FACTORS DETERMINING LOAN REPAYMENT IN MICROFINANCE BANKS IN NIGERIA

FACTORS DETERMINING LOAN REPAYMENT IN MICROFINANCE BANKS IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY  

The concept of providing financial services to low income people is very old. Many informal credit groups have been operating in many countries for several years like the susus in Nigeria and Ghana, chit funds and Rotating Savings and Credit Associations (ROSCAs) in India, tontines in West Africa, pasanaku in Bolivia, hui in China, arisan in Indonesia, paluwagan in Philippines etc. It is believed that initially, the informal financial institutions emerged in Nigeria dating back in the fifteenth century. Such type of institutions started establishing in Europe during the eighteenth century when in 1720 the first loan fund targeting poor people was founded in Ireland (Seibel, 2005).

In 1976, Muhammad Yunus, a professor of Economics at Chittagong University, Bangladesh initiated an experimental research project of providing credit to the rural poor. He gave a small loan of 856 Taka ($27) from his pocket to 42 poor bamboo weavers and found that small loans radically changed the lives of these people and they were able to pay back the loans with interest. The success of this idea led Yunus to establish Grameen Bank in 1983 in Bangladesh. This programme showed astonishing growth rates in Bangladesh, particularly during the 1980s and 1990s. It encouraged social innovators and organizations all over the world to begin experiments with different microfinance delivery methods to bring financial services  to the poor. It is now adopted worldwide in the countries of different continents.

Many international NGOs, such as Foundation for International Community

Assistance (FINCA), Americans for Community Cooperation in Other Nations

(ACCION), Freedom from Hunger, Opportunity International, Co-operative for

Assistance and Relief Everywhere (CARE), Consultative Group for Assisting the Poor (CGAP), etc. are promoting microfinance programme for creating new businesses and combating poverty in a +sustainable way. Over the past few decades, microfinance has been experimented in many developing countries.