Relationship Between Microfinance And Nigerias Economic Growth Economics Essay

race Between Micro pay And Nigerias Economic Growth Economics EssayABSTRACTMicrofinance has oer the years been associated with eradicating poverty, and then improving the standard of reinforcement of the less privilege sh ares of a society, and rubbing on autocraticly on the nations scrimping. This dissertation aims at exploring the impact microfinance has on scotchalal growth, considering a specific case of the national Republic of Nigeria. Due to the fact that this area of learn has not witnessed so much research in the past, this work seeks to come up with an set taboo where the different links amid microfinance and economic growth can be discovered and studied. Since most societies, especially the developing ones usually experience the battlefront of two types of pecuniary arrangement, the take a leakal and the informal one under which microfinance falls, this get out alike be taken into consideration. The first conjecture to be considered has to do with the micro level and this examines the kin between microfinance and the monetary system. The Second hypothesis has to do with the macro level and examines the relationship between the financial system and economic growth, while the third one links the previous two, by checking the relationship between microfinance and economic development.Keywords Microfinance Economic Growth Financial governing body NigeriaINTRODUCTIONMicrofinance Institutions are financial organisations licensed to provide micro-savings, micro-credit, and micro-insurance in an economy. They lock up in the informal sector of the financial system and are the major source of fund-provider for the medium, small and micro-enterprises.The basics of microfinance is the fact that the poor cannot access a loan from a bank of any reasonable commercial source, that is wherefore Microfinance Institutions go out to the villages, meet with the poor who are encouraged to form an association, they give them micro-credits and so me clocks even give them trainings to help them pose the topper use of the loan accessed (Mohammed and Hasan, 2008).The methodology utilize by most micro-finance institutions to make loan is that they gather people into trust groups and meet weekly. These groups assume enunciate liability and joint guarantee on loans extended to any member of the trust unit and this invariably helps in reducing incidence of defaults and dreary loans. Most Micro-Finance Institutions enjoy a graduate(prenominal) repayment sum up.It should also be notable that majority of microfinance customers are women who also make up a p individuallyyer percentage of the worlds poor, and also experience a very high rate of unemployment and sadly in most cases are responsible for providing for and pickings care of their families.Nigeria with a GDP-real growth rate of 5 %( 2009 est.), rebrinys a major player in the African economy but her universe of about 149, 299,090(sourced from CIA-The world fact book), w hich is the largest in Africa, has about half of it living in poverty. However, since the introduction of microfinance in the arena, an increase has been noticed both in the growth of the economy and also in the increase in add together of microfinance institutions.The Central depose of Nigeria is saddled with the responsibility of issuing banking license and watchfulness of banks in the country, Micro-finance Institutions inclusive.LITERATURE REVIEWMicrofinance, through its provision of financial service to the poor can do work economic growth by back up savings, giving out loans for feasible enthronizations, provision of free advisory serve to new clients on how best to invest, and also to those with long standing relationship, on how to increase the marginal productivity of capital (Pagano, 1993).A lot of studies take over been carried out on the relationship between financial development and economic growth. King and Levine(1993) are in support of the view that financia l development leads to economic growth and in their visit on Joseph Schumpeters work pointed out that banking institution through their provision of funds for productive investments are of great importance to economic growth(Schumpeter, 1911 cited in King and Levine, 1993). Greenwood and Jovanovic(1990) suggested that the relationship between financial development and economic growth is mutual, while Khan,(1999) who is of a similar trust explains further that economic growth create financial development which in turns helps in sustaining the growth.Qayyum et al.,(2007?) are of the opinion that rank finance has a of import positive relationship with economic growth. The availability of funds to the poor increases return and output, this also leads to an increases in the demand for more financial services (micro-savings and micro-insurance), which positively affects financial development and sets the economy on the path of growth(Khan, 2008).It can thence be said that availability of funds generates enterprise, enterprise generates finance flow, finance flow generates financial development, while financial development generates economic growth. De Gregorio and Guidotti(1995) also argued that financial development leads to improved economic growth, especially when funds are effectively invested.However, Kemal, et al.,(2004) do not regard finance(micro-finance inclusive) as an important clincher of economic growth and Lucas(1988) even referred to it as overstressed, while Levine(1997) sees financial institutions as more harmful to a nations economic growth. This led to a rally for redefinition and the use of appropriate measure of estimation of the relationship between financial development and economic growth and development of financial intermediaries by Bencivenga and Smith(1991).The main objective of Microfinance is to raise income, by encouraging private sector operation through the provision of micro-credit to micro and small scale entrepreneurs ((Agh ion and Morduch, 2000)). In a cultivation conducted by Chua et al.,(2000), they noticed that the impact of microfinance services on income and inlet is low-level on the initial endowment of the household and the length of time they pitch been clients of the institution. It is also affected by how efficient they are in the management of the sourced resource and also the profitability of the sector they invest in. accessibility of Social amenities and a cheaper source of factors of production also influence income.According to Akanji (2002), the poor make force outive use of the credit facilities and not only are they pass oning to pay the high interest rate on loan, they also in no time make generous returns to run a savings account with the MFI. It should also be noted that the conversion of the poor who were formerly economic liabilities into profit reservation micro-entrepreneurs generate a positive impact on the financial system and consequently begins the process of ec onomic growth by bring its full strong-arm and human resources into productive use (Kamath, 2008).METHODOLOGYNot many literary works are available as regard the relationship between microfinance and economic growth, at that placefore the study pull up stakes rely much on supposed simulation in tack together to understand the link between microfinance and economic growth. Both Primary and Secondary sources of data result be used and Questionnaires will be direct out to film a direct feedback from the beneficiary of the scheme while previous studies and findings as regards the Nigerian economy will also be put into use in order to mark a theory-based association between Microfinance and Economic Growth.It should be noted that the two main variables in this dissertation is Microfinance and Economic growth. The pick of Nigeria as a case study was borne out of the fact that the country has recently had its microfinance regulations tuned to enable it play its role in serving i ts targeted trade effectively. An increase in the growth of microfinance institutions in the country has also do them better established and competitive, giving the erstwhile neglected micro-entrepreneurs a choice.The relationship between financial system and economic growth will be first examined and in the second part, microfinance, alongside its associated theories will be explored to determine their impact on Economic Growth. The third part will be about examining the impact of theoretical macro-level effect on the case study, which is Nigeria. Its effect on the case study will help in reshaping the theoretical framework which will be the basis for finishing.To determine the impact of Microfinance on economic growth, micro credit expense from 2000 to 2009 will be canvass using both non-parametric and parametric test methods.The parametric test involves regressing the dependent variable (GDP from 2000-2009) against the instructive variable (micro-credit disbursements) to asc ertain if its significant and provide explanatory power for economic growth. While the Chi-square method of non-parametric test will be used to examine the questionnaire to determine if there is any association between Microfinance and economic growth.RESEARCH QUESTIONS AND OBJECTIVESThis Objective of this dissertation to answer the following questionsIs there a relationship between microfinance and Nigerias economic growth between 2000-2009?Does investment of micro-credit into commerce contribute more to economic growth than other sectors?Does microfinance have an effect on the financial system?Does an increase in the morsel of Microfinance Institutions result to an increase in economic growth?POTENTIAL enigmaThe potential problems envisaged in this research work is the availability of data from microfinance institutions in Nigeria as a large number of them do not have access to the internet and so do not post their education online. This brings about another problem, which is t he distance between my place of study and the stance of the case study. The relative scarcity of research on this area of study also creates a problem of limited materials. However, I have devised solutions for each of the problem. Most of my materials will be sourced from the Microfinance Unit of the Other-Financial -Institutions department of the Central edge of Nigeria, as they have unhindered access to takes of every Microfinance Institution run in Nigeria. Most of my materials will be sent online while I will make use of a cheap and reliable messenger service for my questionnaires. Also, the available materials online will be coupled with those sourced from the Central Bank of Nigeria Library and Data collected on the MFIs.RESOURCES REQUIREDThe main resources ask are data on Nigerias GDP, list of MFIs presently operating, records of loan disbursement by MFIs, records of total amount set aside for Small and middling Scale Enterprise by the nations commercial banks. All of these will be sourced from the Central Bank of Nigeria, while Past Studies and other literature will be freely assessed through the school library. The Questionnaires will be sent through mail and returned through courier. Estimated monetary value at conclusion is 250, which includes cost of printing and binding, as well as courier cost.WORKPLANITEMPARTICULARSNOTES duration FRAME1.Dissertation Proposal unveilingMay 5, 20102.Literature reassessmentSourcing of materials and review article of literatureJuly 4- 16, 20103.Submission of preliminary literature review to my supervisory program, and making suggested correctionsJune 17- 20, 20104.MethodologyReading on Methodology and structuring of theoretical frameworkJune 20- 24, 20105.Submission of proposed methodology to supervisor, and making suggested amendments.July 25-June 28, 20106.QuestionnaireDevise QuestionnaireJune 29-30, 20107.Submission of questionnaire to supervisor, and making suggested amendmentsJuly 1-5 20108.Questionnair e statistical distributionJuly 6, 20109.Collection of all other needed data and further review of past literatureJuly 7-20 201010Collection of questionnaires and analysis of findingsJuly 21- 25, 201011.Data abstractJuly 26- 30, 201012.Interpretation of Findings.August 1-5, 201013.Formulation of ConclusionAugust 6-10,201014.Abstract, and appendix and compose materials arrangementAugust 11- 1515.Updating and ReviewReview with supervisorAugust 16-20, 201016.Self review and amendmentAugust 21-25, 201017.Final review with supervisor and proof-readingAugust 26-28,201018.Printing and BindingPrinting and BindingAugust 29, 201019.SubmissionSubmission at the PG officeSeptember 2, 2010.EXPECTED OUTPUTThe output, which is the conclusion of this dissertation, is expected to help the Government in its activities aimed at the nations economic development. It will also guide them in effective channeling of resources aimed at poverty alleviation. MFI administrators will also benefit from this wor k as it will help them in making decisions on how to enlarge their area of coverage and to also record higher returns through provision of other services. Donor Agencies and International institutions will also discover opportunities for helping in the economic growth and empowering the poor.Lastly, this study is expected to pilot other studies in this area and form a basis on which other people discover more efficient and effective ways of making microfinance have a lasting positive impact on economic growth.