwhelmingly poorest members of society, especially small and medium enterprises, is critical to sustainable growth and development. If this growth strategy is adopted and the potential entrepreneurial skills of a large portion of the population are sufficiently stimulated and maintained, a positive multiplier will be felt across the economy. To realize these aspirations, the federal government has taken various steps to increase the production capacity of rural enterprises. (Oraitan 2006)

From this, we began to see the impact of microfinance banks on Nigeria’s economic growth and development. Microfinance initiatives make loans and funds easily accessible to rural farmers and entrepreneurs, giving rural areas the opportunity to grow and develop. Employment opportunities are being created due to the availability of loans and investment opportunities.


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