The role of micro finance on the economic growth in Nigeria. A study of Lagos state

CHAPTER ONE/INTRODUCTION

Background to the study

Microfinance banking today in Nigeria and the world over, occupies a very strategic position in the enhancement of the socio-economic well-being of the poor who are typically self–employed low income entrepreneurs such as traders, street  vendors, small farmers, hairdressers, barbers, GSM commercial operators, artisans and a host of others. Microfinance literally means building finance system that effectively and efficiently serves the needs of the poor. It is a powerful tool for fighting poverty the world over. This is true because when poor people have access to financial services, they can earn more, build their assets and cushion themselves against external shocks as they arise (Drechsel et al., 2012). According to Central Bank of Nigeria (2013), microfinance bank is the provision of a broad range of financial services such as savings, loans payment services, money transfers and insurance to the poor and low income persons, households and their microenterprises.

According to Robinson (2002), microfinance enables clients to protect, diversify and increase their incomes as well as to accumulate assets and reduce vulnerability to income and consumption shocks. Seibel (2001) sees microfinance banking in a wider term as comprising banking and non-banking, formal and non-formal financial institutions with financial services of a small scale mostly to low income people and that the term micro banking is used for regulated microfinance institution belonging to the banking sector.

According to the United Nations (2012), Nigeria has a total population of about 160 million people with approximately 70% (98 million) living below the poverty level estimated at US $1.25 per day. GNI per Capita is approximatey US$ 1140 with life expectancy at 48. The total adult population (18 years and above) is 84.7million and 70% of adults live in rural areas with 51% male and 49% female.

According to Osamwonyi and Obayagbona (2012), the role of microfinance banking in the growth and development of the Nigerian economy cannot be underestimated in view of the astronomically growing population, coupled with the rising unemployment rate and youth restiveness; the government is facing a lot of challenges in providing enough jobs for the populace. One sure way to combating unemployment is to empower people with the necessary microfinance loans and services that will enable them start up or run business ventures of their choice . In this study we shall examine the impact of microfinance institutions on economic growth using Lagos state as a case study.

Statement of Research Problem

The development of a healthy national financial system is an important goal and catalyst for the broader goal of national economic development. In this era of globalization, generating economic growth in developing countries while reducing poverty is a fundamental challenge. Over time, inadequate supply of credit has been an important constraint on production in many developing countries where majority of the population lack access to financial services from formal institutions, either for credit or for savings. A serious problem however confronting many developing countries is the savings gap, which essentially means that these countries find it difficult to finance investments needed for growth from domestic saving (Walker, 1999).

Research Questions

• To what extent does microfinance bank loans impact on economic growth in Lagos state, Nigeria?
• What is the relationship between microfinance bank investment and economic growth in Lagos state Nigeria?
• What is the relationship between microfinance deposit and economic growth in Lagos state Nigeria?
• Is there   any   relationship  between   microfinance  bank   contributions  to agricultural production and economic growth in Lagos state Nigeria?

 

Objectives of the Study

The broad objective of the study is to determine the impact of microfinance bank on the economic growth in Nigeria. However, other sub-objectives are to:

 

i. Determine the relationship between micro finance bank loans and economic growth in Lagos state  Nigeria.

ii.  Determine the relationship between micro finance bank investment and economic growth in Lagos state  Nigeria.

iii. Examine the relationship between microfinance bank deposit and economic growth in Lagos state Nigeria.

iv. Determine the relationship between micro finance bank contributions to agricultural production and economic growth In Lagos state Nigeria.

Research Hypotheses

The following are the null hypotheses that were used for the study:

Ho1.   There is no significant relationship between micro finance bank loans and economic growth in Lagos state Nigeria;

Ho2    There is no significant relationship between micro finance bank investment and economic growth in Lagos state  Nigeria;

Ho3   Microfinance deposit has no significant impact on economic growth in Lagos state  Nigeria;

Ho4   There is no significant relationship between micro finance bank contributions to agricultural production and economic growth in Lagos state  Nigeria.

Significance of the Study

The results of this study will be of immense benefit to various stakeholders in the microfinance banking sector of the Nigerian economy, Secondly, it will also assist microfinance banks managers in the banking sector in managing their investment more effectively by adopting appropriate polices and strategies that will take cognizance of risks peculiar to the microfinance bank in the Nigerian banking sector.Thirdly, it will also enhance the knowledge of researchers and students in management sciences on the relevance of microfinance bank to economic growth and thus stimulate their interest in this area. Such interest could lead to further researches which may seek to verify the results of this study or to replicate same using different methodologies or different populations.

Scope of the study

The role of micro finance on the economic growth in Nigeria

Limitations of the Study

One cannot gurantee a 100% accuracy of the information with a view to be used, its measurement, as well as the method of data analysis; as it may affect the robustness of the study.

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