The Role of Microfinance Banks in the Promotion and Development of Entrepreneurship in Semi Urban and Rural Areas

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By:Ayoola Felix (
Department of Accountancy , OSun State Polytechnic, Iree, Nigeria.

In Nigeria, credit has been recognised as an essential tool for promoting small and Micro Enterprises (SMEs) About 70 percent of the population are engaged in the informal sector or in agricultural production. The Federal and State governments have recognized that for sustainable growth and development, the financial empowerment of the rural areas is vital, being the repository of the predominantly poor in society and in particular the SMEs. If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve rural enterprise production capabilities. (Olaitan 2006) Rural transformation is all about seeking to bring about improvement in the living condition of the farmer, the artisan, the tenant and the landless within the simple and rustic economies of the country-sides and urban slums. The basis for employment generation and entrepreneurship development in rural areas, therefore, is to enhance the improvement of the living condition of the people. The small and medium scale entrepreneurs in rural areas lack the necessary financial services, especially credit from the commercial banks; this is because they are considered not credit worthy. Consequently they depended on families, friends and other informal sources of funds to finance their businesses. Successive governments have come up with special rural biased programmes, whose principal targets is the overall development of rural enterprises with special consideration on small and medium scale enterprises and also to empower rural dwellers. These programmes range from Agricultural Development Projects (ADPs), the establishment of Agricultural Credit Banks to Better Life Programme for Rural Women and the like. Unfortunately most of the programmes failed to achieve the desired result. That lead to the emergence of microfinance banks aimed at extending credits to microenterprises and encouraging entrepreneurship especially in semi urban and rural areas. This paper is aimed at examining the role played by microfinance banks towards the promotion of entrepreneurship in semi urban and rural areas of Nigeria, it will also identify the challenges facing the microfinance banks. Data used in the study is gathered through the use of documentary research where by information is obtained from published sources such as the publications of the Central Bank of Nigeria (CBN), the National Bureau of Statistics, as well as other published sources and annual reports of microfinance banks. The collected data was analyzed using the simple content analysis. To this end the paper is organized into four parts, after the introduction, part two contains the conceptual and theoretical issues relating to entrepreneurship and the microfinance. Part three contain the discussion on the roles of microfinance banks in promoting entrepreneurship in rural areas, and the last part contains concluding remarks. Microfinance refers to the entire flexible structures and processes by which financial services are delivered to micro entrepreneurs as well as the poor and low income population on a sustainable basis. It recognized poor and micro entrepreneurs who are excluded or denied access to financial services on account of their inability to provide tangible assets as collateral for credit facilities (Jamil, 2008) Microfinance can be seen as a supply of loans, savings and other financial services to the poor. It is the practice of delivering those services in a sustainable manner so that poor households will have access to financial services so that they can build sustainable microenterprise. While microenterprise is...
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