1.1 Background to the Study
The drive for improved standard of living has long been pursued by man, and it has been adopted by government of various countries as one of its functions. Improved individual’s standard of living in a community sustained over a long period of time can be translated to economic development (Micheal & Stephen, 2011).
In pursuit of national economic development, the government has come to realize the potentials of rural communities. With over 71% of the Nigerian population dwelling in rural areas, and about 80% engaged in agriculture, rural communities can be an avenue to achieve sufficient food production for the population and for foreign exchange, to increase the real income and improve welfare of individuals in the community and the country as a whole. Rural development plays a large role in the Nigerian economy, and is important to the future of the country (Laah, Abba, Ishaya, & Gana, 2013; Nchuchuwe & Adejuwon, 2012; Ugwuanyi & Emma, 2013).
To this end, the Nigerian government at various times formulates and executes policies that are aimed at accelerating the process of rural community development in areas of poverty alleviation, provision of rural infrastructure, agricultural extension and developing microfinance institutions that will go a long way in affecting the lives of individuals in the community and invariably, the economy at large, beginning with the direct finance and the creation of agricultural development programmes such as Farm Settlement Scheme (FSS) and River Basin Development Authority (RBDA) of the colonial administration, the Rural Banking Scheme of 1977 down to the establishment of Nigeria Agricultural Co-operation and Rural Development Bank in 2000 and to the present Microfinance Policy of 2005.
However, due to the various problems and challenges faced in executing or implementing these programmes, as a result of their unsustainable nature, and other factors such as poor funding, poor implementation and poor management, they achieve less than is expected of them and were therefore discarded, the last of which is the community bank (Olawepo & Ariyo, 2011; Idolor & Imhanlahimi, 2011; Nwaeze, Ogbodo & Nwabekee, 2015).
Since the inception of microfinance in Bangladesh in 1976, and its successful practice in Indonesia and other Asian countries, microfinance received worldwide acceptance by many countries and bodies as a means of alleviating poverty, providing access to financial services to the ‘poorest of the poor’, and as a platform for achieving rural transformation and development among many others.
Though, the practice of microfinance has been culturally rooted in Nigeria, dating back to several centuries predating modern banking (in form of Rotating Credit and Savings Associations (ROCSAs) such as Ajo, esusu, Adako, Adashi, co-operative societies, money lenders, mobile savings collectors, neighbours and friends), providing financial services and credit creation, however, due to the inherent nature such as limited fund availability and low coverage/outreach, the contribution of these microfinance service providers has been minimal and cannot be perceived in the economy and were therefore needed to be supplemented, thus the need for a deliberate, well-structured and regulated formal microfinance service provider (Idolor & Imhanlahimi, 2011; Central Bank of Nigeria [CBN], 2005).
In the light of the above, the Central Bank of Nigeria in December 2005 introduced the microfinance policy framework for Nigeria. Among its many objectives is to contribute to rural transformation in Nigeria. Since 2005, over 900 microfinance banks/institutions have been established or registered, however, the impact of these microfinance banks on rural development is blurring and has been debated and disputed by researchers. This study therefore tends to assess the contribution of microfinance banks on rural development in Kwara State, Nigeria.
1.2 Statement of the Problem
It is generally agreed that the operations of microfinance institutions can bring about rural development through the provision of credit or sufficient capital to individuals, leading to increased income for such persons, creation of employment, improved standard of living and creating wealth for the individual and the community at large (Okwoli, Abubakar & Abubakar, 2013; Eluhaiwe, 2005) as it was successfully illustrated in Bangladesh, Indonesia and other countries (Faruk, 2014; Okunnu, Adeyemi, Yusuf & Idowu, 2010).
However, in Nigeria, despite the attempts of government through formulated policies and structures attempting to improve the availability of finance to rural dwellers, and currently the introduction of the Microfinance Policy Framework for Nigeria- to contribute to rural transformation, the impact of these policies and structures have been disputed (Idolor & Imhanlahimi, 2011), as their effect on individuals cannot be pinpointed, and rural communities continue to endure the substandard services of existing financial service providers at their disposal if any, thereby impeding development of the rural communities and economic growth and development of the country at large (Babagana, 2010; Laah et al., 2013).
1.3 Research Questions
In view of the problem identified, the following questions were formulated to guide the research:
- Do microfinance banks have direct impact on the lives of individuals in the rural communities in terms of income and savings?
- Are the products and services of microfinance banks accessible to individuals in rural communities?
iii. What are the limitations to the contribution of microfinance banks to the development of rural communities?
- Are there prospects for microfinance banks in the rural communities?
1.4 Research Objectives
The general objective of the study is to assess the role of microfinance banks in the development of rural communities in Kwara State, Nigeria.
The specific objectives include:
- To examine the influence of microfinance banks on the income and saving profile of rural dwellers.
- To examine if the products and services of microfinance banks are accessible to individuals in rural communities.
iii. To examine the limitations of the contribution of microfinance banks to the development of rural communities.
- To examine the prospects for microfinance banks in the rural communities.
1.5 Hypotheses of the Study
The following hypotheses in null form are tested in the study:
H0A: There is no significant direct impact on the savings and income of dwellers in the rural communities by microfinance banks.
H0B: There are many challenges faced by rural dwellers in accessing products and services of microfinance banks.
H0C: There are no significant limitations to the contribution of microfinance banks to rural development.
1.6 Justification of the Study
This research is aimed at evaluating microfinance banks and development of rural communities in Kwara State. This study also assessed and appraised the effectiveness of microfinance institutions because despite the number of microfinance banks and indigenous informal microfinance service providers, rural communities in Kwara state still remain undeveloped, and an insight to this could result to development of rural communities and to the prosperity of the Nigerian economy.
This study contributes to the pool of existing knowledge in the relationship between microfinance and rural development, and also, it provides up-to-date information in that aspect. It also identifies other areas in which studies and more detailed work need to be done.
Both material and monetary resources were put in this research work in order to reveal the current state of development of rural communities, to highlight and expose the deficiency of the microfinance policy framework, providing an avenue through which policy makers can be aware of any loopholes in the current policy framework and also taking it into consideration in making policies in the future. The managements of microfinance banks are enlightened on opportunities and gaps to be filled in providing microfinance to rural communities when considering the prospects of microfinance banks in rural communities.
This research work also aim at sensitizing the rural communities of the workings and services of the microfinance banks in the community in the process of gathering information from individuals.
1.7 Scope of the Study
This study assessed microfinance banks in the development of rural communities in Kwara State. Idofian, Ganmo and Oro communities were used as case studies.