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Dwindling nature of deposits mobilization in microfinance industry necessitated this study. It is to establish the effect of deposit mobilization on the financial performance of micro finance banks in Nigeria: A study of Umuchinemere Pro-credit micro finance bank Nigeria limited 2005 – 2014. The main objective is to examine the effect of customer deposit on the financial performance of the bank and one specific objectives. Two hypotheses were formulated, two research questions, The research design used is ex-post facto. The population of the study was all microfinance banks in Enugu and a sample of one (1)microfinance bank was considered. The data was sourced from the annual report of Umuchinemere pro-credit micro finance bank. Regression analysis and correlation techniques were used to analyse the data. The analysis was carried out using statistical package for social sciences(SPSS).One of the findings of these work is that Customer deposit has effect on the financial performance of Microfinance bank in Nigeria and that Interest rate charges has effect on the financial performance of Microfinance bank in Nigeria. In conclusion Micro Finance Banks are essential in the development of financial system in Nigeria. I recommend that the bank should give due emphasis to its deposit mobilizing tasks since mobilizing deposit is a way to survival and managing deposits is not possible without knowing and controlling the fundamental factors affecting it.



Title page                                                                                                    i

Declaration                                                                                                 ii

Certification                                                                                                         iii

Dedication                                                                                                  iv

Acknowledgements                                                                                     v

List of tables                                                                                               vi

Abstract                                                                                                      vii


1.1     Background to the study                                                                   1

1.2     Statement of the Problems                                                      4

1.3     Objectives of the study                                                            5

1.4     Research Questions                                                                 6

1.5     Research Hypotheses                                                              6

1.6     Significance of the study                                                                   7

1.7     Scope of the Study                                                                            7

1.8     Definition of Terms                                                                8


2.0     Introduction                                                                                      10

2.1   Conceptual Framework                                                            10

2.2    Theoretical foundation                                                            29

2.3   Empirical review                                                                       31

2.4    Summary and gap in Literature                                                         36


3.1     Introduction                                                                                      38

3.2     Research Design                                                                      38

3.3     Sources of Data                                                                       39

3.4     The Population of the study                                                   39

3.5     Sampler and sample size                                                                   39

3.6     Instrumentation                                                                       39

3.7     Reliability and validity of the data and test instrument           40

3.8     Data analysis techniques                                                                   40


4.1     Introduction                                                                                      42

4.2     Analysis of Data                                                                     42

4.3     Test of Hypothesis                                                                            48

4.4     Major Findings                                                                       49

4.5     Discussion of Findings                                                            49



5.1     Introduction                                                                                      52

5.2     Summary                                                                                52

5.3     Conclusion                                                                              53

5.4     Recommendations                                                                             54

5.5     Suggestion for further study                                                    56

References                                                                                         57

Appendix                                                                                          63





  • Background to the Study

The desire to enlarge banking facilities in the rural areas of Nigeria started with the rural banking scheme in the 1970s, and up to the 1980s. However, by the end of the 1980s, it became clear that the conventional banks were no longer willing to open more rural branches; this was simply because such branches were mostly unprofitable. Opening them therefore ran contrary to the profit objective of the owners. In facing this challenge, Nigeria, like most other countries of the world have adopted the concept of micro financing as a means of mobilizing deposits in the rural areas. Microfinance banks in Nigeria operate in diverse environments where they render various categories of services and products to the target clients.

Microfinance banking is a type of banking service that is provided to unemployed or low income individuals or groups. Microfinance banking as a means of creating economic and social development has come a long way in Nigeria. Various comprehensive surveys of the diversified activities of microfinance banks have been provided since 2005 when the policy guidelines became operative. Since its inception, Microfinance Institutions (MFIs) has contributed in a special way in supporting small and medium enterprises by

effectively channeling the idle funds obtained through deposit mobilization to the general public in the forms of loans (short, medium or long term loan), so that it is being put into valuable production and other investment projects helping people to reach their goals.

The importance of Microfinance Institutions can never be overemphasized. Deposit mobilization is one of the major objectives of banks. Deposit is the foundation of all banking activities. However, microfinance banks as well as the banking sector in general do depend on customer’s deposit to advance its clients.

Since the proclamation of the term Micro financing in Nigeria in the mid-term 1970’s, several countries have copied this model, mostly in the developing world. However, the government of Nigeria adopted this policy in the year 2005 and inaugurated the microfinance scheme. The main objective for the promulgation of this policy is to provide finance to the economically active poor, excluded from financing from conventional banks, provide employment, engender rural development and reduce poverty. More so, in Nigeria it is important to note that there are over nine hundred (900) Microfinance banks today in Nigeria and they are regulated and supervised by the Central Bank of Nigeria.

Bello (2005) is of the view that banking system is the backbone of financial intermediation through the mobilization and channeling of financial resources. Therefore, Micro-finance Banks acts as a financial intermediary; by financial intermediary the Microfinance Banks serves as a middleman for parties in a financial transaction. It consolidates deposits and uses the funds to transform them into loans.

Deposits are indispensable tool Microfinance banking use to enhance its profitability through advancing deposits to its customers in form of loans which yield interest to the banks.  The  lending  activity  is  made  possible  only  if  the  banks  can  mobilize enough funds from their customers.

According to Sharma (2009), the bank credit and bank deposits are very closely related with each other that they represent, roughly speaking, two sides of the same coin, and the balance sheets of banks. Banks all over the world thrive on their ability to generate income through their lending activities. The lending activity is made possible only if the banks can mobilize enough funds from their customers. Therefore, in order to thrive in their ability to generate income through their lending activities, most microfinance banks have adopted different strategies or techniques which would help to facilitate their goals of mobilizing enough funds from their customers. This is made possible through improving their services, initiating modern technological banking system processes, locating the banks at strategic places where their services are needed, adopting appropriate promotion strategy and imposing a considerable interest rate on loans.

Mohan (2012) stated that mobilization of deposits is one of the important functions of banking business. Mobilization of deposit plays an important role in providing satisfactory services to different sectors of the economy. The success of the micro-finance banking greatly lies on the deposit mobilization.

The performance of Microfinance bank can be measured through various indicators which could be financial and social performances. These indicators help the financial institutions to measure their success in terms of their returns and to ensure that they also positively benefit the lives of their clients. That is to say, sound finances and good returns are important indicators of success; however, social performance is another increasingly important benchmark used to assess many institutions.

  • Statement of the Problem

In the Nigerian financial sector, according to EFIA Access to financial services in Nigeria 2016 survey, indicated that about 40.1 million Nigeria adults, representing 41.6% of the adult population are financially excluded. That is, they do not have access to Deposit Money Banks, Microfinance Banks, Mobile Money, Insurance and Pensions. Therefore, banks have the sole responsibility to approach this group of persons and make them understand the importance and benefits of saving. Notwithstanding the above importance of micro financing in Nigeria. To the best of my knowledge as a researcher, not much work has been done to find out the relationship between deposit mobilization and the financial performance of micro financing in Nigeria. This therefore informs the necessity to investigate this relationship as a contribution to knowledge and an attempt to fill the research gap; hence, the decision to embark on this study. Therefore, this study is carried out to determine, if really, the financial performance of Microfinance Banks are affected by deposit Mobilization.

1.3     Objectives of the Study

The general objective of this study is to determine the effects of deposits mobilization on the financial performance of Microfinance banks in Nigeria with particular reference to Umuchinemere Pro-credit Micro Finance Bank Nigerian Limited. The specific objectives are:

  1. To examine the effect of customers deposits on the financial performance of Microfinance bank in Nigeria.
  2. To evaluate the effect of interest rate charges on the financial performance of Microfinance Banks in Nigeria.


1.4     Research Questions

In the light of the objective of the research, the following research questions were considered pertinent:

  1. What is the effect of customer deposit on the financial performance of Microfinance bank in Nigeria?
  2. What is the effect of interest rate charges on the financial performance of Microfinance Banks in Nigeria?

1.5     Research Hypotheses

In the light of the forgoing research question some hypotheses were formulated to guide the study:

H1:    Customer deposit has no effect on the financial performance of Microfinance bank in Nigeria.

Ho:    Customer deposit has effect on the financial performance of Microfinance         bank in Nigeria.

H1:    Interest rate charges have no effect on the financial performance of           Microfinance bank in Nigeria.

Ho:    Interest rate charges have effect on the financial performance of Microfinance bank in Nigeria.


1.6 Significance of the Study

This research is significant in many aspects. The subject matter of the effects of deposit mobilization on financial performance in microfinance banks in Nigeria has drawn so much attention and interest among Nigerians at home and abroad.

This research would be of immense benefit to the banking sector of the Nigeria economy, enabling them to understand the essence of using numerous techniques or strategies in ensuring that the required amount of deposit is mobilized to meet the lending volume required by the public and at the same time maintain extra cash for withdrawals by depositors.

The research is expected to portray the banking customers’ response to the changing banking operation, that is introduction of new technology, techniques and strategies towards giving the customers qualitative and efficient banking services (meeting the customers need).

Finally, the findings from this research will be useful to future researchers in related areas, government agencies, students, bankers and even the public at large.

1.7 Scope of the Study

The case study has been considered appropriate for this research as a result of the way its branches are situated at every strategic business unit in Enugu, Nigeria. Thereby, giving way to a better assessment and analysis of data to arrive at a high degree of accuracy through the collection of data. The study covers a period of ten (10) years (2005– 2014).

1.8 Definition of Terms

  1. a) Interest rate: Is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed. It refers to the interest rate in microfinance bank. (Homer, Sylla, R.E; Sylla, R. (1996)
  2. b) Salary Account: Salary account is a type of saving account where your salary gets credited. The salary accounts are aimed at helping a person manage their salary. It is specially designed for people who live from hand to mouth; hence in most instances, a salary account allows a minimum balance of zero. This means that the person can withdraw all of the money from their salary account and not have to pay a penalty. (Kazi, 2012)
  3. c) Deposit Money Bank: Are resident depository corporations and quasi-corporations which have any liabilities in the form of deposits payable on demand, transferable by cheque or otherwise usable for making payment. The bank here refer to Umuchinemere pro-credit micro finance bank.
  4. d) Microfinance Bank: A Microfinance Bank is any company licensed by the Central Bank to carry on business of providing Microfinance services that are needed by the economically active poor, micro, small and medium enterprises. It refers to Umuchinemere Pro-credit Microfinance Bank.
  5. e) Commission on Turn over: A monthly percentage Charge on current account usually depends on the frequency of transactions within the period. (Kazi,2012)



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