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This research study concerns itself basically with the investigation with microfinance bank institution to capital formation in Nigeria, in analyzing this research study, unitary test was adopted and the instrument used for obtaining the data is secondary data from CBN statistical bulletin. The information collected from the secondary data, helps the researcher to analyse how micro-finance bank work and meet the expectation of the government and the people. Having the dependent variable as gross fixed capital formation testing the strength of independent variables inflation, loans and advances and interest rate which shows 65 percent change in the dependent variable. The researcher therefore went ahead to recommend that the importation of goods which can be produced in Nigeria should be banned as this will give our indigenous investors the zeal and challenge to do more exploits in research. Finally the researcher therefore concluded that financial support to micro-businesses, small and medium scale industries SMIS in developing countries like Nigeria.


Title Page i
Approval Page ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of content vii
Background of the study 1
Statement of the problem 3
Objectives of the study 4
Research questions 5
Hypothesis formulation 5
Significances of the study 7
Scope of the study 8
Limitation of the study 8
Organisation of the study 9
Definition of terms 10
Literature review 12
Introduction 12
Background of the study 13
Overview of microfinance activities in Nigeria 16
Justification for the establishment of microfinance bank 18
Operational guideline for microfinance institution 27
Evaluation of microfinance bank 28
Evaluation of microfinance banks in other countries 35
Improving microfinance banking in Nigeria 39
The contribution of microfinance banking to capital formation
in Nigeria 44
Effective credit supply of microfinance 59
Research design 68
Overview 68
The model 69
Specification of variable 70
Economic apriori 71
Evaluation techniques 71
Econometrics 72
Presentation and analysis of result 74
Battery test 74
Presentation and interpretation of result 74
Economic apriori criteria 78
Statistical criteria (first order test) 79
Econometric criteria 83
Summary 89
Conclusion 92
Recommendation 94


Microfinance has emerged as an effective strategy for poverty reduction.
Across developing countries (Nigeria for example) micro, small and medium
enterprises are turning to microfinance institutions (MFIS) for an array of
financial service-microfinance is acknowledged as one of the prime strategies to
achieve the millennium development goals (MDGs)- access to sustainable
financial service enable owners of micro enterprises to increase their capital
base, build assets and reduce their vulnerability to external stocks. Access to
financial services enable poor household to move from everyday struggle for
survival to planning for the future, investing in better nutrition their children’s
education, health and empowering women especially.
However, the potency of microfinance as a development strategy is
contingent upon the existence of microfinance institutions which:
1. Have adequate outreach and more impact on poverty
2. Achieve financial and operating self-sufficient
3. Deliver responsive services to micro and small enterprise
Microfinance is the study of loans, savings and other basic financial services to
the poor who are traditionally not served by the conventional financial
These owners of micro and small enterprise require a diverse range of financial
instruments to meet working capital requirement, build assets, stabilize
consumption and shield themselves against risk. According to Ehigiamusoe (2008)
microfinance primarily focuses on alleviating poverty through provision of
financial services to the poor or owners of micro enterprises. Services users
include artisans, small holder farmers, food processors petty traders and other
persons who operate micro enterprises according to (Okereke et al 2009). The
financial services include working capital loans, consumer credit, savings pension
etc. in practice, microfinance is much more than disbursement management and
collection of little bits of loans.
Microfinance is not charity organization despite its application as “poverty
lending”. Primarily microfinance seeks to create access to credit for the poor who
ordinarily are locked out of financial services in the formal financial market for
reasons of their poverty that is lack of command over assets. If therefore places
obligation on the borrowers for proper utilization and complete repayment of the
borrowed amount even at commercial interest rate.
Microfinance is not new especially history we come across schemes and
social arrangement, which enable people to poor their financial resources for on
ward distribution to co-operating and needy individual. Example includes
“adachi” and several variants of “esusu”. Nigerian microfinance institutions have
also intergraded best practice of traditional schemes into the operational
Although microfinance services have Endeavour to offer financial services
to the vulnerable groups, (youth, women especially), their impact on the
economic activities of the beneficiaries still remain low due to its high operating
cost, repayment problem, in adequate experienced credit staff, client apathy and
dropout, internal control challenges etc. for instance the percentage dropout rate
of FINCA wobulenzi beneficiaries stands at 33% on average (FINCA internal
annual management report 2004).
Some dropout may be due to improvement on welfare of the bank or the interest
rate while in other cases some have lost –even the little they used to own
(Nakalnesi, 2003) this therefore sets the basis for the study.
The study was guided by the following objectives:
1. To examine the nature of financial services offered by microfinance
institutions to the rural communities
2. To identify the indicators of growth in economic activities of microfinance
beneficiaries in Nigeria.
3. To establish the contribution of microfinance banking to capital formation
in Nigeria.
4. To design appropriate strategies that will increase the outreach of
microfinance institutions so as to enhance economic development and
growth in Nigeria.
5. To solve the problems of inadequate experienced credit staff, client apathy
and dropout, high operating cost repayment problems etc.

1.4 Research Questions
The following research questions are formulated to enable us find lasting
solutions to the problems of this study:
1. Of what importance are the contributions of microfinance banks?
2. How does a microfinance bank credit a small and medium scale enterprise
on capital formation?
3. Do microfinance banks enhance individual household ability to accumulate
assets and create wealth?
4. Is it important for microfinance banks to aid in the facilitation of rural
5. How do microfinance banks engage in making finance assessable to
enlarge segment of the Nigerian population?
6. How do microfinance banks create capital?
For a purposeful data collection and interpretation the following
hypothesis are hereby formulated
Hypotheses 1
Ho: Microfinance banks loans and advances to rural people have not
contributed much to capital formation
Hi: Microfinance banks loans and advances to rural people have contributed
much to capital formation
Hypotheses 2
Ho: Microfinance bank credit to small and medium scale enterprise of
agriculture and fishery don’t have much impact on capital formation
Hi: Micro finance bank credit to small and medium scale enterprise of
agriculture and fishery have much impact on capital formation.
Hypotheses 3
Ho: Microfinance bank investments are not good tools for the formation of
Hi: Microfinance bank investments are of good tool for the formation of

Poverty is a major challenge facing Nigeria as a country. Many people
continue to suffer deprivation even as reforms continue successful. This condition
is being addressed to avoid a divide that can engulf Nigeria as a country and the
only way to curtain this divide is by expanding opportunities to the poor through
Microfinance itself is not a new phenomenon in the Nigerian society as
evidence by some cultural economic activities like the “Esusu”, “Aso”, “Otataje”,
etc. which were practiced to provide funds for producers in our rural
communities. What is current however is the effort of the government of Nigeria
to modernize micro financing in our rural and urban communities so as to
improve the productive, capacity, enhance their economic standing which
alleviate the level of poverty and aggregate to improve development of the
national economy. Therefore the significance or importance of this research is to
look at how micro financing through the help of the government can help
improve the lives and standard of living of individuals or citizens in the rural and
urban areas.
There by helping to alleviate poverty and ensuring economic development
of the nation at large.
1.7 SCOPE OF THE STUDY (1992-2010)
The research work study expected to appraise the contributions of
microfinance banking institution to capital formation in Nigeria. As a result, all
works microfinance banks instituted at Mberi in Owerri was chosen as a case
study out of the numerous microfinance banks in Imo state.
1. Time: This constitutes a major problem for the research due to the fact
that the study was carted out during the academic period, it became a
huge problem attending lectures and going about the organization of the
2. Lack of information: there was also difficulty in getting the required
information especially from workers of the firm. Also laying hands on
literatures that has treated these matters was also an impediment to the
flow of the required information.
3. Inadequate materials: this constitutes a hindrance to an effective research
work. The insufficient supply of literatures such as books, journals was also
a problem. Even when seen, they are either out dated or out of use for
referencing purpose.
4. Financial resources: Cost implication on conducting and presenting this
research work was enormous. Buying materials needed for this study cost a
Notwithstanding these constraints, the research was well conceived and
packed to serve the purpose of which it is intended, which is to look at the
various contribution of microfinance banking institutions of capital formation in
In the course of achieving the stated objective of this study, this work has
been arranged under five chapters to deal with the relevant issues f the topic.
Chapter one gave an average of the background of the study significance of the
study, the limitation, scope of the study, organization of the study and definition
of terms.
Chapter two reviews the relevant literature by explaining the conceptual
framework of the topic in question. Chapter three contains the research
methodology used in the research including the design, source of data and
method of data analysis, while chapter four dealt with the presentation and
analysis of data, which highlighted the data collection, the data was properly
analyzed and discussed therein.
Finally chapter five dealt on the summary of findings, conclusion and
recommendations. Hence bibliography and relevant areas for further reading
inclusive in the research.
Engle: To surround, cover some body or something completely
Constraint: A thing that limits or restricts something or your freedom to do
Alleviation: To make something less sever
Potency: The power that somebody or something has to affect your body or
Vulnerability: Week and easily hurt physically or emotionally
Disbursement: To pay money to somebody from a large amount that has
been collected for purpose
Utilization: To use something especially for a particular purpose
Sustainability: Involving the use of natural product and energy in a way that
does not harm the environment or that can continue or continued for a long
Dequincy: Bad or critical behaviour, usually of young people
Appellation: A name or title


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