1.1 Background of the Study

Economic self-reliance which actually means the Fusion of economic growths development and stability, cannot be achieved without putting in place well focused progrmmes to reduce poverty through empowering the people, by increasing their access to factors of production, especially finance and credit.

In recent years, increasing emphasis has been placed on “Micro-financing” as a tool for poverty alleviation, economic growth, economic development and socio-political empowerment. Efforts of government have been geared towards narrowing the income gap between the urban and the rural sectors through breaking the cycle of unemployment, economic stagnation and poverty. In the past two decades there has been an overwhelming consciousness in Nigeria, on the need to put forward, improvement on the living standard of the people especially those in the rural areas. This can be seen through the numerous awareness programmes that have emerged and also with the increase of microfinance institutions in Nigeria since 1980, when formal microfinance institutions were registered with the Central Bank of Nigeria (CBN Survey 2001).

According to Robinson (2002) “microfinance refers to small scale financial services for both credit and deposits that are provided to people who are engaged in small or micro enterprises” and also providing financial services to the poor who are traditionally not served by the conventions. Financial institutions (banks, insurance companies; discount houses). Schremer: (2000), stated that Microfinance is a formal scheme designed to improve the wellbeing of the poor through better access to saving and services loans.

In essence, a microfinance institutions (MFI) acts as bank for the poor. In some cases, Micro-finance institutions is actually a bank, but usually it is a non-governmental organization (CGO) or a governmental programme and at poverty reduction and alleviation. The purpose of microfinance is to provide financial loan to the poor that are not made available to them through eh traditional banking system (Brandsma and Chaoul, 1998:1). These loans can range from at tiny as N5000 to N20,000 or more, and are typically used by the client to start a small business. In 1976, the world finally witnessed a truly effective approach to economic growth and development, through microfinance. Muhammad Yanus, a professor at the University of Chittangon in Bangladesh, decided to give act a few $50 loans to women in rural Bangladesh. A few months later when the returned to the villager, the women had started small tailoring and weaving businesses. Not only were the women able to pay back their loans, but their small businesses were profitable enough to improve their living conditions of the women, their families and on the whole, the community in which they resided convinced that he had discovered a solution to poverty, Dr. Yanus launched an ambitious programme to provide credit to entrepreneurs in Bangladesh. Thirty years later the Grameen Bank had 3.7 million borrowers, 1,267 branches in 46,000 village worldwide and has proved to the world that if presented with the right opportunities, the poor can be empowered to improved their own lives (Grameen Bank 2005) so Muhammad Yanus approach to poverty alleviation is known as microfinance.