EFFECT OF PUBLIC EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA (1981-2013)

ABSTRACT

This study seeks to evaluate whether or not the Contributory Pension Scheme has an impact on employee retirement benefits of quoted firms in Nigeria and; to determine the relationship that exists between the Impact of the Contributory Pension Scheme on employee retirement benefits and standard of living in Nigeria. The study also assessed the relationship between pension costs and independent variables: total assets and profitability of quoted firms in Nigeria. In line with the objectives, three hypotheses were formulated. The population of the study is the one hundred and eighty-two (182) firms quoted on the first- tier market of the Nigerian Stock Exchange and ten (10) quoted firms selected as sample size based on judgmental sampling. The study utilized data from secondary source. Data were obtained from the annual accounts and reports of the (10) quoted firms that made up the sample of the study and the World Bank data profile on gross national income per capita in Nigeria. The time frame for the study is ten years, covering the period of 1998 to 2007. The techniques of analysis used in the study were the Student’s T-test, qualitative grading, the Pearson Correlation Coefficient and Multiple Regression Analysis. We concluded that even though the Contributory Pension Scheme has positive impact on employee retirement benefits of quoted firms in Nigeria, variation in application still exists among them. The study also established that the ability of quoted firms to fund their pension assets has direct relationship with their assets sizes and respective profitability. The study recommended an effective monitoring/supervision and enforcement of the provisions of the Pension Reform Act, 2004, in addition to effective implementation of the penalties provided by the Act on non-compliers regardless of their status or origin. The study calls on the appropriate authorities such as the government, professional accountancy bodies on academics to commission research and activities geared towards developing not only accounting policies that would ensure swift compliance with Statement of Accounting Standards (SAS 8), but strategies that would ensure optimum investments that enhance net worth and profitability of firms.

TABLE OF CONTENT
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract vi
Table of Content vii
List of Tables x

CHAPTER ONE: INTRODUCTION
1.0 Background of the Study 1
1.1 Statement of Problem 5
1.2 Objectives of the Study 7
1.3 Research Questions 7
1.4 Statement Research Hypotheses 7
1.5 Scope of the Study 8
1.6 Significance of the Study 8
1.7 Definition of Terms 9
References

CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.0 Pension Scheme in Nigeria: An Overview 14
2.1 Prior Studies on Compliance With Pension Standards 16
2.1.1 Concept of Pension Plans 18
2.1.2 Objectives of Pension Plans 21
2.1.3 Determination of Retirement Cost 22
2.1.4 Pension Costs Recognition and Future Pension Liabilities 23
2.1.5 Concept of Assets 24
2.1.6 The Concepts of Profits 25
2.2 The Emergence of Pension Reform Act 2004 25
2.3 The Objectives of the New Pension Reform 27
2.4 Elements of the New Contributory Pension Scheme 27
2.5 Institutional Framework 29
2.5.1 The National Pension Commission (PenCom) 30
2.5.2 Pension Fund Administrators and Pension Fund Custodians 30
2.6 Investment of Pension Assets under the New Contributory Pension
Scheme 31
2.6.1 The Investment Guidelines 32
2.6.2 The Assets Allocation Structures by National Pension Commission
(PenCom) 33
2.6.3 Risk Management Under the New Contributory Pension Scheme 35
2.6.4 Identifiable Risks 37
2.6.5 Pension Risk Management Operation Process 42
2.7 The Benefits of the Contributory Pension Scheme 43
2.8 The Implications of the Contributory Pension Scheme on Nigerian
Workers 45
2.9 The Challenges of the Contributory Pension Scheme in Nigeria 46
References

CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction 53
3.1 Research Design 53
3.2 Sample Size and Sampling Technique 54
3.3 Nature and Sources of Data Collection 54
3.4 Techniques of Data Analysis 55
References

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0 Introduction 61
4.1 Data Presentation and Analysis of The Student T-Test Result 61
4.2 Data Presentation and Analysis of Pearson Correlation Coefficient Result 66
4.3 Data Presentation and Analysis of Regression 69
4.4 Research Findings 76
References

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.0 Summary of Findings 80
5.1 Conclusions 82
5.2 Recommendations 84
References

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ABSTRACT

This study/research was necessitated owing to the recent financial crisis that enveloped the globe, commonly referred to as the global credit crunch. This crisis came about as a result of mismanagement of mortgaged that were made available to the masses abroad specifically the United States of America. The crisis has its root in a banking practice called sub-prime lending or supreme mortgage. Even when Banks got to realize that there was fire on the mountain, they were shy to admit it because they were scared of being undervalued. Like a wild fire, the whole globe was enveloped in the crisis. The researcher made use of secondary data, as many people had views that varied on the topic or issue. The research went a long way to show to what extent the meltdown affected the stock market capitalization and GDP of Nigeria during  the specified period namely-March 2008 to February 2009, in doing this the researcher employed  the technique namely regression and correlation analysis. From the study we came to see how adversely the stock market capitalization was affected whereas the GDP was not affected as such. More details are seen in the body of the research work

CHAPTER ONE

1.0   INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Never since the 1930’s Great depression has the world faced such level of financial crisis as the current credit crunch that has threatened to undermine the stability of the world’s economic system and in turn rewrite economic theories that have hitherto been regarded as sacrosanct. The credit crisis which was ignited in the US, but took its first victims in the UK in 2007 resulting in the collapse of Northern Rock, was triggered by rising defaults by sub-prime US mortgage borrowers; (Simon E. and Tonia O. 2008).        In US there are three types of mortgages namely:

 

Conventional, Interest-only and Sub-Prime

In conventional mortgages, part of each month’s payment goes towards paying off the principal and part goes towards interest (Fiakpa, L. et al: 2008).

In an interest-only loan or mortgage, the borrower only pays interest each month. This makes it cheaper than a conventional mortgage.

Sub-prime mortgage is granted to borrowers whose credit history is not sufficient to get a conventional mortgage or who do not qualify for market interest rates owing to various risks factors such as income level, size of the down payment made, credit history and employment status. (Fiakpa, L. et al; 2008).

As the defaults in sub-prime US mortgage mounted, institutions had a rethink on their attitudes to risks and suddenly became scared of losing money.

Banks became unwilling to lend to each other for fear of not getting their money back. The panic spread to shares and finally from financial markets to hit the wider economy.

But the damage had been done and the global economy has taken a beating, the extent of which is yet to be determined.

In Nigeria, it first came by a meltdown of the capital market, but as price depreciation continued unabated, the authorities decided to have a second look at the market. The market fundamentals were strong, what could therefore be wrong with the market? Questions were asked.

Secondly, dwindling petroleum prices means a severe reduction in foreign exchange earnings, which in our case, affected the economy severely as the nation depends so much on the petroleum sector.

Deriving from the above, is the deficit in Federal Government budget narrowing down to State and Local Government allocation, there is also loss of jobs and a slow down in fight against poverty.

Thus, as Komolafe Babajide (2008:6) rightly puts it, the tragedy of the US economy soon became a global nightmare US investors in a bid to save some of their investment at home started calling home their foreign investments including those in Nigeria. This gave rise to a glut of shares in the market, which promoted the sharp depreciation of share prices. The impact of this on the Nigerian stock exchange has been quite severe as the market capitalization tumbled more than 30 percent within the period (vanguard 2008:8).

Contrary to earlier claims that the Nigerian economy is insulated, the crisis soon infected the entire capital market. This was due to the decision of foreign investors to pull out their funds from the market leaving it saturated with stocks. The problem thus spans from the indications that a sustained investment in stocks is needed to rally investor confidence. Unfortunately, almost one month after the Nigerian stock market prices took a nose-dive and three weeks after the US economy posted their signs that a recession was imminent, there hasn’t been a coherent effort on the part of the organized private sector especially in Nigeria to salvage what is left of the economy.

This study is therefore out to investigate this global economic meltdown or downturn as it impacts on the Nigerian Economy. The basis of the study is on various sectors of our economy and because the Nigerian economy is mostly and hugely dependent on oil prices, the ongoing projects in Nigeria’s oil and gas industry is dependent on foreign financing. This then implies that some key sectors of the economy may suffer a set back and our oil and gas sector may not be spared. Independent Daily (2009:43) captured it more vividly by saying that the crux of the project’s down turn was due to step up security concerns arising from the activities of militants operating in the Niger Delta region.

Economic meltdown may also attack a nation’s bureaucratic sector. Hence, the decision making machineries have come to agree indeed that there is a huge complex theory threatening their propaganda instinct. Financial meltdown can also take a steep price of consequence on the entire population. This is revealed in financial vanguard (2009:26) that because of high energy costs, consumers have reduced their gasoline consumption at the fastest rate since the oil shock of the 1970’s as prices peaked, oil consumption in Nigeria dropped by 12% in July to its lowest level since the return of democracy (Oti, B. 2008). The big question then was why did a domestic problem in faraway USA become so profound as to take a toll on the Nigeria people?

I personally, felt it is just one the negative consequences of globalization: as well as the evil side of capitalism as many authors have come to discover. The researcher also finds out that though not surprisingly that a complete new approach may prove to be a more viable solution to the current economic nightmare. The reason being that, in spite of various governments’ concerted efforts in re-aligning the economy, not much has been seen of the impact of the government’s bailout packages and nationalization policies. It is therefore not surprising as it is only a repeat of the 1930’s global depression method of correction.

However, as we watch events unfold, one thing is clear; the world’s most vulnerable people have been rendered more vulnerable; there is fear of great deprivation ahead as investment losses in Nigeria may trigger factory shutdowns and generate more unemployment.

 

1.2   STATEMENT OF THE PROBLEM

The overwhelming effect of the world’s credit crisis has called to question the efficacy of the global economic theories, be they capitalism or welfarism as practiced in the western and Eastern blocks respectively. As governments across the globe retreat to the drawing board in search of answers, operators and stakeholders in proffering solutions have stated that the remedies lie with no economic theory, but in confidence building measures.

Although the Nigerian government has rolled out series of bail out packages to cushion the effect of the crisis on both the private sector and the public ones, it appears the economy is still sinking deep into recession.

The issue of government intervention and its efficacy remains the crux of this research. This is borne out of the fact that economic destabilization remains the bane of national tragedy. Thus finding a better medium of recovery is often the big problem confronting the authorities. The questions now are as follows: Has the CBN done enough to really insulate the Nigerian banking sector from the crisis? Can the informal sector of the Nigerian economy be proactive enough to rescue the entire economy like the one in Europe and America? These and more are really the problems militating against survival of the global, economic meltdown

1.3   OBJECTIVES OF THE STUDY

From first principles, we must not forget that financial booms and busts are not a new phenomenon. What is disquieting about the current meltdown is that it is in the nature of a seismic tremor of earth showing proportions. Within a few months, some of the biggest financial giants have bellied-up while several more are in serious trouble.

Similar to this is the dwindling capacity of regulatory authorities. The reality is that the world of high finance has become so complex in our digital age, with capital traveling at the speed of light and several instruments engineered using the arcane language of quantum physics.

Thus, in the light of the problems identified in the preceding section, the objectives of the research are as follows:

1. To examine the factors and sequences of event resulting in the meltdown and the impact of meltdown in Nigerian economy.
2. To determine the effectiveness of government monetary policies in addressing the situation.

iii.    To find out the approximate collateral damage the impact must have had on the entire Nigerian economic system.

1. And finally, to ensure through this research that suggested way out of the crisis is not only provided but appropriately streamlined.

 

1.4    HYPOTHESIS

1. H_o: The current financial crisis greatly affected marked capitalization on the Nigerian stock exchange.

H_i:   The current financial meltdown has not greatly affected market capitalization on the Nigerian Stock Exchange.

2. H_o: The financial meltdown has influenced the GDP of Nigeria.

   H_i:     The financial meltdown has no impact on the GDP of Nigeria.

 

1.5    SIGNIFICANCE OF THE STUDY

With the festering financial crisis that is fast becoming a global hitch, declining national revenue, sharp fall on the value of shares and the continuing crash of the naira against foreign currencies are some of the major indicators that the global crisis is already affecting Nigeria.

This research bears quite some significance as it will unveil the extent to which this meltdown has no far inflicted one national economy.

The study will present in concise form the measures already taken by the relevant authorities and stakeholders to cushion the effects of the crisis and will finally present the views though varied and complex of scholars which can be of immense help in getting Nigeria off the hook.

 

1.6     SCOPE AND LIMITATIONS OF STUDY

This research will focus primarily on the financial meltdown as affecting the Nigerian Economy. The work is not conclusive in nature as the crisis is till bedeviling the national economy. Because of global implications of the menace, only secondary data were consulted while the time horizon considered is from March 2008 to February 2010.

The scope of this study is quite broad. It pictures, from a historical perspective, the economic meltdown. However, quality time was devoted to X-ray the Nigerian economy in order to ascertain the extent of damage or danger the local economy is up against.

The study therefore covers issues on monetary policies, stock market manipulations, government intervention packages as well as political economics within the country.

Again, due to the spill of this economic crisis from the developed world, attention was also paid to the perceived origin of the crisis the USA was constantly referred to because of the role the country played in spreading the meltdown.

Finally, some problems were encountered in the process of the research.

These are as follows:

1. The problem of the complex nature of the study which was basically new to scholars of this century. Thus this hindered the availability of published materials.
2. Getting the various data and appropriate materials also proved very difficult and time consuming.

iii.    Finally, due to the demand of other conventional academic engagements and constraints of financial resources, the work is inconclusive in nature. Above that, harnessing all the information gathered within the short time allotted to this study was not possible.

 

1.7   RELEVANT RESEARCH QUESTIONS

To cover the scope of this project satisfactorily, the research topic is broken down into several research questions. By the time these questions are duly answered through objective reasoning and the use of informative facts, the researcher would have met the research objectives. Such questions include.

1. To what extent has the meltdown affected the national economy?
2. Has the CBN efficiently, played its role in maintaining macroeconomic and financial stability?
3. What efforts are being put in place by the Federal Government in cushioning the effects of the crisis?
4. How can confidence be built again in investing public?

 

 

1.8    DEFINITION OF SPECIAL TERMS

The following terms, were presented in their technical sense.

Budget: This is the annual financial statement containing an estimate of all anticipated revenue and expenditure of the government of the coming year.

Budget deficit: This occurs when an entity (often a government) spends more money than it receives. The opposite of budget deficit is budget surplus. Debt is essentially an accumulated flow of deficit. In other words, a deficit is a flow and debt is a stock.

Buy back: Buy back refers to the redemption of outstanding debts by the issuer before the maturity.

Asset backed security: security collateral by loans, leases unsecured received or installment contracts on personal property, automobiles or credit cards. The cash flows generated by the underlying obligations are used to pay principal and interest to the asset-backed security holders.

Correlation: A statistical measure of the closeness of the variations in the values of another.

The correlation value lies in the interval-1 to 1-Margin here refers to the borrowing of stock for the purpose of getting more leverage, OECO countries, that is the Word’s net surplus and donor countries. (The Guardian: p.18).

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ABSTRACT

This study examines the impact of microfinance activities on rural economic growth in Nigeria for the period: 2000-2015; the introduction of microfinance banks is the inability of commercial banks to provide sufficient credit, savings and other financial services to the poor and so have taken up the challenges of the gap created by them;  the primary objective is to investigate the impact of microfinance on rural economic growth in Nigeria with the specific objective of examining and evaluating the impact on agricultural contribution to GDP, rural saving and poverty reduction; literature was reviewed along the line of conceptual framework, theoretical and empirical literature; methodology adopted used the ordinary least square (OLS) regression technique to estimate the hypotheses, values of aggregate loan and advances to aggregate deposit ratio was used as proxy for microfinance activities and adopted as the independent variable while the dependent variables include agricultural sector contributions to gross domestic product (GDP), rural savings (RS) and poverty index (PI); Data analysis considered three hypotheses and the result from the  study reveals that regression coefficient of microfinance activity is negative in explaining agricultural contribution to GDP and rural poverty but positive and significant in explaining rural savings in Nigeria; based on these findings, the study recommends that conscious effort showed be made by government to industrialize rural areas as a means of improving rural economic growth; microfinance institutions should be encouraged to lend to rural dwellers as a way of promoting rural saving habits in Nigeria while policies related to agricultural diversification should be intensified by government in combating the menace of poverty in Nigeria.

 

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Over the past three decades, there has been growing awareness of the spatial dimension in the development of the rural areas especially in developing countries where rural communities have earlier experienced decades of neglect (Olawepo and Ariyo, 2011). There is therefore special interest in the accelerating processes of rural community transformation by various governments in the areas of poverty alleviation, provision of rural infrastructure such as health and medical facilities, electricity, pipe borne water. Schools; agricultural extension and in the development of micro finance establishments that will affect the lives of the rural investors and community organizations. Based on these and other strategies, the central bank of Nigeria (CBN) in 1990 established an economic policy that would encourage the extension of banking business to the rural area of the country in order to mobilize rural savings. This was aimed at development and fostering rural transformation (Ariyo, 2003 and Olawepo, 2004). The whole idea of rural banking stemmed from a realization of the abundant resources available in the rural areas, the need to channel these resources to production and make such business activities contribute to economic development shifted research focus and government policy to promoting rural banking habit. An increase in rural investment as a result of provision of loans and advances will gear up output level and this will in turn raise the consumption level and possibly improve accessibility to public good s and services within the rural environment (See Direvedi, 1980; Adedayo, 1983; Jenyo, 2002 and Olawepo 2004).

 

According to Smith and Yeboah, (2005), throughout most of the post World War II period, government across the developing world have intervened in rural financial markets in order promote income expansion and alleviate rural poverty. In many of these efforts especially during the 1950s, 1960s and 1970s, the authorities pursued the direct credit approach which is targeted at increasing production or adopting new technologies without external assistance in the form of credit since they were assumed to be too poor to save. But private banks could not lend on appropriate terms to this sector and thus farmers were forced into the hand of money lenders This Development lead to the establishment of government owned specialized institutions like Agricultural Credit Guarantee Scheme to provide subsidized credit to the target population.

 

 

By the early 1990s two general approaches to financial market reform had taken shape. The first was known as financial liberalization and the second the financial  system development Approach. The goal of rural financial market reform was to expand access to financial services and efficiency of financial intermediation Restrictive government polices was said to be the principal cause of the shallow, fragmented and inefficient financial systems plaguing many developing countries (Mckinnon 1973).

 

To enhance the efficiency of the financial system and to create more access to financial services for marginalized groups, the prescription was liberalize the financial system by eliminating restrictions on interest rates, mandatory sector credit allocations and credit ceilings (Pill and Pradhan, 1997; African Development Bank, 1994; and Aryeetey et al, 1997).

 

Today the task of taking the financial system and the entire economy to the next level is squarely placed on financial system strategy 2020. The blue print of financial system strategy is to reposition the country to one of twenty largest economies in the world. The objectives were articulated strategies to make Nigeria the financial hub of Africa, join the league of the top 20 economies and build financial institutions that are global players.

 

Above all, there can be no meaningful discussion of  Nigerian’s rural economy without due consideration of crucial role of not only Agriculture that has remained largest revenue earners for Nigerian living in rural area but also those engage in small scale business such as pottery, weaving, carving, tool making, trading hairdressers, photographers, welders , bakery, small and medium scale  enterprises’ have been fully recognized by government and development experts as the main engine of economic growth and a major factor in promoting the realization of FSS2020, improve standard  of living of rural populaces, bring local capital formation, achieve high level of productivity and capacity and act as principal catalyst  for achieving equitable and sustainable industrial diversification.

 

1.2       Statement of Problem

Evidence in Latin American, Asian and African countries show that savings mobilization is one of the key activities in building a sound financial system (Lamberte et al, 2006; Amel et al, 2004; Gonzalez-vego, 2003; Roberts and Hanning ,1998; Deaton,1992; Bencivensa and Smith, 1991; Braverman and Guasu, 1986; Begashaw, 1978). However, in developing countries, savings are often under mobilized. Two commonly cited underlying causes are: (1) prevalence of inappropriate saving products and poor services by depository institutions, (2) lack of confidence in the safety or liquidity of financial institutions by rural people (Sec, De Aghion and Morduch, 2005; Gonzauz-vega, 2003; Ghosh et al, 2000; Feder, 1993). Therefore, to effectively and efficiently mobilize savings, saving products appropriate for rural savers need to be developed and depository institutions need to improve their services to this category of the population. Also, the institutions need to win the confidence of the rural people by building easy and friendly saving and withdrawal procedures.

 

The core objectives of national integrated rural development plan (2000) for microfinance bank are: to ensure significant reduction of poverty and ultimately its eradication in the shortest possible time; mobilize and empower rural population to create wealth through increased agriculture , industrials and other productive activities; promote the expansion of the productive base of the rural economy through the creation of non-agricultural enterprises; provide access to extension services, input, credit and marketing services and to raise rural productivity in general. The integrated rural development plan identifies poverty reduction, mobilization of savings and financing agriculture as the three cardinal transmission channels through which micro financing will enhance rural economic growth and development.

 

In Nigeria, the government through its legislation seem to exacerbate the micro credit banking crises. For example, in 1990 the government established the community bank to promote banking habit among the rural people and accelerate rural development through financial intermediation. In 2005, the government through the central bank of Nigeria mandated the existing community banks to migrate to Microfinance Banks CBN (2005) (10) (Vanguard, 2011). The regulatory framework for microfinance banks changed the ownership structure of the community banks by allowing a single individual to own a microfinance bank. The regulation also increased the minimum share capital for microfinance banks to N20 million for unit bank and N2 billion for state bank. Such has the ability of creating unlevel playing ground between the poor and the rich. The reform targets economically active poor without effectively addressing the deluge of problems the defunct community banks encountered.

 

Moreover, the Nigerian deposit insurance corporation conducted a nationwide investigation in 2011 on all the microfinance banks in the country. The findings led to the complete closure of about 224 microfinance bank (Vanguard, 2011). The remote causes of such crises could be traced to the lagging supervision and liberal licensing of microfinance banks. This is because CBN was giving microfinance bank license without proper regulatory and supervisory requirement. This situation led to the proliferation of microfinance banks without complying to the regulatory issues like regular rendition of reports to Central Bank and keeping proper book of account.

 

This development triggered widespread criticisms on the microfinance model by depositors and customers of the affected microfinance banks. The Nigerian Deposit Insurance Corporation (NDIC) promised full protection for depositors and publishes regularly depositors that are yet to collect their claims. However the nature of microfinance clients makes the NDIC promise mere window dressing as some of them can not read nor write let alone have access to national dailies.

 

With such policy vacillation, the ability of micro finance banks in achieving the national integrated rural development plan in the Nigerian economy is not certain and so constitutes a very good research area. The essence of this study is to fill this research gap.

 

1.3       Objectives of the Study

The major objective of this study is to investigate the impact of microfinance on rural economic growth in Nigeria. To achieve this objective, the study strives to fulfill the following specific objectives.

• To examine the impact of microfinance activities on agricultural contribution to gross domestic product in Nigeria.
• To evaluate the impact of microfinance activities on rural savings in Nigeria.
• To assess the impact of microfinance activities on rural poverty in Nigeria

 

1.4       Research Questions

The following are the research questions which this study seeks to answer.

• To what extent has microfinance activities impacted positively and significantly on agricultural sector contribution to Nigeria’s gross domestic product.
• To what extent has microfinance activities impacted positively and significantly on rural savings in Nigeria.
• To what extent has microfinance activities impacted positively and significantly on rural poverty reduction in Nigerian.

 

 

1.5       Research Hypotheses

In line with the objective of the study, the following hypotheses were formulated.

(1)  H_o:Microfinance banks activities do not have positive and significant impact on  agricultural sector contribution to Nigerian’s gross domestic product.

H_i:Microfinance banks activities have positive and significant impact on agricultural sector contribution to Nigerian’s gross domestic product.

 

(2) H_o: Microfinance banks activities do not have positive and significant impact on rural savings in Nigeria.

H_i: Microfinance banks activities have positive and significant impact on rural savings in Nigeria.

 

(3) H_o:Microfinance banks activities do not have positive and significant impact on rural poverty reduction in Nigeria.

H_i:Microfinance banks activities have positive and significant impact on rural poverty reduction in Nigeria.

 

1.6       Scope of the Study

The study will cover the period 2000-2015. The practice of microfinance in Nigeria is rooted in its culture and dates back several centuries. Thus, in 2000, the World Bank in a meeting with the Nigerian government regarding microfinance urged the central bank of Nigeria to develop an appropriate policy as well as regulatory and supervisory framework for the operations of microfinance institution.

 

Accordingly, the focus of this study is to verify the impact of microfinance institution activities on the enhancement of economic growth in Nigeria from 2000-2015 with the rural areas in mind.

 

1.7       Significance of the Study

The study will be significant to the following groups:

 

1. Government

Policy decisions are made on necessity, preliminary data and estimates that contain considerable desire to achieve its intended objectives. Thus, this study will assist government policy markers in formulating police that will impact on achieving better living standards on the rural populace of Nigerians.

 

Again, the focused of the Nigerian government microfinance policy is to make financial services accessible to a large segment of the population which otherwise would have little or no access to financial service. Therefore, the small and medium scale enterprises that have been suffering for a long time from poor funding will be bridged through microfinance loans.

2. Donor agencies, operators and Regulators in the Banking Industry

It will asset them in enunciating  policies that will not only positively impact on microfinance bank but also to remain relevant in the economy by performing such a function as mobilization of domestic savings.

3. Academic Significance
4. The study will contribute to the array and volume of literature written by different scholars in this area of finance.
5. The study will serve as a body of reserved knowledge to be referred to by researchers.

iii.        It will suggest ways of interest to academics based on empirical evidence of enhancing service delivery by microfinance institutions

1. It will trace the history of rural banking policies in Nigeria especially since the introduction of microfinance banking. For instance, on 15^th December 2005, the federal government through central bank issued a microfinance policy, supervisory and regulatory framework that allows for the establishment of microfinance bank that cater for the need of small scale business and low income groups: the policy provides for two categories of private sector driven microfinance institutions. Those that operate in a local government area capitalized to N20m and those licensed to operate in a state capitalized to the tune of N1billion.

 

4. Rural Dwellers

Rural dwellers consist primarily peasant farmers and Artisans such as bakery, convenience stores, hairdressers, welders, photographers and restaurant. The study will be significant to them as it is capable of contributing to the improvement of standard of living in terms of income, education, nutrition and health. Development practitioners, policy makers, and multilateral and bilateral lenders, however, recognize that providing efficient microfinance services for rural dwellers is important for a variety of reasons (CBN, 2006). Microfinance can be a critical element of an effective poverty reduction strategy, improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their micro enterprises, enhance their income earning capacity and enjoy an improved quality of life.

 

5. Professionals

The study will be useful to them through promotion of sound microfinance practice by advocating professionalism, transparency and good governance in microfinance institutions.

 

As expert, they will guide the poor and low income earners to channel the microfinance loans to appropriate business, keep proper book of account and maintain financial discipline.

 

They will also be guided through acquisition of entrepreneurial skills such as marketing skill, human resources management, asset management financing and investment and management of family.

 

6. Economic Watchers and Interested Public

This study will be important to the general and interested public because                           it will help to explore option available from rural banking institution in accessing loans and advances thereby increasing their economic well being.

 

• Operational Definition of Terms

The following terms are defined in the context of this study

 

1. Micro-Finance Policy

This is a national document setting out regulatory and supervision framework for Nigeria.

2. Micro-Finance Bank

A Micro-finance bank should be construed to mean any company licensed to carry on the business of providing microfinance services such as savings, loans, domestic fund transfers that micro-enterprises need to expand the business as defined by the guidelines.

3. Micro-Finance Institution

This is an establishment designed to grant micro-credit to people to enable them develop small businesses.

 

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