One of the factors
that can hinder the growth of business or completely destroy it, is lack
of financial backup. Since the larger number of the population of most countries
are involved in small and micro enterprises (SMEs), micro-finance banks provide
credit facilities to such businesses. They also grant loans to individuals and
groups when they meet the requirements for such loans.
Micro-finance banks
are financial institutions that grant access to credit facilities to individuals, small businesses and organization. The loans that micro-finance
banks give to people and small businesses are known as micro loans.
Using Nigeria as a
case study, there are two major forms of micro finance banks in Nigeria. They
are:
- Micro-finance Banks (MFB) licensed to operate as a unit: Formerly known as community banks, micro-finance banks operating as a unit are financial institutions, licensed to operate as a unit or to own a branch only if its paid-up capital is N20 million for each branch or unit and it can only create branches gradually, starting within its local council.
- Micro-finance Banks (MFB) licensed to operate in a state: This form of micro-finance bank is licensed to operate in any part of a state. it does not have to be gradual in opening its branches, so long as its minimum paid-up capital is N1 billion.
Here are some of the
roles of micro-finance banks:
- Granting Of Loans
The primary role of
micro-finance banks is to provide micro loans to individuals or groups in
need of it. People seeking to acquire a loan from a micro-finance bank must
have met all of the requirements for acquiring such loan.
Acquiring loans from
commercial banks could be very cumbersome compared to micro-finance banks.
Also, the chances of average people and small scale business to get loans from
commercial banks are very slim, unlike micro-finance banks whose primary
objective is to grant loans to small scale businesses and individuals,
irrespective of their financial status, especially poor and low income earners.
- Poverty Alleviation
Micro-finance banks
play an important role in the poverty alleviation of a particular country. This
is because, the primary objective of a government seeking to alleviate poverty
is to provide as many job opportunities as possible, as well as creating a
means of generating income for businesses. Micro-finance banks are key players
in this aspect because they specialize in the provision of credit facilities to
individuals as well as businesses.
For example, the Lift
Above Poverty Level (LAPO) is an NGO that runs a micro-finance bank in Nigeria. LAPO is a pro-poor
financial institution committed to the empowerment of low income earners and petty traders. It was established in 1987
and has been committed to improving the quality of life of poor people by
giving them access to credit facilities without collateral. They grant loans on
the basis of small installmental payments, making repayment of the loans less
stressful. LAPO has helped a lot of small scale business people in financing
their businesses.
- Creation Of Employment Opportunities
The individuals ,
groups and businesses that micro-finance banks provide with credit facilities,
will in turn engage the services of other people in their businesses, thereby
providing employment opportunities for those other people. Small scale
businesses usually create job opportunities for people. Secretaries,
receptionists, sales officers, cleaners and so on, these are some of the
positions for which people are employed in small enterprises.
- Increasing Small And Micro Enterprises (SMEs)
Microfinance banks
provide a platform for people with business ideas to bring their dreams to
reality. Gone are the days when people think business is only for the rich and
influential. Now, anyone can start a small business and walk into any
microfinance bank for a loan to start the business.
Take for instance, FBN
microfinance bank, a subsidiary of First Bank in Nigeria. This microfinance
bank has credit products that are meant for small scale businesses, artisans,
petty traders and individuals to meet the day to day running of their businesses.
They have varieties of credit products for different categories of people.
Some
of the products are, “Level don Change” a short term facility for long term
customers with satisfactory track record meant for acquisition of business
assets to improve income generation, “Kia-Kia Loan” a credit facility created
to assist existing customers with satisfactory record for urgent needs, “Easy
Loan” a short term loan for salary earners, to enable them purchase household
items, and so many other credit products like that.
- Promoting Agricultural Production
Most poor people live
in rural areas, giving them the opportunity to do Agriculture. Microfinance
banks also provide credit facilities to farmers. They can get loans for buying
modern day farming equipments such as, tractors, ploughs e.t.c. Microfinance
banks enable farmers to not just farm for their bellies alone, but to
commercialize their farming. Microfinance banks have become like a machinery to
governments.
It is a means of promoting economic development and growth, as
well as providing job opportunities and supporting small scale businesses. A
means to poverty alleviation in general.
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