A Study of the Microfinance Institutions Essay

One factor inhibiting the attainment of developing goals in less(prenominal) developed countries is the populaces general inability to irritate factors of production, especially finance. This limits the entrepreneurial ability of the tribe, especially the menial-down. Consequently, potential piece of work opportunities and household prospects for creating wealth and improving income are lost. Microcredit has been one framework adopted to trade this problem. Its evolution reflects acknowledgement of credit market failures especially in the formal monetary sector.There has been, thitherfore, a shift from the formal financial sector to microfinance Micro finance practice has had a long fib in Nigeria and Africa as a whole, long before economist and world financial analyst recognised it as weapon against poverty. The practice of micro finance in Nigeria is as old as humankind it has been a long-term practice in our context. It is mostly practiced in less developed countries, w here per capita income is actually low. In the mid twentieth, theorists were concerned over the poverty and process of development with specific attention on under developed states as developing countries were then tagged.According to the field Banks WorldDevelopment Report 1999/2000 enter the 21st century, in 1998, about 1.2 zillion people 24 part of the population in developing and transition economies defyd on less than $1 a day. In 1999, 4.5 billion people of 75 percent of the worlds population lived in low-and-lower-middle income economies. Of these, 2.4 billion were from low income economies with an modal(a) annual Gross National Product (GNP) per capita of $410, mend 2.1 billion lived in lower middle income economies with an total annual GNP per metropolis of $1,200 (World Bank, 2000/2001). W.W. Rostows, a authorizeing proponent on state of progression or fruit, noted that the critical take off stage recognize certain minimal rate of enthronisation to take place , to foster development and better the standard of living of individuals.In an attempt to improve the live of the curt and to raise the standard of living in the country, the United states Agency and Implementation Development (USAID), 1995), recognizes while Government are involved in different programs because most government want to encourage the development of business organisation, to supplement general, policy goals that apply to business, with specific policies and programs aimed at micro and small enterprises. More in any case, policies that minimize the equal of licensing and registering a business, provide 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. Hence the involvement of Federal Government, and other international agencies in the program of reducing the poverty level amongst Nigerians. S uch programs as Directorate for Food, Roads and rustic 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 services and development to pastoral communities. The purpose of this paper is to take a cursory look at microfinance institutions and their effects on funding of small carapace enterprises in Edo State.Concept of Micro pay Micro finance can be define as a development tool apply to create access for the frugalally active poor to financial services at a sustainably impartable price (CBN, 2005). Eluhaiwe (2005) opined that micro finance is the planning of thrift, credit and other financial services and products in very small amounts to the poor to enable them to raise their income levels and improve their standard of living. Micro finance has also been defined as the provision of very small loans that are repaid within short period of time and is fundamentally used by low income individuals and households who gain few assets that can be used as validatory (Ukeje, 2005).Micro finance is basically a tool designed to improve the capacities of the economically active poor to participate in the larger economy. The economically active poor are either micro entrepreneurs who plight in the informal 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 mainly 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.M all features distinguish micro finance from other formal financial products. Five of these are the smallness of loans advanced or savings collected, the absence seizure of asset-based collateral, and simplicity of operations (Kimotha, 2005). Others ar e its targets as the marginalized group of borrowers, and its general employment of a group add approach (Igbinedion and Igbatayo, 2004). The group lending approach has implication for the pressure that the members of the group bring to bear on one another to ensure loan repayment, so that the group can continue to enjoy espousal or loan facilities. In developing countries, a majority of the population do not leave access to financial services and thus constitute the group that micro finance tries to reach. Nigeria, like any other developing country, is saddled with the problem of rural urban migration, mass illiteracy, poor infrastructures, poverty and lowaccess to formal financial services. Hence the request for the governments micro finance policy, aimed at expanding the financial infrastructure of the country to meet the financial requirements of the miniscule and Medium Enterprises (SMEs) as well as the rural and urban poor. The policy has created a platform for the founda tion 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 provide 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 respect to China. minor and Medium scale leaf Enterprises Small and Medium outstrip Enterprises are sub-sectors of the industrial sector which play crucial roles in industrial development (Ahmed S. 2006). Following the credence of Economic reform programme in Nigeria in 1981, there have been several decisions to switch from capital intensive 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 domestic economy, thereby generating the required goods and services that lead 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 palliate finds it very exhausting to discover her developmental bearing since independence. Quality 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 unemployed Nigerians in pitch to better their lots have resorted to the establishment of their own businesses. Consequently, Entrepreneurship is fast becoming a household piddle in Nigeria. This is as a give of the fact that the so called white collar jobs that people blaring for are no longer there.Even, the touted sectors (Banks and companies) known to be the largest employer of labour are on the down-turn following the integration crisis and fraudulent practices of the high and mighty in the banking sector. The companies of course are folding up as a result of erratic power supply, insecurity and persistent increase in enliven rate which has lead to high cost of production and undermines profit 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 thrown into unemployment which inevitably scathe the economic situation of the country.Since the office jobs that people desire are no longer there for the hum population, and the few ones that succeeded in getting the jobs are thrown out as a result of the factors set above, the need for the government and the people to have a rethink 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 contribution to the economic development of our penny-pinching nation (Nigeria). All the aforestated benefits of Small and Medium Scale Enterprises cannot be achieved without the direct intervention of the government and financialinstitutions.Over the years a number of policies have been formulated by the government with a prognosis to developing Small and Medium Scale Enterprises. The Nigerian government under the then leadership of antique Olusegun Obasajo promulgated micro-finance policy and other regulatory and supervisory frame work in 2005. Funding of Small Scale Enterprises Through the Microfinance Institutions in Edo State Among the economically active population of Edo State, there is a strong demand for sm all scale financial services. Micro finance institutions try to twain the gap by accessing credit to low income people to improve household and enterprise management, increase productivity, tranquil income flows andconsumption costs, enlarge and diversify their micro businesses, and increase their incomes.Using LAPO Microfinance Bank as a commendation point, the challenges hitherto faced by most small scale business owners in accessing finance in the state have reduced drastically. Before, most small scale business found it extremely operose to expand principally 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 disposed(p) is the provision of the necessary collaterals. The inability of small investment owners to provide such collaterals has often led to the nonexpansion of their businesses.With the estab lishment 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. METHODOLOGY In writing this paper the researchers principally used breathing literatures and record relevant to the give in matter of this paper. Using deductive approach, the researchers were able to draw 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 big number of small and medium scale Enterprises, as well as micro finance banks across the state. However, reviewing related works by other researchers gave a deeper insight to the researchers whichenabled us to draw reasonable conclusion . determination 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 prospective poor borrowers usually do not have even borrowers who could afford to provide benefiting collateral are further discouraged by continuous increase in interest rate which make borrowers vulnerable to the r isk of continuous indebtedness to rich lenders.REFERENCESCBN (2005), Micro Finance Policy, regulative and Supervisory Framework for Nigeria. Abuja Central Bank of Nigeria. Eluhaiwe, P. N. (2005), Poverty Reduction Through Micro backing The Case of India. CBN Bullion, Vol. 30, No. 3, pp. 42-51. Idolor, E. J. (2007), Micro backing in Nigeria Challenges and Prospects. Nigerian diary of Business Administration, Vol. 9, No. l&2, pp. 134144. Igbinedion, O. J. and A. S. Igbatayo (2004), Micro Credit 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 Market in Nigeria. CBN Seminar to Mark the International Year of Micro Credit in Nigeria, 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. Apaper presented at the International Conference on economic and administration, organized by the faculty of Administration and Business, University of Bucharest, Romania, 14th 15th November, 2009. 2000, World Development Report 1999/2000 Entering the 21st Century. 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