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Microfinance has emerged as an effective strategy for poverty reduction. Across developing countries (Nigeria for example) micro, small and medium enterprises are turning to microfinance institutions (MFIS) for an array of financial service-microfinance is acknowledged as one of the prime strategies to achieve the millennium development goals (MDGs)- access to sustainable financial service enable owners of micro enterprises to increase their capital base, build assets and reduce their vulnerability to external stocks. Access to financial services enable poor household to move from everyday struggle for survival to planning for the future, investing in better nutrition their children’s education, health and empowering women especially.

However, the potency of microfinance as a development strategy is

contingent upon the existence of microfinance institutions which:

1. Have adequate outreach and more impact on poverty

2. Achieve financial and operating self-sufficient

3. Deliver responsive services to micro and small enterprise

Microfinance is the study of loans, savings and other basic financial services to the poor who are traditionally not served by the conventional financial


These owners of micro and small enterprise require a diverse range of financial instruments to meet working capital requirement, build assets, stabilize consumption and shield themselves against risk. According to Ehigiamusoe (2008) microfinance primarily focuses on alleviating poverty through provision of financial services to the poor or owners of micro enterprises. Services users include artisans, small holder farmers, food processors petty traders and other persons who operate micro enterprises according to (Okereke et al 2009). The financial services include working capital loans, consumer credit, savings pension etc. in practice, microfinance is much more than disbursement management and

collection of little bits of loans.

Microfinance is not charity organization despite its application as “poverty lending”. Primarily microfinance seeks to create access to credit for the poor who ordinarily are locked out of financial services in the formal financial market for reasons of their poverty that is lack of command over assets. If therefore places obligation on the borrowers for proper utilization and complete repayment of the borrowed amount even at commercial interest rate.

Microfinance is not new especially history we come across schemes and social arrangement, which enable people to poor their financial resources for onward distribution to co-operating and needy individual. Example includes “adachi” and several variants of “esusu”. Nigerian microfinance institutions have also intergraded best practice of traditional schemes into the operational procedures.


Although microfinance services have Endeavour to offer financial services to the vulnerable groups, (youth, women especially), their impact on the economic activities of the beneficiaries still remain low due to its high operating cost, repayment problem, in adequate experienced credit staff, client apathy and dropout, internal control challenges etc. for instance the percentage dropout rate of FINCA wobulenzi beneficiaries stands at 33% on average (FINCA internal annual management report 2004).

Some dropout may be due to improvement on welfare of the bank or the interest rate while in other cases some have lost –even the little they used to own (Nakalnesi, 2003) this therefore sets the basis for the study.


The study was guided by the following objectives:

1. To examine the nature of financial services offered by microfinance institutions to the rural communities

2. To identify the indicators of growth in economic activities of microfinance beneficiaries in Nigeria.

3. To establish the contribution of microfinance banking to capital formation in Nigeria.

4. To design appropriate strategies that will increase the outreach of microfinance institutions so as to enhance economic development and growth in Nigeria.

5. To solve the problems of inadequate experienced credit staff, client apathy and dropout, high operating cost repayment problems etc.

1.4 Research Questions

The following research questions are formulated to enable us find lasting solutions to the problems of this study:

1. Of what importance are the contributions of microfinance banks?

2. How does a microfinance bank credit a small and medium scale enterprise on capital formation?

3. Do microfinance banks enhance individual household ability to accumulate assets and create wealth?

4. Is it important for microfinance banks to aid in the facilitation of rural transformation?

5. How do microfinance banks engage in making finance assessable to enlarge segment of the Nigerian population?

6. How do microfinance banks create capital?


For a purposeful data collection and interpretation the following hypothesis are hereby formulated

Hypotheses 1

Ho: Microfinance banks loans and advances to rural people have not contributed much to capital formation

Hi: Microfinance banks loans and advances to rural people have contributed much to capital formation

Hypotheses 2

Ho: Microfinance bank credit to small and medium scale enterprise of agriculture and fishery don’t have much impact on capital formation

Hi: Micro finance bank credit to small and medium scale enterprise of agriculture and fishery have much impact on capital formation.

Hypotheses 3

Ho: Microfinance bank investments are not good tools for the formation of


Hi: Microfinance bank investments are of good tool for the formation of



Poverty is a major challenge facing Nigeria as a country. Many people continue to suffer deprivation even as reforms continue successful. This condition is being addressed to avoid a divide that can engulf Nigeria as a country and the only way to curtain this divide is by expanding opportunities to the poor through microfinance.

Microfinance itself is not a new phenomenon in the Nigerian society as evidence by some cultural economic activities like the “Esusu”, “Aso”, “Otataje”, etc. which were practiced to provide funds for producers in our rural communities. What is current however is the effort of the government of Nigeria to modernize micro financing in our rural and urban communities so as to improve the productive, capacity, enhance their economic standing which alleviate the level of poverty and aggregate to improve development of the national economy. Therefore the significance or importance of this research is to look at how micro financing through the help of the government can help improve the lives and standard of living of individuals or citizens in the rural and urban areas.

There by helping to alleviate poverty and ensuring economic development of the nation at large.

1.7 SCOPE OF THE STUDY (1992-2010)

The research work study expected to appraise the contributions of

microfinance banking institution to capital formation in Nigeria. As a result, all works microfinance banks instituted at Mberi in Owerri was chosen as a case study out of the numerous microfinance banks in Imo state.

1. Time: This constitutes a major problem for the research due to the fact that the study was carted out during the academic period, it became a huge problem attending lectures and going about the organization of the study.

2. Lack of information: there was also difficulty in getting the required information especially from workers of the firm. Also laying hands on literatures that has treated these matters was also an impediment to the flow of the required information.

3. Inadequate materials: this constitutes a hindrance to an effective research work. The insufficient supply of literatures such as books, journals was also

a problem. Even when seen, they are either out dated or out of use for referencing purpose.

4. Financial resources: Cost implication on conducting and presenting this research work was enormous. Buying materials needed for this study cost a


Notwithstanding these constraints, the research was well conceived and packed to serve the purpose of which it is intended, which is to look at the various contribution of microfinance banking institutions of capital formation in Nigeria.


In the course of achieving the stated objective of this study, this work has been arranged under five chapters to deal with the relevant issues f the topic.

Chapter one gave an average of the background of the study significance of the study, the limitation, scope of the study, organization of the study and definition of terms.

Chapter two reviews the relevant literature by explaining the conceptual framework of the topic in question. Chapter three contains the research methodology used in the research including the design, source of data and method of data analysis, while chapter four dealt with the presentation and analysis of data, which highlighted the data collection, the data was properly analyzed and discussed therein.

Finally chapter five dealt on the summary of findings, conclusion and recommendations. Hence bibliography and relevant areas for further reading inclusive in the research.


Engle: To surround, cover some body or something completely

Constraint: A thing that limits or restricts something or your freedom to do something

Alleviation: To make something less sever

Potency: The power that somebody or something has to affect your body or mind.

Vulnerability: Week and easily hurt physically or emotionally

Disbursement: To pay money to somebody from a large amount that has been collected for purpose

Utilization: To use something especially for a particular purpose

Sustainability: Involving the use of natural product and energy in a way that does not harm the environment or that can continue or continued for a long time.

Dequincy: Bad or critical behaviour, usually of young people

Appellation: A name or title.

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