Accounting Department Research project Topic Chapter 1-5 titled – Investigate the Effect of Micro Finance Banks.
CHAPTER ONE
INTRODUCTION
Background to the Study
The setting up of micro finance bank is a major attempt by government to stimulate grass root banking in order to encourage economic growth through the provision of credit to enhance investment. The establishment of these banks emerges because the former urban based western type of banking system have been found to have failed, to adopt and sufficiently satisfy the needs of citizens for saving and credit facilities, thus creating a gap in the Nigerian financial system.
According to Ojo (2006), these had adversely affected the promotion of the development of indigenous small industrial enterprises and agricultural activities, all of which have to be developed before Nigeria can achieve any meaningful economic growth. The gap in the financial system led to the chronic shortage of institutional credit in the country, and this in turn adversely affected the development of indigenous smallscale enterprises.
According to Lawrence (2000), ‘finance is a powerful development tool which greases the productive channels of industry and stimulates their smooth operation. It is a universal lubricant which keeps the enterprise dynamic, develops product keeps men and machine at work, encourages management to make progress and create value.
The development of grass root banking therefore was prompted by the need to allow all Nigerians greater access to institutional credit grass root banking is seen as an important aspect of integrated economic growth approach already in operation in Nigeria.
This approach is believed to be the most promising to foster economic growth as its primary objectives are the mobilization of both human and material resources which will involve the stimulation of active participation of all and sundry.
As a result of this for the grass root banking system to facilitate such integrated economic growth, it must be effective in mobilizing savings as well as facilitating the provision of credit to the populace for onward investments. This is where the community banking concept is considered suitable for the establishment of banks which most inhabitants are quite familiar with and seen as their own as well as being more ready in financing their production and investment activities. Thus it becomes totally necessary to properly identify investment opportunities in communities within the scope of small-scale enterprises and tailor financial services to their needs.
According to Mogbo (2002) small and medium scale enterprises have been found to be an engine of growth and in fact they are most conducive to the creation of jobs per unit of naira investment.
From this point of view, it is absolutely expected that the emergence of micro finance banks on the Nigerian financial scene is bound to have a catalytic impact on the stimulation of investments, especially in the area of small-scale enterprises and this will eventually lead to the structural transformation that would put the Nigerian economy on the path of self-reliance and sustainable economic growth.
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