access
to credit for the rural and urban low-income earners. These are mainly the
informal self-help groups such as Isusu,women
association like one obtainable during popular August meetings,

Umu–ada progressive women
association. Other providers ofmicrofinance
services include savings collectors and co-operatives.

(CBN brief, 2005)

The
unwillingness and inability of the formal financial institutions is to provide
financial services to the urban and rural poor, coupled with unsustainability
of government sponsored development financial schemes, contributed to the
increase in number of private sector led micro finance in Nigeria. Thus, before
the emergence of microfinance institutions, informal microfinance activities
flourished all over the country. The Central Bank of

Nigeria
(CBN) as at end of December 2009 gave an approval to 840 microfinance banks to
begin operation in the country. (CBN briefs, 2008-2009)

Microfinance
banking is about providing financial services to the economically active poor
and low income household, who are traditionally not served by the conventional
financial institutions.

These
services include credit savings, micro-leasing, micro-insurance and payment
transfers to enable them engage in income generating activities. (Asemota,
2002)

12

However,
the microfinance policy launched on 15th
December 2005 defined the framework for the delivery of these financial
services on a sustainable basis to the micro, small and medium enterprises
(MSMES) through privately owned microfinance banks.

The Non-governmental Organizations or Microfinance
institutions

(NGO-MFIS)
are also expected to transform to microfinance banks. (Dinye, 2006)

Existing
Community banks and NGO-MFIS that want to convert and transform respectively to
a microfinance bank but do not have the required minimum capital base can
increase the share capital by capital injection, merger and acquisition. These
would not only enhance monetary stability but also expand the financial
infrastructural development of the country to meet the national financial
system and provide stimulus for growth and development

(Benson,
1985). It would also harmonize operating standards and provide a strategic
platform for the evolution of microfinance institution, promote appropriate
regulation, supervision and adoption of best practices. The establishment of
microfinance banks has become imperative to serve the following purposes:

Improve,
diversified and create a dependable financial service to the active poor,
low-income earners in a timely and competitive manner that would enable them to
undertake and develop long-

13

term,
sustainable entrepreneurial activities, mobilize savings for intermediation,
create employment opportunities and increase the productivity of active poor
and income earners in the country. Thus increasing their individual household
income and capacity standard of living, enhance organized and systematic but
focused participation of the poor in the social-economic development and
resource allocation process. It will also provide veritable avenues for the
administration of the micro credit programme of government and high net worth
individual on non-resource basis. This policy ensures that state government
shall delegate an amount of not less than 10% of their annual budgets for
on-lending activities of microfinance banks in favour of their residents and
render payment services such as salaries, pension for various tiers of
government (Luck,2011).

1.2:     STATEMENT
OF PROBLEM