Microfinance has over the old ages been associated with eliminating poorness, and accordingly bettering the criterion of life of the less privileged members of a society, and rubbing on positively on the state ‘s economic system. This thesis aims at researching the impact microfinance has on economic growing, sing a specific instance of the Federal Republic of Nigeria. Due to the fact that this country of survey has non witnessed so much research in the yesteryear, this work seeks to come up with an attack where the different links between microfinance and economic growing can be discovered and studied. Since most societies, particularly the underdeveloped 1s normally experience the presence of two types of fiscal system, the formal and the informal one under which microfinance falls, this will besides be taken into consideration. The first hypothesis to be considered has to make with the micro degree and this examines the relationship between microfinance and the fiscal system. The Second hypothesis has to make with the macro degree and examines the relationship between the fiscal system and economic growing, while the 3rd one links the old two, by look intoing the relationship between microfinance and economic development.
Keywords: Microfinance ; Economic Growth ; Financial System ; Nigeria
Microfinance Institutions are fiscal administrations licensed to supply micro-savings, micro-credit, and micro-insurance in an economic system. They operate in the informal sector of the fiscal system and are the major beginning of fund-provider for the medium, little and micro-enterprises.
The rudimentss of microfinance is the fact that the hapless can non entree a loan from a bank of any sensible commercial beginning, that is why Microfinance Institutions go out to the small towns, meet with the hapless who are encouraged to organize an association, they give them micro-credits and sometimes even give them preparations to assist them do the best usage of the loan accessed ( Mohammed and Hasan, 2008 ) .
The methodological analysis used by most micro-finance establishments to do loan is that they gather people into trust groups and fitting hebdomadal. These groups assume joint liability and joint warrant on loans extended to any member of the trust unit and this constantly helps in cut downing incidence of defaults and bad loans. Most Micro-Finance Institutions enjoy a high refund rate.
It should besides be noted that bulk of microfinance clients are adult females who besides make up a greater per centum of the universe ‘s hapless, and besides see a really high rate of unemployment ; and unhappily in most instances are responsible for supplying for and taking attention of their households.
Nigeria with a GDP-real growing rate of 5 % ( 2009 est. ) , remains a major participant in the African economic system but her population of about 149, 299,090 ( sourced from CIA-The universe fact book ) , which is the largest in Africa, has about half of it populating in poorness. However, since the debut of microfinance in the state, an addition has been noticed both in the growing of the economic system and besides in the addition in figure of microfinance establishments.
The Central Bank of Nigeria is saddled with the duty of publishing banking licence and supervising of Bankss in the state, Micro-finance Institutions inclusive.
Microfinance, through its proviso of fiscal services to the hapless can act upon economic growing by promoting nest eggs, giving out loans for executable investings, proviso of free advisory services to new clients on how best to put, and besides to those with long standing relationship, on how to increase the fringy productiveness of capital ( Pagano, 1993 ) .
A batch of surveies have been carried out on the relationship between fiscal development and economic growing. King and Levine ( 1993 ) are in support of the position that fiscal development leads to economic growing and in their visit on Joseph Schumpeter ‘s work pointed out that banking establishment through their proviso of financess for productive investings are of great importance to economic growing ( Schumpeter, 1911 cited in King and Levine, 1993 ) . Greenwood and Jovanovic ( 1990 ) suggested that the relationship between fiscal development and economic growing is common, while Khan, ( 1999 ) who is of a similar sentiment explains further that economic growing create fiscal development which in bends aids in prolonging the growing.
Qayyum et al. , ( 2007? ) are of the sentiment that direct finance has a important positive relationship with economic growing. The handiness of financess to the hapless additions production and end product, this besides leads to an additions in the demand for more fiscal services ( micro-savings and micro-insurance ) , which positively affects fiscal development and sets the economic system on the way of growing ( Khan, 2008 ) .It can so be said that handiness of financess generates enterprise, enterprise generates finance flow, finance flow generates fiscal development, while fiscal development generates economic growing. De Gregorio and Guidotti ( 1995 ) besides argued that fiscal development leads to better economic growing, particularly when financess are expeditiously invested.
However, Kemal, et al. , ( 2004 ) do non see finance ( micro-finance inclusive ) as an of import determiner of economic growing and Lucas ( 1988 ) even referred to it as overstressed, while Levine ( 1997 ) sees fiscal establishments as more harmful to a state ‘s economic growing. This led to a call for redefinition and the usage of appropriate step of appraisal of the relationship between fiscal development and economic growing and development of fiscal mediators by Bencivenga and Smith ( 1991 ) .
The chief aim of Microfinance is to raise income, by promoting private sector activity through the proviso of micro-credit to micro and little graduated table enterprisers ( ( Aghion and Morduch, 2000 ) ) . In a survey conducted by Chua et al. , ( 2000 ) , they noticed that the impact of microfinance services on income and ingestion is dependent on the initial gift of the family and the length of clip they have been clients of the establishment. It is besides affected by how efficient they are in the direction of the sourced resource and besides the profitableness of the sector they invest in. Availability of Social comfortss and a cheaper beginning of factors of production besides influence income.
Harmonizing to Akanji ( 2002 ) , the hapless make effectual usage of the recognition installations and non merely are they willing to pay the high involvement rate on loan, they besides in no clip do adequate returns to run a nest eggs history with the MFI. It should besides be noted that the transition of the hapless who were once economic liabilities into net income doing micro-entrepreneurs have a positive impact on the fiscal system and accordingly begins the procedure of economic growing by conveying its full physical and human resources into productive usage ( Kamath, 2008 ) .
Not many literature are available as respect the relationship between microfinance and economic growing, therefore the survey will rely much on theoretical model in order to understand the nexus between microfinance and economic growing. Both Primary and Secondary beginnings of informations will be used and Questionnaires will be sent out to hold a direct feedback from the donee of the strategy while old surveies and findings as respects the Nigerian economic system will besides be put into usage in order to find a theoretical association between Microfinance and Economic Growth.
It should be noted that the two chief variables in this thesis is Microfinance and Economic growing. The pick of Nigeria as a instance survey was borne out of the fact that the state has late had its microfinance ordinances tuned to enable it play its function in functioning its targeted market efficaciously. An addition in the growing of microfinance establishments in the state has besides made them better established and competitory, giving the erstwhile neglected micro-entrepreneurs a pick.
The relationship between fiscal system and economic growing will be foremost examined and in the 2nd portion, microfinance, alongside its associated theories will be explored to find their impact on Economic Growth. The 3rd portion will be about analyzing the impact of theoretical macro-level consequence on the instance survey, which is Nigeria. Its consequence on the instance survey will assist in reshaping the theoretical model which will be the footing for decision.
To find the impact of Microfinance on economic growing, micro recognition expense from 2000 to 2009 will be analyzed utilizing both non-parametric and parametric trial methods.
The parametric trial involves regressing the dependant variable ( GDP from 2000-2009 ) against the explanatory variable ( micro-credit expenses ) to determine if it ‘s important and supply explanatory power for economic growing. While the Chi-square method of non-parametric trial will be used to analyze the questionnaire to find if there is any association between Microfinance and economic growing.
RESEARCH QUESTIONS AND OBJECTIVES
This Objective of this thesis to reply the undermentioned inquiries:
Is there a relationship between microfinance and Nigeria ‘s economic growing between 2000-2009?
Does investing of micro-credit into commercialism contribute more to economic growing than other sectors?
Does microfinance hold an consequence on the fiscal system?
Does an addition in the figure of Microfinance Institutions consequence to an addition in economic growing?
The possible jobs envisaged in this research work is the handiness of informations from microfinance establishments in Nigeria as a big figure of them do non hold entree to the cyberspace and so make non post their information online. This brings about another job, which is the distance between my topographic point of survey and the location of the instance survey. The comparative scarceness of research on this country of survey besides creates a job of limited stuffs. However, I have devised solutions for each of the job. Most of my stuffs will be sourced from the Microfinance Unit of the Other-Financial -Institutions section of the Central Bank of Nigeria, as they have unhampered entree to records of every Microfinance Institution runing in Nigeria. Most of my stuffs will be sent online while I will do usage of a inexpensive and dependable messenger service for my questionnaires. Besides, the available stuffs online will be coupled with those sourced from the Central Bank of Nigeria Library and Data collected on the MFIs.
The chief resources needed are informations on Nigeria ‘s GDP, list of MFIs soon runing, records of loan expense by MFIs, records of entire sum set aside for Small and Medium Scale Enterprise by the state ‘s commercial Bankss. All of these will be sourced from the Central Bank of Nigeria, while Past Surveies and other literature will be freely assessed through the school library. The Questionnaires will be sent through mail and returned through messenger. Estimated cost at decision is & A ; lb ; 250, which includes cost of printing and binding, every bit good as messenger cost.
May 5, 2010
Sourcing of stuffs and reappraisal of literature
July 4- 16, 2010
Submission of preliminary literature reappraisal to my supervisor, and doing suggested corrections
June 17- 20, 2010
Reading on Methodology and structuring of theoretical model
June 20- 24, 2010
Submission of proposed methodological analysis to supervisor, and doing suggested amendments.
July 25-June 28, 2010
June 29-30, 2010
Submission of questionnaire to supervisor, and doing suggested amendments
July 1-5 2010
July 6, 2010
Collection of all other needed informations and farther reappraisal of past literature
July 7-20 2010
Collection of questionnaires and analysis of findings
July 21- 25, 2010
July 26- 30, 2010
Interpretation of Findingss.
August 1-5, 2010
Formulation of Decision
Abstract, and appendix and referenced stuffs agreement
August 11- 15
Updating and Review
Reappraisal with Supervisor
August 16-20, 2010
Self reappraisal and amendment
August 21-25, 2010
Final reappraisal with supervisor and proof-reading
Printing and Binding
Printing and Binding
August 29, 2010
Submission at the PG office
September 2, 2010.
The end product, which is the decision of this thesis, is expected to assist the Government in its activities aimed at the state ‘s economic development. It will besides steer them in effectual channeling of resources aimed at poorness relief. MFI decision makers will besides profit from this work as it will assist them in doing determinations on how to enlarge their country of coverage and to besides enter higher returns through proviso of other services. Donor Agencies and International establishments will besides detect chances for assisting in the economic growing and authorising the hapless.
Last, this survey is expected to fly other surveies in this country and organize a footing on which other people discover more efficient and effectual ways of doing microfinance hold a permanent positive impact on economic growing.