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The Role of Microfinance Banks in Poverty Reduction in Nigeria

The Role of Microfinance Banks in Poverty Reduction in Nigeria. Nigeria is a great nation, opulent in population and natural resources. Like other nations she is faced with challenges of which every government of the day, organizations and individuals take considerable measures towards attaining a cutback. One of such challenge she is faced with is poverty

Over the years, various strategies have been developed in other to tackle the issue of poverty in Nigeria, one of which is the establishment of “small loan companies” otherwise known as the “Microfinance Bank”.

The Role of Microfinance Banks in Poverty Reduction in Nigeria

In 2005, Nigeria embraced the economic creation of Microfinance Banks and in appliance to this creation several community banks were remodeled and refashioned to suit the main goals and objectives of a microfinance bank.

Microfinance Bank from its inception has been widely accepted, embraced and improved by organizations and individuals because it is seen as a mitigation of poverty.

When one has little or no money he or she is considered poor. Poverty is not desirable, it is a very devastating position, that is why small loan companies (MICROFINANCE BANK) are highly appreciated.

A Microfinance Bank is a modest financial institution saddled with a responsibility to disseminate funds in forms of loans and credits through rudimental laid down principles as well as harmonizing funds for people (by harmonizing funds I mean savings). What differentiates a Microfinance Bank from a commercial bank is its concern with low income earners, the poor and beginners.

Read Also: Problems And Prospects Of Microfinance Banks In Nigeria

This financial institution has played a major role in reducing poverty in Nigeria by means of:

The supply of financial services. By this I mean machineries needed to kick start a certain business. Such machineries would include buses, sewing machines etc. if Mr. A decides to go into transportation and he needs a total amount of #500,000 to buy a small bus, but he has only #50,000, a Microfinance Bank can assist Mr. A by giving him the bus and allowing him to pay in bits until he completes the payment.

Empowering small scale businesses to grow.

Issuing out loans for investment and for establishing businesses etc.

It educates and encourages people to save through training. Savings can be done formally and informally. A formal way of saving is that done with the help of the Microfinance Bank.

A company or an individual could save money for months or years. An informal way of saving is through what is popularly known as “Esusu”, some people come together to save money and a lot is cast to determine who collects the bulk money first and at the end of every month this money is given to each individual involved, beginning from the first to the last and thus it goes round until a particular circle is completed.

Another wonder of a Microfinance Bank is its high interest rate. The longer you save your money, the greater your chances of enjoying a lofty interest rate.

It promotes entrepreneurship.

Taking a second look at the role Microfinance Bank(s) have played in reducing poverty in Nigeria, you will agree with me that it has improved the economic well-being and financial standard of the nation. As no nation can be said to be economically hale if the people are impoverished.

Aside other sectors like the petroleum and gas,communication, transportation, stock exchange,agriculture etc that make up the Nigeria’s economy, the banking sector through the Micro-finance bank has eminently contributed towards the progress,improvement and development of the economy because it has presented itself as a veritable financial institution. Let us analyze this in practical terms.

Name of community ISUNG COMMUNITY EYUNG COMMUNITY
Total number of people 5,200 5,850
Total number of young adults and youths 4,000 4,200
Total number of children and aged 1,200 1,450
Total number of government employed and private workers 1,500 1,150
Total number of entrepreneurs 500 1,050
Total number of small scale business 900 1,900
Total number of unemployed/poor 1,100 100

Looking at the two communities without the addition of children and aged people you will find out that Eyung community is adding to the economic growth of the nation because greater people are earning money, their lives are improving and there is ample opportunity for that community to be developed.

But it is not so for Isung community, here you see that more people are financial liabilities, poor and impoverished. Thus Isung community will ameliorate the economic well being of the nation because a higher percentage of the people are poor.

Now, with the aid of a Microfinance Bank the percentage of poor people in Isung community can automatically fall, thus, improving the economic wellbeing and standard of the nation.

Accolades to this great micro financial institution designed not for the rich and well to do but structured to suit the capacity of the poor through their “recieving and refunding money procedures”. At this point you with ask what does she mean?

Now see what I mean, If Mr A needs but does not have a total amount of #100,000 to start out a certain business where he can offer dry cleaning services and decides to collect some loan from a Micro-finance bank. When he gets there he will be asked to follow these procedures, firstly, get a form, bring a guarantor who may not necessarily be a civil or public servant but a business man, next you will open a savings account with them and pay in 20% of the needed amount, afterwards based on agreement he will be asked to remit the received loan monthly in bits he can pay.

Now if he received #100,000 and is given two years to complete his payment the bank may require him to pay #8,000 every month, at the end of 24months Mr.A might have paid in #192,000 of which #92,000 will be given back to him as his savings.

All of these roles culminate together to reduce poverty, traversing the whole Nigeria Microfinance Banks are presently more than 500, thus, accessible in every state.

Microfinance Bank has become savory, giving great taste to your pot of soup. Have you been aspiring to put your skills (tailoring, farming, bead making) into practice? Or start a business but it seems like money is making you handicap, well there is a solution. Simply walk into a Microfinance Bank and you will be smiling out. Microfinance Banks are eminent assets to Nigerians and in Nigeria.

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