Micro Finance Bank As A Tool For Economic Development

by: Ortserga Henry

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The role of micro finance institutions to economic development cannot be
underestimated. In Nigeria, statistics have it that over 70% live below
poverty line and a staggering 65% of this economically active populace is
not formally financed. Micro finance banks play a critical role in economic
development especially in developing countries like Nigeria, they play an
important role in poverty reduction.

The establishment of micro finance bank is therefore among other things to;

  • Provide diversified, affordable and dependable financial
    services to the poor or low income earner.
  • Contributing significantly in the mobilization of public
    funds for interdiction.
  • Creating employments opportunities and improve the production
    capacity of the active poor
  • Rendering payment services such as salary, gratuity and
    pension
  • The decision by the United Nations to declare 2005 the
    International year of Micro-credit demonstrates the vitality of Micro
    finance Institutions to growth and poverty reduction around the world nd
    particularly in developing economies like Nigeria.

Adam Smith noted that β€œNo society can surely be flourishing and happy; of
which the far greater part of the members are poor and miserable”. They
provide loans, and other forms of financial support to individuals to start
up business, engage in other entrepreneurial skills.

The provision of
financial services to over 65% of Nigeria economically active population is
the goal of micro finance banks for such a large population is empowered
which is also a means of generating employment then it is obvious that it
will enhance economic development. In Latin America for example, commercial
banks provides 29% of funds for small and medium enterprises (SMEs) while
other specialize financial institutions provides them with 45%. privilege
to Micro finance enables the poor increase their household incomes, build
assets and reduce their vulnerability to crisis, It also enable the poor
invest in education, health and meet their cash requirements, better
nutrition, and reduction in illiteracy rates, The United Nations declared
the year 2005 as the international year of micro-credit as an effort to
build support for making finance available to poor and low income earners.
Micro finances over the years has been widely seen as the most effective
poverty eradication tool worldwide.

It has been accepted in all
ramifications that the provision of financial help through systematic and
all inclusive micro finance in long term help in developing the capability
of the poor entrepreneurship, self reliance, enhance mobility of funds, and
increase wealth creation. What is current however, is the effort of
government in Nigeria to modernize micro financing in our rural and urban
communities to improve the economic strength of the rural and urban poor
which will go a long way to enhance the economic standing of the country.

 

REFERENCE

Abuja Journal of Banking and Finance, Vol.4 No.2 May, 2015

Adam G. (2007) Role of Micro Finance Institutions in actualization of
MDGs. Paper delivered at the Induction ceremony of Institute of Economists
of Nigeria (ICEN) in Port Harcourt.

Allegieuno J. and Attah, J.A.A (2005) Poverty reduction through Micro
financing

The case of Indonesia and Philippines

Bullion Publication of Central Bank of Nigeria, July – September.

Ortserga Henry writes from University of Abuja.

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