CHAPTER ONE INTRODUCTION 1.1 Background to the Study

       Microfinance is all about providing financial services to the poor who are traditionally not served by the conventional financial institution. In the part: efforts have been made to use modern banking institutions to meet the credit needs of people at the grassroots especially in sub-urban and rural areas of Nigeria. Commercial and merchant banks were established and specialized development banks created focusing on agriculture and industrial production, cooperative activities and other specific areas. Beyond this the establishments of rural branches were made mandatory for commercial banks so that the interest of the rural would be catered for. In spite of these efforts, the people could not fit into the convention all banking system. In order to secure even the modest of loans, they were required to fill several forms of obey certain rules and provide some form of guarantee or collaterals which were beyond their comfort.

       In Nigeria, the formal financial system provides services to about 35% of the economically active population while the remaining 65% are excluded from access to financial services. These 65% are often served by the information financial sector, through the non-governmental organization, microfinance institutions, money lenders, relatives, friends and credit unions.

       Therefore, it is seen that robust economic growth cannot be achieved without putting in place well focused programmers to reduce poverty through empowering the people by increasing their access to factors of production especially credit. Latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of micro-finance services to enable them engage in economic activities and be more self reliant, increase employment opportunity, enhance household income and create wealth.

       The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban, low-income earners. They are mainly of the informal Self-Help Groups (SHGS) or the Rotating Saving and Credit Association (ROSCAS) type. Other provider of microfinance service include saving collectors and cooperative society.

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