CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Micro-credit has been identified and recognized by governments and development experts as the main engine of economic growth and a major factor in promoting agricultural development. It has been recognized that availability of capital on affordable terms is vital to efforts aimed at enhancing income generating capacity of the poor local farmers.

The assumption is that the farmers know what to do to improve their socio-economic conditions and what is required is credits, a critical factor of agricultural production. It is also believed that the structures, operational procedures and policies of formal and informal financial operations constrain the flow of credit to micro, small and medium scale enterprises. Demand for tangible collateral, extensive documentation and cumbersome procedures are often identified as the limiting features of these financial markets. Micro finance in practice addresses these limitations.

The micro finance industry began in 1976 with the establishment of the Grameen Bank in Bangladesh and it is now a world wide movement comprising thousands of specialist banks, credit unions, cooperatives, village credit societies, NGO’s and charities in both the rich and poor countries. The common goal was to extend the outreach of banking services, especially business credit to those not qualified for normal bank loans. Micro credit was granted at commercial interest rates, though at a much lower rate than charged by informal money lenders. This reflects the status of micro finance institutions as non-profit making but being able to become fully self supporting after a number of years (Grameen Bank, 1999).

In Nigeria, micro finance is not a new phenomenum. Various communities have rich and long history of financial arrangements with huge savings components. Rotating savings and credit schemes have been organized in various communities under different names. The period between 1930 and 1980 witnessed vibrant micro finance practice within the structure and principles of the cooperative movement. The transformation of the state-promoted cooperative banks to commercial banks was substantially responsible for the decline in cooperative savings and credit actives.

Non-governmental organizations (NGOs) emerged in the era of financial liberalization which was an important component of the structural adjustment programme introduced in 1986. These institutions were mainly poverty alleviation institutions. The non-governmental initiatives were supported by donor agencies with the Ford foundation at the fore-front. The major NGOs that emerged are Farmers Development Union (FADU), Lift Above Poverty Organization (LAPO), Country Women Association Of  Nigeria (COWAN) and Community Women and Development (COWAD). (Olomola, 1999).