Academic journal article Journal of Emerging Trends in Economics and Management Sciences

The Impact of Microfinance on Economic Growth in Nigeria

Academic journal article Journal of Emerging Trends in Economics and Management Sciences

The Impact of Microfinance on Economic Growth in Nigeria

Article excerpt

Abstract

This paper examines the impact of microfinance on economic growth in Nigeria. Emphasis is made on the primary role of microfinance institutions in Nigeria which is poverty reduction and small scale enterprise financing. Assets, Deposit Liabilities, Loans & advances microfinance banks were used proxy the activities of microfinance institutions in Nigeria while Gross Domestic Product was used as a proxy for economic growth.

Using secondary data and applying ordinary least square of multiple regressions, it was revealed from the findings that Asset base and deposit liability has an insignificant impact on economic growth while Loan and Advances to the public has a significant impact on economic growth in Nigeria. However, the overall significance of the model shows that the activities of the microfinance banks cannot be overemphasized in the pursuance of a sustained economic growth in Nigeria. It is therefore recommended that the government should create an enabling environment capable of supporting the microfinance banks in microcredit delivery.

Keywords: microfinance, economic growth, loan and advances, microcredit, asset base and deposits.

INTRODUCTION

Over the years, microfinance has emerged as an effective strategy for enhancing economic growth across developing countries. Micro, small and medium enterprises are turning to Microfinance Institutions (MFIs) for an array of financial services. Credit allocation is a powerful instrument to fight poverty, increase productivity, output and enhance economic growth. Access to financial services enable poor households to move from everyday-for-survival to planning for the future, investing in better nutrition, their children's education and health and empowering women socially (Ehigiamusoe, 2005). With the advent of Grammen Bank and other such programs micro-credit obtained a new identity, a new meaning and a place in development literature. It is no more a mere concept; it is now a worldwide movement. Microfinance is acknowledged as one of the prime strategies to achieve the Millennium Development Goals (MDGs).

OVERVIEW OF MICROFINANCE IN NIGERIA

In Nigeria, micro-financing is not a new phenomenon as evidenced by such cultural economic activities as "Esusu", "Adashi", "Otataje", etc, which were practiced to provide funds for producers in our rural and urban communities. What operates at present however is the effort of governments in Nigeria to modernize micro-financing in rural and urban communities to improve the productive capacity of the rural and urban poor, enhance their economic standing which alleviates the level of poverty and enhance economic growth and development in the economy.

After failed trials in Directorate of Food, Road and Rural Infrastructure (DFRRI), Rural Banking by commercial Banks and even People's Bank programme (1986), the government of the Federal Republic of Nigeria took the bull by the horns by enacting legislation for the establishment of community banks (now microfinance institutions). To complement government efforts, over the years, a lot of NGOs has formally been licensed to operate as micro finance institutions. Some existing NGO microfinance institutions were transformed and Universal Banks were encouraged to engage in microfinance services. Of recent, microfinance banks regulation and supervisory guidelines were inaugurated.

The dismal performance of the conventional finance sectors triggered the advocation of micro financing by policy makers, practitioners, and international organizations as a tool for economic growth. Since its emergence, the number of microfinance institutions around the world has proliferated at a fast pace after the 1970s. Today there are more than 7000 micro - lending organizations providing loans to more than 25 million poor individuals around the globe (Mohammed and Hasan, 2008). The Nigerian microfinance industry has come a long way. It boasts of the entire four well - known models in the industry. …

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