THE IMPACT OF MICRO-FINANCE INSTITUTION ON

UNEMPLOYMENT, POVERTY AND DEVELOPMENT OF SMALL AND

MEDIUM ENTERPRISE s (SMEs) IN ADAMAWA STATE

BY

SHUAIBU YAHAYA GARTA

SABONDALE MICRO-INVESTMENT COMPANY NIG LTD

(08031937853)

AND

AHMED MUSTAPHA MUHAMMAD

(08036582557)

DEPT OF GENERAL STUDIES COLEDGE FOR LEGAL STUDIES YOLA

ADAMAWA STATE

AND

SAHABO SHUAIB MAHMUD

HEAD OF BANKING AND FINANCE DEPARTMENT

FEDERAL POLYTECHNIC MUBI

(07035873155)

1
 TABLE OF CONTENT

1. ABSTRACT---------------------------------------------------------------------------------------------

2. INTRODUCTION--------------------------------------------------------------------------------------------

3. STATEMENT OF THE PROBLEM-------------------------------------------------------------------------

4. OBJECTIVES OF THE STUDY------------------------------------------------------------------------------

5. IMPACT OF MICRO-FINANCE INSTITUTIONs IN REDUCING UNEMPLOYMENT,POVERTY

AND DEVELOPMENT OF SMEs.--------------------------------------------------------------------- --

6. PARADIGM OF MICROFINANCE INSTITUTIONs IN NIGERIA

7. MAJOR CHALLENGES FACE BY MICROFINANCE INSTITUTIONS IN ADAMAWA STATE

8. MODELS OF MICROFINANACE INSTITUTIONs IN NIGRIA----------------------------------------------

9. CONCLUSIONS------------------------------------------------------------------------------------------------

9. POLICY RECOMMENDATION -------------------------------------------------------------------------------14

10. REFERENCE-----------------------------------------------------------------------------------------------------15

2
 ABSTACT
Access to financial services has a potential to make a difference in agricultural productivity, food
security, unemployment, poverty reduction and the development of SMEs. However, an
efficient, sustainable and widely accessible financial system remains a stumbling block and a
major development challenge in most part of the country. This study examines the role of micro
finance companies in curbing unemployment and poverty in adamawa state Nigeria. The study
is of the view that microfinance companies play important roles in the economic development of
the nation as well as job opportunities for an effective poverty reduction strategy. Empirical
findings from the study reveals that prompt accessibility and efficient provision of micro credit
can enable the vulnerable poor and disadvantaged groups in the society to be gainfully
employed, improve their economic and social security, consumption pattern, as well as
drastically reduce the over dependency on government foe employment. This will go a long way
in building and developing client micro enterprises assets enhance better income earning
capacity, and improve their quality of life.

Key words.micro-finance, poverty, unemployment, SMEs

3
 Introduction
Over the years, microfinance has emerged as an effective strategy for employment creation and poverty
reduction across the country. Micro, small and medium enterprises are turning to Microfinance
Institutions (MFIs) for an array of financial services. In many countries, these MFIs have emerged as a
response to address unemployment and the failure of state-led and mainstream formal financial system
to reach the vulnerable and the peasant poor.

March, Porter and Harper (1999) define microfinance as small scale and finance services for the poor.
In view of the above, microfinance is the provision of financial service such as loans, savings,
insurance, and money transfer and payment facilities to low income groups. It could also be
used for productive purpose such as investment, seeds or additional working capital for micro
enterprises. On the other hand, it could be used to provide for immediate family expenditure
on food, education, housing and health. Microfinance is an effective way for poor people to
increase their economic security and thus reduce unemployment and poverty.it enable poor
people to manage their limited financial resources, reduce the impact of economic shocks and
increase their assets and income Robinson(2001).

Microfinance companies in Nigerian and particularly Adamawa State remain key players in the
labour environment through the various financial incentives they are providing clients in terms
of soft loans. But reverse is the case as most of the client find it difficult to access micro credit
loan from micro finance institutions. This situation not only triggers but proliferate the rate of
unemployment in the society. This has resulted in persistent deterioration of welfare of people
and therefore has had little prospect for measurable development in the country. Based on
data provided by the Nigerian Bureau of Statistics (NBS) (2016), the unemployment rate within
the period under review stand at 21% in the first quarter of 2016 up from 19.0% in December
2015.Accordingly, 56.1% of Nigerians in the labour force age 15-24 years were either
unemployed or underemployed in the first quarter of 2016 compared to 31.3% in fourth
quarter of 2015.

In order to boost employment in Nigeria, the government has focused on the area of Credit
Delivery to the Poor and Small and Medium Enterprises (SMEs). Efforts in this respect include
developing policies and creating institutions for mobilizing and deploying capital funds to SMEs.

4
These are found in various Governments key development strategies such as the
Obasanjo/Atiku National Economic Empowerment and Development Strategy (NEEDS 2004),
Yar adua/Goodluck Seven (7) Point Agenda(2007), Gooodluck/Namadi Transformation Agenda
and the Buhari/Osibanjo (5) Point CHANGE AGENDA.

The Nigerian government has institutionalized microfinance as the practice of collaborative

provision of financial services such as credits (loans), savings, micro-leasing, micro-insurance
and payment transfers to economically active poor and low income households. This is to
enable them engage in income generating activities or expand their small businesses (Irobi,

2008).

However, the impact of this intervention on rural communities is yet to be ascertained. Despite
commitment by the successive Nigerian government, majority of the SMEs are unable to access
loans from MFIs thus failing to obtain start-up capital for business purposes. This is because the
microfinance sector is fraught with many challenges, with evidence showing that the MFIs
experience problems relating to information asymmetry and risk perceptions.

Moreover, government initiatives were not successful because MFIs are facing challenges
with regards to promoters low entrepreneurial skills. There is also the problem of lending to
poorly packaged projects making it difficult to achieve the desired outreach levels.

In addition, majority of the people engaged in SMEs are found among the peasant and
lumpent proletarians groups in Adamawa state who are mostly found in the rural settlement.
As observed by emeifele (2015), banking services were only available to 57million Nigerians
which represent about 66% of the population in 2016, whereas more than 70% of the poor did
not have access to formal finance in the same year. Consequently, poverty levels continued to
worsen from 68.7 million people in 2003/2004 to 112.519 million in 2010 representing 69% of
the country total population (NBS, 2011). These poor people do not have access to institutional
credit mainly because they are not considered credit worthy hence they cannot borrow from
banks or formal financial institutions. Furthermore, money markets including the traditional
moneylenders provide loans but charge very high interest rates which rural dwellers cannot
afford (Nosiru, 2010:291). Therefore, this paper evaluates the issues and impact of micro-
finance institution in Nigeria in terms of outreach and sustainability on poverty reduction,
employment generation and development of SMEs. One of the major contributions of the
study is that loan demand is interest rate insensitive; The study provided evidence of the impact
of microfinance on the welfare of MFI clients and income growth in the country; It was found
that MFIs is a potent instrument in the mobilization and dispersion of credit to the working poor
in Nigeria; The study also showed evidence that MFIs are major contributors to SME growth and

5
added literature to the features of Microfinance Institutions (MFIs) in Nigeria compared to
microfinance practice elsewhere in the world.

The paper further identifies emerging challenges and then provides recommendations for
adoption

RESEACH PROBLEM

The issues of poverty alleviation, economic development employment generation and

Microfinance have become major policy discourse globally. To this extent the research work has
generated a set of questions which include the following:

1 How can Microfinance really get the poor out of their poverty and unemployment?

2, What are the problems encounter by client in collecting soft loan from micro-credit
companies?

3 what are the efforts made by the government in supporting micro-credit companies with macro
credit facilities?

Significance of the Study

The significance of this study cannot be over emphasized. Poverty and unemployment has been
pervasive in our economy and attempts to alleviate it have not yielded the desired results.
Therefore, it is necessary to review the severity of poverty in the country with a view to
assessing how microfinance institutions could help to reduce the incidence. It is also
necessary to understand how microfinance institutions could contribute to economic
development of the nation, by enhancing the productive capabilities and welfare of a largely
distressed/vulnerable segment of the society.

SPECIFIC OBJECTIVE OF THE STUDY

Selecting a target market depend on the micro service provider and the perceived
demand for financial services. In Nigeria, there are underserved enterprises and
households, ranging from the ultra-poor who may not be economically active, to small
growing enterprises that provide employment in their communities. This range or
continuum constitutes the demand size for micro finance services. Often, the supply side does
not offer a corresponding continuum services. Microfinance institutions need to supply services
that fill the gaps and integrate the underserved group into the market.

Specifically, broad objective of this study is to find out the role of micro-Credit companies in
proffering solution to the problems of poverty by generating employment through granting of

6
medium micro- finance loans to client in northern Nigeria. Hence, specific objectives of the
study are thus:

1. To examine the role of microfinance institutions in the development of SMEs in

Northern Nigeria

2. How can Microfinance really get the poor out of their poverty and unemployment?

3. To examine the hitches encountered by micro-credit client in collecting micro-credit soft

loans

4. To examine the efforts made by the government, Non-Governmental Organizations (NGOs)

in supporting micro-credit companies with soft macro- loans

IMPACT OF MICRO-FINANCE INSTITUTIONs ON UNEMPLOYMENT,POVERTY

AND DEVELOPMENT OF SMEs.

The formal financial system provides services to about 35% of the economically active
population while the remaining 65% are excluded from access to financial services. This 65%
are often served by the informal financial sector, through Non-Governmental Organization
(NGO) -microfinance institutions, moneylenders, friends, relatives, and credit unions.(CBN
2005).Microfinance institutions are essentially needed to serve the poor city dwellers
overcrowding in slums or squatter settlements in appalling conditions. They lack access to basic
services such as education for children and health care. Their survival tool kit lacks skills that are
essential to enter the employment mainstream of the economy. Many of them are women, poorly
trained and playing dual roles of provider and caregiver. These poor people are more exposed to
the threats of contamination, bad sanitation, and disease than the rest of the population (Otero,
1999).

Hulme (2000) argues that MFIs are not a cure for poverty. However, MFIs could create and
provide a broad range of micro financial services that would support poor people in their efforts
to improve their own prospects and the prospects of their families. He believes that effective
microfinance makes these agencies designed to help the poor more likely to achieve the goals
that poor people seek to achieve .While Micro financing is the provision of financial services to
poor and low income households without access to formal financial institutions (Conroy, 2003).
Microfinance is also banking for the poor. Microfinance programs provide loans, savings and
other financial services to low-income and poor people for use in small businesses. Originally
based on traditional forms of community financing (a cross between finance and development
assistance), Microfinance has globally achieved great accomplishments over the last 30 years. It
has shown that poor people can be viable customers and that microfinance can create

7
strong institutions which focus on them. No doubt Microfinance has strongly attracted the
interest of private sector investors.

However, the following among others are goals of the Microfinance institutions viz:

i) They provide diversified, affordable and dependable financial services to the active poor, in a
timely and competitive manner that would enable them to undertake and develop long-term,
sustainable entrepreneurial activities;

(ii) They Mobilize savings for intermediation;

(iii) They Create employment opportunities and increase the productivity of the active poor in the
country, thereby increasing their individual household income and uplifting their standard of living;

(iv) They enhance organized, systematic and focused participation of the poor in the socio-
economic development and resource allocation process;

(v) They provide veritable avenues for the administration of the micro credit program of
government and high net worth individuals on a non-recourse case basis. In particular, this policy
ensures that state governments shall dedicate an amount of not less than 1% of their annual
budgets for the on-lending activities of microfinance banks in favour of their residents; and

(vi) Render payment services, such as salaries, gratuities, and pensions for various tiers of
government. (CBN 2005:13)

Ledger Wood (1999) pointed out that The failure of commercial banking to provide
financial services to the poor coupled with disadvantages of using informal market are major
rationales for intervention in the market for financial services at the micro level.
Consequently, microfinance emerged as an economic approach intended to address the financial
needs of the deprived group in the society.

In view of the above, Safiyanu A and Ngura I .(2015) are of the view that microfinance
institutions play a vital role in economy development by providing a platform to achieve the
following :Viz

1. Provision of timely, diversified, affordable and dependable financial services to the

economically active poor.

2. Creation of employment opportunities and increase the productivity and household income of
the active poor in the country, thereby enhancing their standard of living.

3. Promotion of synergy and mainstreaming of the informal microfinance sub-sector into the
formal financial system.

4. Enhancement of service delivery to micro, small and medium enterprises (MSMEs).

8
5. Mobilization of savings for intermediation and rural transformation.

6. Promotion of linkage programme between Microfinance Institutions (MFIs), Deposit Money

Banks (DMBs), Development Finance Institutions (DFIs) and specialized funding institutions.

7. Provision of dependable avenues for the administration of the micro-credit programme of

government and high net worth individual on a non-recourse basis.

8. Promotion of a platform for microfinance service providers to network and exchange views
and share experiences.

Safiyanu A (2016) further stated In his study on The relevance of microfinance on rural
entrepreneurs examined the role of microfinance in financing agriculture, development of
Small scale business enterprises poverty reduction and employment generation in Yola North
Local Government area of Adamawa State Nigeria. The research used a simple random
selection of 100(client) loan beneficiaries of Sabondale Micro investment company Yola.
Evidence from a questionnaire survey revealed that more than half of the respondents (67.11%)
were males and only 23.89% were females. The study also revealed that majority of them
(60.53%) used the credit obtained from the microfinance institution appropriately. Findings of
the study also stand that 60.76% of the respondents do not encounter any problem during loan
application and disbursement; however, only 32.89% of the respondents did not get the
amount they applied for. The study is of the view that, microfinance institution has impacted
positively on the economic development of entrepreneurs by reducing over dependence on
government smooth client socio-economics pattern and improves their standard of living
because of the following reasons. viz

1. Small Loans: microfinance institutions provide a certain manageable size loan which serves
the dual needs of the client and the institution.

2. Simple Application Processes and Collateral-free Loans: Most of the microfinance institution
provide soft loan to client with free collateral on collection. This indicates that the poorest can
benefits from microfinance from both an economic and socio well-being point-of-view, and
that this can be done without jeopardizing the financial sustainability of the Micro-
financial institution

9
3. Loans for the development of Entrepreneurial Activity: Various literatures on microfinance
institutions reveals that, the primary objective of lending loans by microfinance institutions is
for the development of small and medium scale entrepreneur business.

4. Focus on employment, Poor Clients and Underserved Communities: Microfinance institutions

pertain to the lending of small amount of capital to poor entrepreneurs in order to create a
mechanism to alleviate poverty and generate employment by providing the poor and destitute
with resources that are available to the wealthy, alert at a small scale. Microfinance bank is not
just providing capital to the poor, but to also combat poverty and unemployment at an
individual level, it also has a role at institutional level. It seeks to create institutions that deliver
financial services to the poor, who are continuously ignored by the formal banking sector.

A cordial thrust is in the achievement of indigenous entrepreneurship through the provision

of long term loans and equity capital for the development of small and medium scale, poverty
reduction and employment generation. Given the gap between savings and invertible
funds, the short fall is provided by credit delivery. Many newly developed and developing
countries have therefore made credit delivery an endurable strategy in the development of
small and medium enterprise sectors.

Microfinance is no longer an experiment or a wish, it is a proven success. It has

worked successfully in many parts of the World Africa, Asia, Latin-America, Europe and
North America. It is safe and profitable; indeed it is the oldest and most resilient
financial system in history. The key issues in Microfinance include the realization that poor
people need a variety of financial services, including loans, savings, money transfer and
insurance which Microfinance provides. It is a powerful tool to fight poverty through
building of assets and serving as an absorber against external ties and financial shocks.
Microfinance involves building of financial sub-system which serve the poor and its
architecture could be easily integrated into the financial system of the nation.

In Nigeria and adamawa state in particular, political actors and business moguls talk on how to
create employment, reduce poverty among the teeming youth, peasants and vulnerable poors
in the society. One hears this often at political and conferences across Asia,Europe and other
10
parts of the World. There are also talks of strategies of equitable trade, debt relief, subsidies
and aid flows etc. It has become clear that the ultimate strategy for the World to meet the
needs of the poor is through microfinance which gives them access to financial services to
enable them make everyday decision on: payment of children school fees; payment for food a
and shelter; meet health bills and meet unforeseen financial needs resulting from flood,
fire, earthquake, etcetera. Microfinance may not be able to solve all the problems of
the poor, but it certainly puts resources in their hands in order for them to live an enhanced
standard of life.

Paradigms of Microfinance Institutions in Nigeria

The development of the microfinance sector is based on the assumption that the poor
and the low income group have the capacity to engage and implement income generating
activities but are limited by lack of access to and inadequate provision of savings, credit
and insurance facilities. This approach will greatly reduce government intervention and
will drive efficient performance (Mwenda, 2004). Microfinance clients are predominantly
living along the poverty line engaged themselves in small enterprises which include small
retail shops, street vending, artisanal manufacture, blacksmithing, welding, carpentry and
many others. In most cases where micro -credits clients receives micro loan to start their
businesses, scattered research suggests that only half or less of the total loan proceeds are
used for business purposes. Most of the credit receives tend to be spent on a range of
households cash management needs which includes stabilizing consumption, expenses on
education, health and other life cycle events (Micro Finance Gateway, 2010).

Hence the need to expand the frontier, scope initiatives activities of micro finance in order
to address issues about welfare implications of microfinance institutions (Mwenda, 2004).It
was for this reason that the Central Bank of Nigeria (CBN) under the Rural Banking Programme
conceive the idea that, Universal Banks were required to establish a specified number of
branches in identified rural locations by supporting a number of programs focused on SMEs.
This includes the National Economic Reconstruction Fund (NERFUND), Small and Medium
Enterprise Equity Investment Scheme (SMEEIS) and the Small and Medium Enterprise
Development Agency of Nigeria (SMEDAN) established in 1989, 2001 and 2003 respectively.

The first programme NERFUND is an apex credit delivery system to channel credit to
SMEs through selected participation banks. For its operation, NERFUND obtained equity capital
and soft naira loans from the Federal Government and foreign lines of credit from the African
Development Bank.

11
 The second Programme SMEEIS, requires all banks in the country to put aside 10% of
their profit before tax into a fund for equity investment in SMEs. According to Ouguiya (
2004), since independence, promoting small and medium scale enterprises as the
foundation of economic progress has been recognized in Nigeria by every regime (SME, 2004).
This is because of its perceived relevance in ensuring sustained increase in per-capita income
and output, as well as, employment generation and promotion of effective utilization of
available resource (s). As such, the universal banks are providing microfinance either through
their rural and urban branches or through independent subsidiaries such as the SMEEIS. By
2007, the fund had accumulated over N40 billion, although only 40% of these funds had been
used and for only 200 projects across the country.

Thirdly, SMEDAN has been in the business of fostering the growth of SMEs in Nigeria. It
was established to promote the development of SMEs with the objective of establishing a
structured and efficient micro, small and medium enterprise sector that will enhance
sustainable economic development in Nigeria. Since 2003 when it was set up, it has established
business and development centers and provided advisory services on access to trade finance.
SMEDAN has also organized seminars and workshops at both local and international levels and
encouraged the formation, registration and cooperation of SME business associations. In their
study on problems of SME programmes in Nigeria, Adejumo & Olaoye (2012) conclude that the
roles of these programmes were limited. Thus NERFUND was unable to on-lend enough funds
to the participating banks to back up approved projects of SMMEs. These inhibiting factors are
reflection in non-repayment of loans and other administrative problems. The minimum capital
for Community Banks was eventually raised to N5 million and later to N20 million in 2005.

In view of that, the central bank of Nigeria (CBN) launched the Microfinance Policy Guidelines
for Nigeria, which seeks to commercialize the business of microfinance. The new policy set a
minimum capital requirement of N20 million for MFBs and required all existing community
banks to convert to MFBs by December 31, 2007. The microfinance and supervisory framework
issued by the CBN in 2005 sought to encourage the development of SMEs and empower low
income groups in Nigeria. According to the CBN (2005), the policy provides for the setting up of
private sector driven MFB/Institutions to Provide services for poor and low income groups;
Cover the majority of the poor but economically active population by 2020; including the
following targets:

Increase the share of micro credit as a percentage of total credit to the economy from
0.9 percent in 2005 to at least 20 percent in 2020;
Increase the share of micro credit as a percentage of GDP from 0.2 percent in 2005 to
at least 5 percent in 2020;

12
 Promote the participation of at least two-thirds of state and local governments in micro
credit financing by 2015;
Improve womens access to financial services by 5% annually; and
Increase the number of linkages among universal banks, development banks,
specialized finance institutions and microfinance banks by 10% annually (Iganiga
2008:91) The launching of the Microfinance Guideline in 2005, creating microfinance
banks (MFBs) and directing community banks to convert to MFBs by December 31,
2007 ensured that over 700 MFBs are in existence and many more are in advanced
stages of licensing. Microfinance and Enterprise Development.

Some authors have challenged the positive effects of microfinance on poverty alleviation.
Hulme & Mosley (1996) while acknowledging the role microfinance can have in helping reduce
poverty concluded from their research that most contemporary schemes are less effective
than they might be. They stated that microfinance is not a panacea for poverty alleviation and
that in some cases the poorest people have been made worse off by microfinance. The
conservatives view microfinance as social liability which consumes scarce resources without
significantly effecting long term outcomes. Other critics argue that the small enterprises
supported by microcredit programs have limited potential to grow and so have no sustained
impact on the poor. They contend that these microfinance programs rather make the poor
economically dependent on the program itself (Bouman and Hospes, 1994). Hence, even if the
programs are able to reach the poor, they may not be cost-effective and hence worth
supporting as a resource transfer mechanism. More troubling, according to Chowdhury (2009)
is the finding that a vast majority of those with starting incomes below the poverty line actually
ended up with less incremental income after getting micro-loans, as compared to a control
group which did not get such loans. The findings from these studies imply that it is only
borrowers above poverty lines who can do well with microfinance and enjoy sizeable positive
impacts meaning that poor households do not benefit from microfinance (Ifelunini & Wosowei,
2012). Moreover, a study of Sabon Dale Micro Investment company(a microfinance institution)
in Adamawa State, Nigeria revealed that microcredit loans improve the living standard of the
beneficiaries.It increased the productivity of their business in the study area, client with access
to such facilities have not made a justifiable utilization of the credits from microfinance
institutions. (Safiyanu, 2015:295) is indicating the huge positive impact of the microfinance loan
on the beneficiaries.

The question therefore is whether microfinance can reduce poverty while still maintaining the
sustainability of the Micro financial institutions. Despite developing an appropriate policy and
regulatory framework for the operations of MFIs in Nigeria, some studies have revealed that
the number of beneficiaries of microfinance banks is an insignificant proportion of the people in
need of microfinance services. Notwithstanding the modest gains recorded by MFBs in Nigeria,

13
the poverty challenge in the country remains daunting such that many of the disadvantaged
and economically active poor remain financially excluded. As at 2011 when the countrys
population was over 140 million and over 70% lived below poverty line, it was estimated that
formal MFB/institutions only serviced less than one million clients (Irobi, 2008). Many micro
entrepreneurs still lacked access to credit thereby impeding economic growth and economic
development. A study conducted by Enhancing Financial Innovation and Access (EFinA) in 2010
indicated that 3.2 million Nigerians (representing 3.8% of the adult population) had a
Microfinance bank account of which 57.9% were males and 42.1% were females while 1.8
million Nigerians (2.1% of the adult population) used their MFB account as their main bank
account.

14
The major challenges faced by microfinance institutions in Adamawa
state:
Lack of adequate loan or equity capital to increase loan-able funds;

Communication gaps and inadequate awareness;

Less attention on financial sustainability of MFIs;

Inadequate donor funding;

Limited support for human and institutional capacity building; and

Lack of standardized reporting and performance monitoring system for MFIs.

Outreach and uncertainty of enterprenues income are the major challenges of the
microenterprise sector in admawa state. Other most common challenges for small business is
the inability to obtain loans at reasonable interest rates. Although informal commercial
moneylenders provide important financial services to the poor with lower transaction costs of
obtaining loans than MFIs, the challenge is that they typically charge very high interest rates to
low-income borrowers in Nigeria. Unless micro lenders can charge interests that are well above
average bank loan rates, they cannot cover their costs. Their growth and sustainability will be
limited by the scarce and uncertain supply of subsidized funding. MFIs are restrained by the
interest rates they charge because of the perception that microfinance is a philanthropic
activity.

Based on these views, it is noted that it costs much more to make many small loans than a few
large loans. Consequently, many MFB/institutions in Nigeria were found to have suffered total
erosion of their capital base and dissipation of depositors funds resulting from very high levels
of non-performing loans (NPLs) and or insider abuse. This culminated in negative shareholders
funds accompanied by losses and negative Capital Adequacy Ratio (CAR) which was far below
the prescribed minimum levels. In response to this, the CBN had to revoke the operating
licenses of one hundred and one (101) Microfinance Banks by December, 2010, five years after
the formulation of the Microfinance Policy. In addition, many of the MFB/Institutions were
unable to meet matured obligations and had closed shop, a situation which had jeopardized
depositors funds in the affected institutions. This is capable of ultimately eroding the safety
and credibility of the microfinance sub sector, if it remains unchecked. While non-bank financial
intermediaries, such as micro credit institutions, could play a greater role in lending money to
the smaller SMEs, they do not have the resources to monitor their customers when they

15
expand (Oteh, 2009:31). Their main sources of capital are their retained earnings and informal
savings and loan associations, which are unpredictable, not very secure and have little scope for
risk sharing because of their regional or sectoral focus (SS Duhu 2016)A Safiyanu (2015) and
Oteh, (2009:31). Also, when governments regulate interest rates, they usually set them at
levels too low to permit sustainable micro credit administration.

A study Sabon Dale Micro investment company by Ngura (2015) reveals that micro-enterprises
in Adamawa State of Nigeria were generally inadequately financed due to factors such as
unfavorable government policies, money lenders high rate of interest and low personal savings,
among others. It also reveals that micro-enterprises are poorly financed because most of the
entrepreneurs do not have the necessary documents to access to bank services. It concludes
that this low funding is responsible for the poor performance of micro-enterprises in Adamawa
State and Nigeria in general.

Another challenge of the subsector is lack of relevant skills. Microfinance institutions are
different from conventional banking. As earlier indicated, microfinance banking involves the
provision of financial services to the lower segment of the market. Microfinance banking,
therefore, requires specialized skills which are presently lacking in Nigeria. Many operators
with community banking background in Nigeria still run their businesses as if they were
community banks while quite a number of them also see themselves as competitors to Deposit
Money Banks. Consequently, they dissipate both depositors funds and loanable funds by
acquiring expensive infrastructure. It is also noteworthy that there are still inadequate funds in
the sector for intermediation owing to lack of aggressive savings mobilization, inability to
attract commercial capital and the non-establishment of Microfinance Development Funds.

Conclusion
This article shows that the microfinance institutions are evident tools for entrepreneurship
development due to the various services they offer and the role they performs towards the
Development of the economy. Microfinance institutions affiliation is also not significant factor in
providing available credit products to the poor and the vulnerable households. If a microcredit

16
institution is to maintain its capacity holdings, it must generate sufficient revenue to meet its operating
costs, including the cost of administering loans, mobilizing and training groups, mobilizing funds for on-
lending and covering bad debts. Microfinance institutions, especially Sabon dale micro investment
company yola, have made a successful breakthrough in reaching the target group mainly because of
easy availability of funds, limited profit on loan and close supervision (Ngura 2016). Microfinance
service providers owned by government, nongovernmental and private institutions have provided
available credit facilities to the poor and local entrepreneurs for the purpose of poverty eradication in
Nigeria. This shows that clients secured credit easily from each of the microfinance institutions. Olu
(2009) revealed that microfinance institutions in Nigeria, are identified to be one of the key
players in the financial industry that have positively affected individuals, business organizations,
other financial institutions, the government and the overall economy through the services they offer
and the functions they perform in the economy. Sabon Dale Micro Investment Company, a microcredit
institution in Adamawa state is a good example as it has expanded the scope of its activities in this
regard. it accepts informal guarantees and leverages the long term relationships developed by its loan
officers to support small businesses owned by its customers (S S Duhu, 2015:64). Other strategies that
have been pursued to fill the microfinance financing gap include supporting the growth of smaller
commercial banks and rural banks as practiced in other African countries of Kenya and Ghana
respectively.

Microfinance institutions world over and especially in Nigeria are identified to be one of the key
players in the financial industry that have positively affected individuals, business organizations,
other financial institutions, the government and the economy at large through the services they
offer and the functions they perform in the economy. It is expected that with the current reforms
put in place by the Federal Government through its regulatory authorities, microfinance
institutions in Nigeria will be able to compete favorably in the global market and gainfully increase
entrepreneurship development in Nigeria. Microfinance institutions have positive relationship with the
Nigerian economy represented by expanded Gros Domestic Product (GDP). Although, interest rate is
not significantly influential, the results of findings of this study can still be summarized that the
microfinance institutions and their activities go a long way in the determination of the pattern and
level of economic activities and development in the Nigerian economy receptive to new ideas and
prepared to make financial commitments to ensure growth. Due to inadequate information flows, the
interaction and inter-relationship of relevant actors in the microfinance sector is minimal. Efforts at the
development of the microfinance sector must incorporate arrangements for the process of cooperation
and partnership among government, NGOs, credit unions and private lenders. The linkage will enhance
efficiency in programme implementation in terms of outreach and credit disbursement.

17
Policy Recommendations

Government and Non Govermental Organizations (NGOs) should intensify effort in collaborating with
MFI/Banks through Public Private Partnerships (PPPs) by lending macro credit loans to micro finance
institutions. This would go along way in improving the growth and development of their capital base as
well as lending capacity. The high interest rate imposed on client by micro credit institutions should be
reduced .A streamlined and transparent calculation method of recovery rate of the microfinance
institutions is required to ensure adequate information on defaulting clients. This can be achieved by
establishing credit bureaus which adopt and maintain clear and simple accounting standards for lending
to SMEs. The financial institution whose role needs to be visible in promoting SMEs growth and
development is microfinance instituions. therefore SMEs themselves should be more receptive to
new ideas and prepared to make financial commitments in order to ensure growth and development
of client base business, institutions and the economy at large.

The MFIs clients should therefore, be encouraged by the MFIs to improve on their current level
of education by engaging in adult education or life-long learning as this will have the potency to
increase their level of income; This study recommends that guidelines by microfinance institutions to
finance SMEs need to be flexible to accommodate the SMEs only when financial institutions
appreciates and give technical assistant to the SMEs would be contributing to the SMEEIS to
ensure success in the SME sector. It is the hope of the researcher that microfinance institutions in
Nigeria will develop more interest in supporting the growth and development of SMEs The study furher
recommends that guidelines by microfinance institutions to finance SMEs need to be flexible to
accommodate the SMEs only when financial institutions appreciates and give technical assistant to
the SME would be contributing to the SMEEIS to ensure success in the SME sector. It is the
researcher hope that microfinance institutions in Nigeria will develop more interest in supporting the
growth of SMEs.

18
References

Amin, S., Rai, A. S., Topa, G. (2003) Does Microcredit Reach the Poor and Vulnerable?
Evidence from Northern Bangladesh, Journal of Development Economics, Vol 70(1)Page
59-82
Adeyemi, K. S. (2008). Institutional reforms for efficient microfinance operations in Nigeria.
Central Bank of Nigeria Bullion, Vol 3 page 26-34.
Adejumo, D.G. & Olaoye, J. A. (2012). Roles and Problems of SmallScale Business Development
Programmes in Nigeria. Available: http://www.ijmbs.com/21/dende.pdf. Accessed November 9,
2012.
Anyanwu, C. M. (2004) Microfinance Institutions in Nigeria: Policy, Practice and Potentials,
Paper Presented at the G24 Workshop on Constraints to Growth in Sub Saharan Africa, Pretoria,
South Africa, by the Deputy Director Central Bank of Nigeria, November 29-30, 2004
Awojobi, Omotola and Bein, Murad (2010). Microfinancing for Poverty Reduction and Economic
Development; a Case for Nigeria. Published in: International Research Journal of Finance and
Economics , Vol. 1, No. 72 (11. August 2011): pp. 159-168.
Bashir, U. (2008). Overview of Credit Delivery Channels in Nigeria. Bullion Publication of Central
Bank of Nigeria, Vol. 32(1), 1-6.
Central Bank of Nigeria, (2005:13). Microfinance policy, regulatory and supervisory framework
for Nigeria. December 2005 Abuja, Nigeria: CBN.
Charles, A. J., Akinlabi, K.J. & Hamed, B. (2011). Impact of Microfinance on Poverty Alleviation in
Nigeria: An Empirical Investigation. European Journal of Humanities and Social Sciences 3(1).
Christen, R., Rhyne, E., Vogel, R., & McKean, C. (1995). Maximizing the outreach of
microenterprise finance: An analysis of successful programs, program and operations.
Assessment Report No. 10, United States Agency for International Development,
Washington,DC.
Duhu S. S:, A Mana, (2010): The evaluation of financing of micro-enterprises in Adamawa state
of Nigeria
Ekpe, Mat and Rasak (2010) The effect of microfinance factor on women
entrepreneurs performance in Nigeria;

19
 Egwuatu, B. S. C. (2008). Reducing poverty through better credit delivery: The Asian experience.
Central Bank of Nigeria Bullion, 32(1), 8-16
Ehigiamusoe, G. (2008). The role of microfinance institutions in the economic development of
Nigeria. Central Bank of Nigeria Bullion, 32(1), 17-24.
Global Monitoring Report, 2009.
Eyo, E.O.: Farmers Liquidity Value for Unused Credit and the Sustainability of Microfinance
Schemes in Akwa Ibom State, Nigeria, Journal of Agriculture & Social Sciences, 2 (2), 79 (2006).
Hulme, D. & Moore, K. (2006). Why has microfinance been a policy success in Bangladesh (and
beyond)?,GPRG-WPS-041,GPRGandESRC, http://www.gprg.org/pubs/workingpapers/pdfs/gprg-
wps-041.pdf
B. O. (2008). Much ado about nothing: The case of the Nigerian microfinance policy measures,
institutions and operations. Journal of Social Sciences, 17 (2), 89-101. Julius ,
Mejeha, R.O. and I.Nwachukwu. (2008). Microfinance Institutions in Nigeria, MPRA Paper, No.
13711.
Mwenda K. K & Muuka, G. N (2004). Towards best practices for micro finance
institutional engagement in African rural areas. International Journal of Social Economics Vol
31 PAGE 143-158
March, R. Porter, B. and Harper C. (1999). Money Matters: Understand Microfinance Journal
of Modern African Studies Vol. 38 No.3 Page 246
Ngura et al(2016) impact of sabon dale micro investment company in development of SMEs in
Adamawa State Un-published Msc thesis Mautech yola
Nosiru, O.M. (2010). Microcredits and Agricultural Productivity in Ogun State, Nigeria.World
Journal of Agricultural Sciences Vol 6page 3:
Oji, K. O. (2008). Analysis of the Effects of Policies of Microfinance Institutions on the
Technological Capabilities of Micro-borrowers in Nigeria. Central Bank of Nigeria Economic and
Financial Review Volume 46(3).
Ojo O. (2009), Impact of Micro Finance on Entrepreneurial Development: A case of Nigeria. A
paper presented at the International Conference on economic and administration, organized
by the faculty of Administration and Business, University of Bucharest, Romania, 14th-15th
November, 2009.Available at www.academicaedu.com
Okojie, C.E.E., A. Monye-Emina, K. Eghafona, G. Osaghae & J.O. Ehiakhamen (2009).
Institutional environment and access to microfinance by self-employed women in the rural
areas of Edo state, Nigeria. NSSP Working Paper 03. Available at
http://www.ifpri.org/sites/default/files/publications/nsspbp03.pdf
Okpara G. C., (2010). Microfinance banks and poverty alleviation in Nigeria. Journal of
Sustainable Develoment in Africa., Vol 12: Page 177-191.
Olomola, A.S (2002). Social capital, microfinance group performance and poverty implications
in Nigeria. Ibadan, Nigeria: Nigerian Institute of Social and Economic Research.
Omobolanle, N. M. (2010). Microcredits and Agricultural Productivity in Ogun State, Nigeria,
World Journal of Agricultural Sciences Vol 6 (3): 290-296

20
 Oteh, A. (2009). The Role of Entrepreneurship in Transforming the Nigerian Economy. Seventh
Convocation Lecture Igbinedion University, Okada, Edo State 4th December 2009. [Online]
Available:http://iuokada.edu.ng/News/Convocation%20Lecture/
The%20Role%20of%20Entrepreneurship%20in%20Transforming%20the%20Nigerian%20Econo
my.pdf Accessed: May 25, 2012. Seibel,
Hulme, D. and Mosley P. (1996), Finance Against Poverty, Vol. 2. Rutledge, London and
New York
Hans Dieter (2006): Upgrading indigenous microfinance institutions in Nigeria: Trials and errors,
Working paper / University of Cologne, Development Research Center, No. 2006,4,
http://hdl.handle.net/10419/23659
Safiyanu A (2016) The relevance of microfinance on rural entrepreneursMsc Thesis
Mauche
Samson, Olubumi and Olusegun (2013) in a study on microfinance banks as a catalyst
for entrepreneurship development in Nigeria Evidence from Ogun State
Umar, B.D (2011). The impact of microfinance subsector in promoting financial inclusion in
Nigeria. Paper presented at the FICAN conference, Nigeria Deposit Insurance Corporation.
National Bureau of Statistics, (2011). Annual Socio-Economic Report. Available:
http://www.nigeriastat.gov.ng/ Accessed October 15, 2012 National Planning Commission,
(2004). National Economic Empowerment and Development Strategy

21