CHALLENGES OF INTERNATIONAL FINANCIAL SOURCES SUPPORTS TO MICROFINANCE IN NIGERIA

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CHALLENGES OF INTERNATIONAL FINANCIAL SOURCES SUPPORTS TO MICROFINANCE IN NIGERIA

ABSTRACT

The purpose of the research work is to investigate the challenges of international financial sources supports to micro finance in Nigeria.

The objectives of the study were to examine the ways international financial sources can help develop the microfinance sector in Nigeria. To also identify the types of international financial institutions that support microfinance sector in Nigeria. And finally to determine the major threats and challenges facing the microfinance banking sector in Nigeria.

The primary data for the purpose of this study was gotten from the used of questionnaires. While the rest was obtained from journals and other related articles.

The method of chi-square was used for the purpose of the analysis. The hypothesis was tested; the p-values were 0.00 which were all less than the level of significance; so we concluded that there are challenges and threats facing the Microfinance banking sector in Nigeria. Also there is a significant relationship between the types of international financial institutions and the support to microfinance sector in Nigeria and finally that international financial sources do help develop the microfinance sector in Nigeria.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The international financial institutions (IFIs) are financial institutions that have been established (or chartered) by more than one country, and hence are subjects of international law (World Bank, 2005). International financial institutions (IFIs) are institutions that provide financial support (via grants and loans) for economic and social development activities in developing countries (Helms, 2006). The owners or shareholders are generally national governments, although other international institutions and other organizations occasionally figure as shareholders. According to Alegieuno (2008), the most prominent IFIs are creations of multiple nations, although some bilateral financial institutions (created by two countries) exist and are technically IFIs. The best known IFIs were established after World War II to assist in the reconstruction of Europe and provide mechanisms for international cooperation in managing the global financial system. To facilitate transactions from different nations to provide lending services to developing countries around the world that encourages economic development and international trade (Global Development Finance, 2005).

Hossain (2004) describes microfinance as the practice of offering small, collateral free loans to members of cooperatives who otherwise would not have access to the capital necessary to begin a small business or other income generating activities. This view is to narrow, since it not only excludes such services as saving accounts and insurances, but also ignores the possibility of collateral demanding MFIs. Although it is true that many MFIs do not take collateral, especially if they are focusing on the poorest that normally do not possess any collateral, several MFIs in fact do require some forms of collateral.

Microfinance shows up as a long sustainable and a very successful program, in which millions of people in developing and developed countries around the world are involved. The expansion of microfinance is a priority of the United Nations as part of the Millennium Development Goals. However, microfinance has been expanding more and more from the local level to the global. The portfolios of microfinance institutions include commercial banks, which are recognized as a lucrative market of the future. The year 2005 also saw the introduction into the stock market (securitization) package of Asian, Latin American and African micro-credit and a capacity of tens of millions of dollars. The investment in microfinance can help to bring more opportunity such as self-employment, improving household level, market link, etc (Alberto, 2011).

The Nigerian microfinance industry has come a long way. A Central Bank of Nigeria study identified as of 2001. 160 registered Microfinance Institutions (MFIS). In Nigeria with aggregate saving worth N99.4 million and outstanding credit of N649.6 million, indicating huge business transactions in the sector (Anyanwu, 2004). Institutional Structures for the provision of micro credit vary and may be any of the following: government, or public sector oriented, NGO supported, traditional or a mixtures of two or more of these.

Microfinance institutions (MFIs) are one of the specialized financial institutions (Mosley and Hulmey, 1998). They are the agencies or institutions which are either established by private individuals, government, donor agencies as well as non-governmental organizations with sole aim of ensuring financial inclusion. The essence of MFIs are to provide microfinance services such as provision of micro loan, micro saving, micro insurance, transfer services and other financial products targeted at poor or low income individuals (Kurfi, 2008). Microfinance can be defined as lending small amount of money for enterprise development and attainment of income above poverty line (Lashley, 2004). It is provision of small units of financial services to low income client which are usually excluded from mainstream financial system (Ehigiamusoe, 2008).

1.2 STATEMENT OF THE PROBLEM

The central essence of microfinance is to provide loan to micro entrepreneurs to invest in their businesses as well as allowing them to grow out of poverty. The credit policy for the poor involves many practical difficulties arises from operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial banking institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable. A huge number of micro loans are needed to serve the poor, but banking institution prefers dealing with big loans in small numbers to minimize administration expenses. They also look for collateral with a clear title – which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information monitoring costs on operation (Okezie et al; 2013).

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