Relationship Between Microfinance And Nigerias Economic Growth Economics Essay Example

Relationship Between Microfinance And Nigerias Economic Development Economics Essay


Microfinance provides over the old age range been associated with getting rid of poorness, and accordingly bettering the criterion of life of the less privileged members of a community, and rubbing on favorably on the state ‘ s economic system. This thesis aims at researching the particular impact microfinance is wearing financial growing, sing a certain instance of the Federal Republic of Nigeria. Due in order to the fact that this country of survey has not witnessed so much study in the yesteryear, this job seeks to come right up with an attack exactly where the different links among microfinance and economic developing can be discovered in addition to studied. Since most organizations, particularly the underdeveloped 1s normally experience the existence of two types of money system, the formal and the informal one under which microfinance falls, this particular will besides be obtained into consideration. The first hypothesis to be considered offers to make with the micro degree and this specific examines the relationship between microfinance and the fiscal method. The Second hypothesis needs to make with the macro degree and examines the relationship between fiscal method and economic growing, while the 3rd one backlinks the old two, simply by look intoing the relationship between microfinance and economic development.

Keywords and phrases: Microfinance; Economic Growth; Monetary System; Nigeria


Microfinance Institutions are fiscal organizations licensed to supply micro-savings, micro-credit, and micro-insurance inside an economic climate. They operate in the informal industry of the fiscal program and are the main beginning of fund-provider with regard to the medium, little in addition to micro-enterprises.

Typically the rudimentss of microfinance is the fact that the hapless can non meal a loan from the loan company of any sensible professional beginning, that is exactly why Microfinance Institutions go out and about to the small cities, meet with the hapless who are encouraged to organize a connection, they offer them micro-credits and sometimes even give them preparations to aid them do the finest usage of the loan utilized ( Mohammed and Hasan, 2008 ).

The methodological analysis utilized by most micro-finance establishments to do loan is usually that they gather folks into trust groups in addition to fitting hebdomadal. These organizations assume joint liability plus joint warrant on funding extended to any person in the trust unit and this constantly helps in cut downing incidence of non-payments and bad loans. The majority of Micro-Finance Institutions enjoy a new high refund rate.

It may besides become noted that bulk regarding microfinance clients are mature females who besides create up a greater for each centum of the world ‘ s hapless, in addition to besides view a really large rate of unemployment; and unhappily more often than not are responsible regarding supplying for and using attention of their households.

Nigeria with a GDP-real growing rate regarding 5 % ( 2009 est. ), remains an important participant in the Africa marketplace but her populace of approximately 149, 299, 090 ( sourced from CIA-The universe fact book ), that is the largest in Africa, has about 50 percent of it populating in poorness. However, since typically the debut of microfinance in the state, an inclusion has been noticed the two in the growing of the economic system and in addition to inside the addition in physique of microfinance establishments.

The Central Bank of Nigeria is saddled with all the duty of publishing banking licence and supervising of Bankss in the state, Micro-finance Institutions specially.


Microfinance, by means of its proviso of money services towards the hapless can act upon economic rising by promoting nest ova, giving out loans for executable investings, proviso totally free advisory services to new business on how best in order to put, and besides to those with long standing relationship, on how to increase the fringy efficiency of capital ( Idolatra, 1993 ).

A batch of surveies have been carried away on the relationship between money development and economic developing. King and Levine ( 1993 ) are within support in the position of which fiscal development leads to economic growing and in their particular visit on Joseph Schumpeter ‘ s work directed out that banking business through their proviso regarding financess for productive investings are of great importance to economic growing ( Schumpeter, 1911 cited found in King and Levine, 1993 ). Greenwood and Jovanovic ( 1990 ) suggested that the relationship among fiscal development and financial growing is common, although Khan, ( 1999 ) who is of a similar sentiment explains further that economic growing generate fiscal development which in bends aids in prolonging the growing.

Qayyum et al., ( 2007? ) are of the sentiment that direct finance has an important positive relationship with economic developing. The handiness of financess towards the hapless additions manufacturing and end product, this besides contributes to an improvements in the with regard to a lot more fiscal services ( micro-savings and micro-insurance ), which usually positively affects fiscal advancement and sets the economic system on the way of growing ( Khan, 2008 ). It may so be stated that advantage of financess generates enterprise, enterprise generates finance movement, finance flow generates money development, while fiscal development generates economic growing. Para Gregorio and Guidotti ( 1995 ) besides argued that fiscal development qualified prospects to better economic increasing, particularly when financess are really expeditiously invested.

However , Kemal, et ‘s., ( 2004 ) carry out non see finance ( micro-finance inclusive ) as an of import determiner of economic growing and Lucas ( 1988 ) even referred to it since overstressed, while Levine ( 1997 ) sees fiscal establishments as more damaging to a state ‘ t economic growing. This brought to a call for redefinition and the usage of appropriate step of appraisal of the relationship in between fiscal development and economical growing and development regarding fiscal mediators by Bencivenga and Smith ( 1991 ).

The particular chief aim of Microfinance is to raise revenue, by promoting private sector activity through the proviso of micro-credit to mini and little graduated table enterprisers ( ( Aghion and Morduch, 2000 ) ). Within a survey conducted by Chua et al., ( 2000 ), they will noticed that the effect associated with microfinance services on earnings and ingestion is dependent on the initial gift in the family and the length of clip they have been clients of the establishment. It truly is besides affected by exactly how efficient they are found in the direction of the sourced resource and besides the profitableness of the sector they purchase. Accessibility of Social comfortss and also a cheaper beginning of elements of production besides influence income.

Harmonizing to Akanji ( 2002 ), the hapless make effectual usage of the recognition installations and non merely are they ready 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 may besides be noted that the transition of the hapless who had been economic liabilities in to net income doing micro-entrepreneurs have an impact on the fiscal system and accordingly commences the procedure of economic growing by conveying their full physical and human being resources into productive use ( Kamath, 2008 ).


Not many literature are available as respect the relationship between microfinance and economic growing, therefore the survey will rely a lot on theoretical model in order to understand the particular nexus between microfinance and economic growing. Both Major and Secondary beginnings regarding informations be used and Forms will be sent to hold a direct suggestions from the donee of typically the strategy while old surveies and findings as aspects the Nigerian economic method will besides be put into usage in order in order to find a theoretical association between Microfinance and Economic Growth.

It should be noted of which the two chief variables in this thesis is Microfinance and Economic rising. The pick of Nigeria as an instance survey was borne out associated with the undeniable fact that the state has late had its microfinance ordinances tuned in order to enable it play their function in functioning their targeted market efficaciously. A good addition in the growing of microfinance establishments within the state has in addition to made them better established and competitory, giving the erstwhile neglected micro-entrepreneurs a new pick.

The particular relationship between fiscal method and economic growing may be foremost examined as well as in the 2nd portion, microfinance, alongside its associated theories will be explored to locate their impact on Economic Development. The 3rd portion will be about analyzing the effect of theoretical macro-level result on the instance review, that is Nigeria. Its outcome within the instance survey will assist in reshaping typically the theoretical model which will be the footing with regard to decision.

To get the impact of Microfinance on economic growing, micro acknowledgement expense from 2000 in order to 2009 will be analyzed utilizing both non-parametric plus parametric trial methods.

The parametric trial involves regressing the dependant variable ( GDP through 2000-2009 ) against the particular explanatory variable ( micro-credit expenses ) to determine if it ‘ t important and supply explanatory power for economic increasing. As the Chi-square method regarding non-parametric trial will end up being used to analyze typically the questionnaire to find if there is any relationship between Microfinance and economic growing.


This Objective of this thesis to reply the particular undermentioned inquiries:

Is there a partnership between microfinance and Nigeria ‘ s economic rising between 2000-2009?

Does investing of micro-credit into commercialism contribute more to economic growing as compared to other sectors?

Does microfinance hold a good consequence on the financial system?

Really does an addition in the particular figure of Microfinance Institutions consequence to an add-on in economic growing?


The possible jobs envisaged with this research job is the handiness regarding informations from microfinance institutions in Nigeria as the big figure of these people do non hold durchgang to the cyberspace and so make non post their information online. This specific brings about another work, that is the distance among my topographic point of survey as well as the location regarding the instance survey. The comparative scarceness of research on this country of survey besides creates a job regarding limited stuffs. However, I actually have devised solutions regarding each of the job. Most of my things will probably be sourced from typically the Microfinance Unit of typically the Other-Financial -Institutions portion of the Central Bank of Nigeria, as they have unhindered, unlimited entree to records of every Microfinance Institution runing inside Nigeria. Most of the stuffs will be delivered online when i will carry out usage of an affordable and dependable messenger support for my questionnaires. Besides, the available stuffs online will be coupled along with those sourced from the Central Bank of Nigeria Library and Data accumulated on the MFIs.


The chief sources needed are informations upon Nigeria ‘ s GDP, set of MFIs soon runing, records of loan expense by MFIs, records of entire sum set aside for Small , and Medium Scale Enterprise from the state ‘ s commercial Bankss. Almost all of these will end up being sourced from the Central Bank of Nigeria, although Past Surveies and other literature will be openly assessed through the college library. The Questionnaires will be sent through mail and returned through messenger. Estimated cost at selection is & A; lb; 250, which include cost of printing and binding, every bit good as messenger cost.







Dissertation Proposal


May 5, 2010


Literature reappraisal

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



Devise Questionnaire

June 29-30, 2010


Submission of questionnaire to supervisor, and doing suggested changes

July 1-5 2010


Questionnaire supply

July 6, 2010


Collection of other needed informations and farther reappraisal of past books

July 7-20 2010


Collection of questionnaires and analysis of conclusions

July 21- 25, 2010


Datas Analysis

July 26- 30, 2010


Interpretation of Findingss.

August 1-5, the year 2010


Formulation of Selection

August 6-10, 2010


Abstract, and appendix and referenced stuffs agreement

August 11- 15


Updating and Review

Reappraisal with Supervisor

August 16-20, the year 2010


Self reappraisal and amendment

August 21-25, 2010


Final reappraisal with supervisor and proof-reading

August 26-28, 2010


Printing and Binding

Printing and Binding

August 29, the year of 2010



Submission at the PG office

September 2, 2010.


The finish product, which is the decision with this thesis, is expected to assist the Government in its activities directed 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 better and effectual ways of doing microfinance hold a permanent positive impact on economic growing.

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