Download complete project material on Impact Of Microfinance Bank On The Growth Of Small And Medium Scale Enterprises (Smes) In Nigeria from chapter one to five
Abstract
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Micro financing is the provision of financial services to poor and low income households without access to formal financial institutions while Small and medium enterprises are believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria.
This stems from the fact that SMEs have limited access to capital markets, in part because the high cost of borrowing, and rigidities of interest rates has also made financing of small scale enterprises very difficult in Nigeria. This study examines the impact of microfinance bank on the growth of small and medium scale enterprises (SMEs) in Nigeria. Specifically, to extent to which micro finance bank have any effect on Micro, Small and Medium Scale Enterprises (MSMEs) in Ilorin metropolis, to extent to which small and medium scale enterprise improve with the introduction of microfinance bank in Ilorin metropolis and do small and medium scale enterprise improve economic development in Ilorin metropolis.
The population for the study consists of the entire MFBs in Ilorin Metropolis. However, the study was restricted to 10 microfinance banks in Ilorin Metropolis. Purposive random sampling technique was used to select the participating MFBs. Simple random sampling technique was used to select a total of 100 bankers from MFBs and 50 customers of the banks that constitute the sample size. Regression analysis and Chi-square statistics were used to analyse the data.
The results from the study shows that financial service obtained from MFBs have positive significant on SMEs in Ilorin metropolis with sign of (.456, 0.34, 0.06, 0.120, 0.449) with prob. (0.00, 0.33, 7.24, 0.21 and 0.00) at 5% level of significance . The results also show that high interest rate, collateral security and frequency of loan repayment can cripple the expansion of SMEs in Nigeria. The study recommended that MFBs should lighten the condition for borrowing and increase the duration of their customers’ loan and also spread the repayment over a long period of time.
TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgment
Table of contents
Abstract
CHAPTER ONE:
Introduction
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitation of the Study
1.9 Definition of Terms
CHAPTER TWO:
Literature Review
2.1 Introduction
2.2 Historical Background of the case study
2.3 Conceptual framework
2.4Theoritical
2.5 Empirical Studies
CHAPTER THREE:
Research Methodology
3.1 Introduction
3.2 Research Design
3.3 Data Collection Methods / Instruments
3.4 sampling size and population
CHAPTER FOUR:
Data Analysis and Results
4.1 Introduction
4.2 Data Presentation, Analysis and interpretation
4.3 Test of Hypotheses
CHAPTER FIVE:
Summary, Conclusion and Recommendations.
5.1 summary
5.2 Conclusion
5.3 Recommendations
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Micro financing is the provision of financial services to poor and low income households without access to formal financial institutions (Conroy, 2003).
Microfinance is described also as banking for the poor. They are different from commercial banks because, they have limited banking services directed primarily to a designated catchments area or group. The small and medium enterprises contributions to economic growth and development have been recognized globally, Nigeria inclusive.
Rolando (2010) describes microfinance as a good way of supporting entrepreneurs. It provides poor borrowers with access to sustainable livelihood through zero or very low interest loans. However, Jegede (2011) observed that entrepreneurs prefer personal saving and cooperative credits to microfinance banks and commercial banks fund citing reasons of non-accessibility, prohibitive collaterals and high interest rates barriers.
The dismal performance of the conventional finance sectors triggered the advocating of micro financing by policy makers, practitioners, and international organizations as a tool for poverty reduction according to Mejeha and Nwachuckwu (2008).
Ofoegbu, Akanbi and Joseph (2013) agree that SMEs are the panacea for the economic development of many developing countries including Nigeria. Small and medium enterprises are believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria.
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This is manifested in the following ways, Employment generation, Rural development, Economic growth and Industrialization, Better Utilization of Indigenous Resources. is to direct attention of purveying credit to Small Scale Enterprises.
Kilby (1969) Sees SMEs as a quasi-sponge for urban employment and a provider of inexpensive consumer goods with little or no import content, serving an important pressure-releasing and welfare-augmenting function. SMEs also contribute to long-run industrial growth by producing an increasing number of firms that grow up and out of the small-sector. Most previous studies throughout African treat the information sector as essentially homogenous in its characteristics (Morris and Pitt, 1995; Bewayo, 1995; Ekpenyong & Nyong; 1992).
In Nigeria, the Microfinance Banking concept is an extension of the old community banking system. Lemo (2007) described Micro finance banking as one of the prime strategies for achieving millennium Development Goals (MDGs), particularly targets that relate to poverty eradication, gender equality and the empowerment of the disadvantaged groups. Akanji (2006) identified three features of microfinance making it different from other financial products as smallness of Loans advanced and or savings collected, absence of asset based collaterals and simplicity of operations.
Recent research suggests that government policy should be more narrowly targeted to subsectors within the informal sector (Parker & Torres, 1994). This study examines survey data in order to evaluate the characteristics of small-scale manufacturers that make it more difficult for them to be profitable and the particular problems that they face which may have contributed to their poor performance.
Since her independent in 1960, Nigeria has been trying to meet the yearnings and aspirations of her teeming population, especially in the area of provision of employment. Unfortunately, not much has been achieved in this respect. Given the importance of ‘small’ and ‘very small’ enterprise in the creation of employment, this study seeks to evaluate the financing of microenterprises in Lagos State of Nigeria by identifying the problems of financing very small enterprises (VSE’s).
However, the growth of the country’s economy has not been without problems. For instance, Omopariola (1978) notes three successive phases can be discerned in the economic history of Nigeria. The first phase, dating back to 1900, “was the peasant economy characterized by static, agrarian and subsistence product” and a “high birth rate which was equally matched by high death rate” (P.15 resulting in a low population growth rate.
The second phase, which occurred in the middle of the nineteenth century, was’ a dynamic export-oriented economy” Omopariola (1978) reiterated further that during this economic phase, “Nigeria had a steady growth in her economy which was stimulated primarily by agricultural exports during the first three decades of the twentieth century.” (Ibid, p.16) the economic, starting from the collapse of international trade during the world economic crisis grinded to a halt in its growth in 1929 and remained more or less stagnant until 1945. Form 1954 until the outbreak of the war of unity (civil war) in 1967 and up to the end of the war in 1970, “Nigeria experienced steady economic growth” (Ibid, P. 16).
The third Phase, which has its roots in 1960 when the country attained political independence from the British colonialists, has been described as the indigenized economy. This is still the phase under which the Nigerian economy is characterized.
A business whether small or big, simple or complex, private or public, etc is created to provide competitive prices. Business in Nigeria has been classified as small, medium and large. However, a small scale industry can be defined by the criteria of project costs, capital, cost turnover by the employee, etc. the federal and state ministries of industry and commerce have adopted the criterion of value of installed fixed capital to determine what a small scale industry is, in this respect, the value has varied from N60,000 in 1972, N159, 000 in 1975, N250,000 in 1979, N500,000 in 1986, to a fixed investment of not more than N2,000,000 (Two Million Naira) in 1992.
This figure is exclusive of a building and subject to government determination and land prevailing objectives of public policy. In the wake of SFEM, and SAP, this value has now been reviewed and subsequently, increased to five million naira. Since this happened, there may be a need to classify the small scale industry into MICRO and SUPER MICRO business, with a view to providing adequate incentives and protection for the former.
In the meantime, any business or enterprises below the upper limit of N250,000 and whose annual turnover exceeds that of a cottage industry currently put at N5,000 per annum is a small scale industry. The National Directorate of Employment (NDE) concept of a small scale industry has been fixed to a maximum of N35, 000. Contributed significantly to the growth of the Gross Domestic Product (GDP), employment generation and exports.
The sector now includes not only SSI units but also small scale services and business enterprise (SSSBEs) and is thus referred to as the small enterprises sectors. In Nigeria, one of the greatest obstacles that Small and Medium Enterprises (SMEs) have to grapple with is access to funds. This is further compounded by the fact that even where credit facilities are available, they may not be able to muster the required collateral to access such.
This situation has led invariably to many of them closing shop, resulting in the loss of thousands of unskilled, semi and skilled jobs across the country. Microfinance emerged as a noble substitute for informal credit and an effective and powerful instrument for poverty reduction among people, who are economically active, but financially constrained and vulnerable in various countries.
Microfinance covers a broad range of financial services including loans, deposits and payment services and insurance to the poor and low-income households and their micro enterprises. Microfinance institutions have shown a significant contribution towards the poor in rural, semi urban or urban areas for enabling them to raise their income level and living standards in various countries (Sunitha, 2010). The main objective of this research work is to investigate the roles of microfinance bank in small and medium enterprises growth in Nigeria.
1.2 Statement of the Problem
Access to finance remains a dominant constraint to small scale enterprises in Nigeria. There have been credit constraints pertaining to working capital and raw materials. Aryeetey et al. (1994) reported that 68% of SMEs surveyed mentioned credits as a major constraint of financing their businesses. This stems from the fact that SMEs have limited access to capital markets, in part because the high cost of borrowing, and rigidities of interest rates has also made financing of small scale enterprises very difficult in Nigeria. Most SMEs also lack the necessary collateral to obtain loans from financial institutions, therefore resulting in SMEs not often obtaining long-term finance to finance and expand their businesses.
The microfinance banks (MFBs) promoted by the federal Government of Nigeria was meant to purview credits entrepreneurs who owned small and medium Scale Enterprises because of their limited access to sources of finance.
Small and Medium Scale Enterprise faces a lot of problems in obtaining finance from conventional finance banks because of cost of finance, collateral security and the bureaucracy involve in accessing loans; the high interest rate etc. In addition, these entrepreneurs are predominantly made up of illiterate who cannot understand all the paper involve in applying for loan. These problems and more necessitated the emergence of the MFBs.
Besides other constraints on finance, most owners and managers of small scale enterprises in Nigeria are faced with lack of technical knowhow, skilled labour, managerial competence in handling business enterprises and also lack of business ideas. As a result, their growth prospect remains stagnant. There is also the problem of having access to modern technology since most firms use old machinery, and have problems with finding replacements parts to purchase.
Microfinance institutions in Nigeria have proven to be powerful tool inclusive economic growth especially in the area of Small Scale Enterprise development and employment as well. Initiatives are aimed at providing soft loans to individuals and small scale enterprises, even though a microfinance institution in Nigeria is actually in the stage of infancy, the sector has proven itself to show positive in its growth in Nigeria.
This institution also aims at helping SMEs to expand their business up to a point of becoming viable ones. But the issue is to ascertain if the microfinance’s having any impact of the development of SMEs in Nigeria and to answer the question which is to addressed which Assessment. This assessment is used to determine the extent to which microfinance institutions are attaining their objectives their objectives towards the development of Small Scale Enterprises in Nigeria.
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