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RURAL FINANCIAL INSTITUTIONS IN NIGERIA ECONOMY
(A CASE STUDY OF NNEWI SOUTH IN ANABRA STATE)
ABSTRACT
The
rural financial institutions have always been noticed in the various rural
settings as they carry out their financial intermediation activities. This
makes the researcher to come up with topic tagged “Rural financial institutions
and the Nigeria Economy”. A case study of Nnewi South Local Government Area.
The purpose of this study is to examine the actual performance of rural
financial institutions in economic development as well as look at the
challenges of the institutions among other study objectives and proffer
measures of sealing through the challenges. The study takes four towns in the
local government namely Amichi, Utuh, Osumenyi and Ukpor as its sampled
population. For proper and in-depth study of the sample population,
questionnaires were sent out to get peoples responses on the topic understudy.
Four research questions that cover the objectives of the study were also
analyzed using simple percentage. To test the hypothesis, chi-square was used
as the analytical tool and the null hypothesis was accepted. This shows that
the rural financial institutions activities do not have a positive relationship
with the development of the area. As a efficient functioning of the
institutions, the study recommend that government should put in place policy
measures that will formalize the operations of the institutions as well as
improve its performance and also increase educational opportunities available
to the rural dwellers so as to make them cope with programmes in areas of
financial management and other special areas that will assist participants of
the saving scheme to improve on their savings. Suggestions for further studies
were also made.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgment iv
Abstract v
Table of Contents vi
List of Tables vii
CHAPTER
ONE: INTRODUCTION
1.1 Background
of the study 1
1.2 Statement
of the problem 3
1.3 Objectives
of the study 4
1.4 Research
question 4
1.5 Statement
of hypothesis 5
1.6 Scope
and limitations of the study 5
1.7 Method
of the study 6
1.8 Significance
of the study 6
CHAPTER
TWO: LITERATURE REVIEW
2.1 Introduction 7
2.2 Definition
of key concepts/terms 7
2.3 actual
performance of rural financial
institutions in economic
Development 8
2.4 Operational
method of rural financial institutions 12
2.5 Sources
of rural credit 13
2.6 Challenges/problems
of rural financial institutions 17
2.7 SUMMARY 19
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Research
design 20
3.2 Area
of study 21
3.3 Population
of the study 21
3.4 Sampling
technique and sample size 22
3.5 Method
of data collection 22
3.6 Validity
and reliability of instrument 22
3.7 Technique
of data analysis 24
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Actual performance of the rural financial
institutions in economic development 25
4.2 Sources of credit available to the financial
institutions 25
4.3 Challenges of rural financial institutions 26
4.4 Operational methods of rural financial
institutions 27
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 29
5.2 Conclusion 30
5.3 Recommendations 32
Bibliography 35
Appendices 38
LIST OF TABLES
Table 4.1: The extent to which rural financial institutions have contributed to
the realization of the development goal of the area understudy.
Table 4.2: Major sources of credit available to the rural financial
institutions.
Table 4.3: Responses indicating whether the rural financial institutions have
the same mode of operation or each has a defined pattern.
Table 4.4: Contingency table showing
observed and expected frequency.
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE
STUDY
The
history and evolution of rural savings and credit institutions in Nigeria can
be traced to the cessation of the barter system in Nigeria. The Nigeria
financial system can be described as the aggregation of financial market
arrangement and agents that interact with one another.
The
ultimate objective of the interaction among the participants in the system is
to foster economic growth and development of the country. In Nigeria, the rural
financial system has functioned side by side with the modern formal system with
an array of institutions which have served in various forms in the saving
investment process. They have assisted significantly by serving as
intermediaries channeling funds from surplus economic units to deficit ones.
The
overall economic effect therefore, is that, financial intermediation leads to
better aggregation of savings and therefore helps in capital formation and
investment in the economy. There are many dividends of financial institutions in
the rural system. The most popular however, are those associations with
savings, loans and mutual aids scheme.
Onoh
(1980) has classified the traditional financial intermediaries into twelve (12)
units with due recognition of the possibility of each group having its own
variations; they are
1. Finance through slavery, human labour and
child marrigages
2. Isoisu (Esusu, Osusu, Susu) group
3. Age grade association
4. Village administration contribution
5. Men’s revolving loan association
6. Married women’s association
7. Family fund pools
8. Extended family co-operative funds
9. Town unions
10. Local money lenders
11. Village rural development scheme
12. Social clubs
He
further affirmed that the name of the different types of financial association
suggests strongly their objectives and nature. Thus, while the Susu engages in
savings and loans and mutually aid schemes for the benefit of members, the age
grade association helps members financially and socially to live up to the
duties the society expects from him in attaining manhood, from there, villages
can carry out rural development projects such as building village halls, civic
centres, rural roads etc.
The
town unions have been known to augment government efforts in the provision of
school and economic amenities. The local money lenders provides the quickest
but costliest type of funds, they can embrace the defaulting customers to
shylocks points.
In
most cases, the contributions by members are organized into a form where the
needs of members are met and mutually project embarked upon. It some cases, the
contributions are made and the proceeds resolve among members. However viewed,
they provide efficient mechanisms for the mobilization of funds from the
surplus units in the society.
Saving
can be made in either formal or informal manner. While the formal aspect talks
about the use of set of formal institution like banks and other financial
houses, the informal aspects is more on the traditional outfit which is mainly
operated by rural dwellers.
The
major difference noticed in these two systems is based on their characteristics
which talks about how the systems are being operated.
For
the purpose of this work; we focused, will be on rural of indigenous system of
saving. It is pertinent to note that the indigenous system of saving has
“Trust” as one of its features. Therefore, no matter the number of different
ethnic groups involved as members, the focal point is that there are people who
have come to know themselves for a long period and have exhibited a high level
of trust for one another and therefore find it comfortable to belong to same
savings group.
1.2 STATEMENT OF THE PROBLEM
Rural
financial institutions are established to improve savings behaivour among rural
dwellers as well as improve capital formation as an initiative to make the
rural dwellers have access to funds to embark upon income generating activities
as well as become self-reliant.
To
mention the critical ingredient of cheapness of any loans advanced to have
direct bearing on the people targeted. Despite the securing under subscription
of special fund, package for poor as well as small enterprises, some rural
financial institutions still charges 10-15 percent interest per loan cycle.
Since the economy is an integral whole, it is doubtful if the informal sector
targeted by the rural financial institutions will ever prosper and grow the
economy.
It
is this gloomy fact that has motivated the researcher to investigate the rural
financial institutions with particular reference to the one in Nnewi South
Local Government in Anabra State.
1.3 OBJECTIVES OF THE STUDY
The
general objective of this study is to show the impact of rural financial
institutions on the economic development of Nnewi South Local Government Area,
Anambra State. Specifically, it has the following objectives:
i. To
examine the actual performance of the rural financial institution in economic
development.
ii. Identify
the sources of credit available to the financial institutions.
iii. To examine
the challenges of rural financial institutions and
iv. To highlight
the operational methods of rural financial institutions.
1.4 RESEARCH QUESTION
The
following questions will subsequently be answered and used for analysis in this
study.
i. To
what extent have rural financial institutions contributed to realization of the
development goals of the area understudy?
ii. What is
the major source of credit to the rural financial institutions in the local
government?
iii. Do the
rural financial institutions have any challenges that impede the realization of
its objectives?
iv. Do all
the rural financial institutions have the same mode of operation or ach have a
defined pattern.
1.5 STATEMENT OF HYPOTHESIS
The
following hypothesis shall be tested in the study:
H01:
There is no significant relationship between the rural financial institutions
and the development of Nnewi South Local Government Area of Anambra State.
H02:
There is significant relationship between the rural financial institutions and
the development of Nnewi South Local Government Area.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The
study of rural financial institutions and the Nigeria economy will be carried
out in Nnewi South Local Government of Anambra State. It will take time to look
at the roles and challenges of rural financial institutions and it efforts on
the lives of the people of the area understudy.
This
research has the following limitations:
The
topic under study has not been broadly studied or researched thereby making
access to related literature on the topic a problem.
Again
the problems in the area understudy are basically illiterates and cannot
respond sharply to the demands of the study. Fund and time to make broader
consultation is also another impediment for this research.
1.7 METHOD OF THE STUDY
The
method adopted in carrying out this research involves the collection of data
from both primary and secondary sources. The primary data of the study is
generated from the responses to questionnaire, while the secondary data is
gotten from documented facts based on theoretical and empirical results of
other works done on related topic. Questionnaire and hypothesis were analyzed
and tested respectively.
1.8 SIGNIFICANCE OF THE STUDY
This
research work will enable us to understand the importance of rural financial
system to the rural dwellers especially in the area of study. Not only that, it
will also open the rural population to the importance of savings as well as the
mode of operations of banks in the process of financial intermediation.
As
an educational exercise, this study will add to existing stock of knowledge on
the topic understudy as well as act as aid to a student who wants to carry out
a research on similar topic.
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