THE IMPACT OF MICRO FINANCE ON THE DEVELOPMENT’S OF SMALL AND MEDIUM SCALE ENTERPRISES (A CASE
STUDY IC-GLOBAL M.F.B
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Small and Medium Scale Enterprises are
sub-sectors of the industrial sector which play crucial roles in industrial
development (Ahmed, 2006). Following the adoption of Economic reform
programme in Nigeria in 1981, there
have been several decisions to switch from capital intensive and large scale
industrial projects which was based on the philosophy of import development to Small
and Medium Scale Enterprises which have better prospects for developing
domestic economy, thereby generating the required goods and services that will
propel the economy of Nigeria towards development. It is base on this premise
that Ojo (2009), argued that one of the responses to the challenges of
development in developing countries particularly, in Nigeria, is the
encouragement of entrepreneurial development scheme. Despite the abundant
natural resources, the country still finds it very difficult to discover her
developmental bearing since independence. Quality and adequate infrastructural
provision has remained a night-mare, the real sector among others have
witnessed downward performance while unemployment rate is on the increase. Most
of the poor and unemployed Nigerians in order to better their lots have
resorted to the establishment of their own businesses. Consequently, Entrepreneurship
is fast becoming a household name in Nigeria. This is as a result of the fact
that the so called white collar jobs that people clamour for are no longer
there. Even, the touted sectors (Banks and companies) known to be the largest
employer of labour are on the down-turn following the consolidation crisis and fraudulent
practices of the high and mighty in the banking sector. The companies of course
are folding up as a result of erratic power supply, insecurity and persistent
increase in interest rate which has lead to high cost of production and
undermines profit making potentials of companies operating in Nigeria (Hassan,
2003).
Since the office jobs that people
desire are no longer there for the teeming population, and the few ones that
succeeded in getting the jobs are thrown out as a result of the factors
identified above, the need for the government and the people to have a rethink
on the way-out of this mess became imperative. Hence, the need for Small and
Medium Scale Enterprises (SMEs) became a reality as a means of ensuring self
independent, employment creation, import substitution, effective and efficient
utilization of local raw materials and contribution to the economic development
of our dear nation (Nigeria). All the aforestated benefits of Small and Medium
Scale Enterprises cannot be achieved
without the direct intervention of the government and financial institutions.
Over the years a number of policies have been formulated by the government with
a view to developing Small and Medium Scale Enterprises. The Nigerian government
under the then leadership of Chief Olusegun Obasajo promulgated micro-finance
policy and other regulatory and supervisory frame work in 2005. However, the
researcher is examining the impact of microfinance on the development of Small
and medium Scale enterprises in Nigeria.
Microfinance, according to Otero (1999, p.8) is
“the provision of financial services to low-income poor and very poor
self-employed people”. These financial services according to Ledgerwood (1999)
generally include savings and credit but can also include other financial
services such as insurance and payment services. Schreiner and Colombet (2001,
p.339) define microfinance as “the attempt to improve access to small deposits
and small loans for poor households neglected by banks.” Therefore,
microfinance involves the provision of financial services such as savings,
loans and insurance to poor people living in both urban and rural settings who
are unable to obtain such services from the formal financial sector.
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
credit 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.
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 a powerful tool for promoting 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 be
addressed which is Impact Assessment. This assessment is used to determine the
extent to which microfinance institutions are attaining their objectives towards
the development of Small Scale Enterprises in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the impact
of microfinance on the development of Small and medium Scale enterprises in
Nigeria.
2. To determine the effectiveness of
microfinance in Nigeria.
3. To identify the factors limiting the
development of microfinance in Nigeria.
1.4 RESEARCH QUESTIONS
1. What
is the impact
of microfinance on the development of Small and medium Scale enterprises in
Nigeria?
2. What is the effectiveness of
microfinance in Nigeria?
3. What are the factors limiting the
development of microfinance in Nigeria?
1.5 HYPOTHESIS
HO:
Microfinance has not impacted on the development of Small and medium scale
enterprises in Nigeria.
HA:
Microfinance has impacted on the development of Small and medium scale
enterprises in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
1. Findings
from this study will reveal the gap in financing small and medium scale
business in Nigeria with of view of sensitizing the government on the need for
adequate finance to enhance growth and development.
2. Results
from this study will educate the general public on the impact of microfinance
on the development of small and medium scale enterprises in Nigeria
3. This
research will be a contribution to the body of literature in the area of the
effect of personality trait on student’s academic performance, thereby
constituting the empirical literature for future research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This
study will cover the operations of microfinance banks in Nigeria with a view of
identifying their contribution towards the development of small and medium
scale enterprises in Nigeria.
LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will simultaneously
engage in this study with other academic work. This consequently will cut down
on the time devoted for the research work.
REFERENCES
Aryeetey,
E., Baah-Nuakoh, A., Duggleby, T., Hettige, H., & Steel, W. F. (1994). Supply
and demand for finance of small scale enterprises in Ghana (Discussion
Paper No. 251). Washington, DC: World Bank.
Ahmed S.
A.(2006), the role of SMEs in developing economy, Abuja, Omotayo and co.ltd.
Ojo O.
(2009), Impact of Micro Finance on Entrepreneurial Development: A case of Nigeria.
A paper presented at the International Conference on economic and administration,
organized by the faculty of Administration and Business, University of Bucharest,
Romania, 14th -15th November, 2009.
Hassan O.
(2003), The contribution of various Schemes to the growth of SMEs in Nigeria,
Abuja, Habib nig. Ltd.
Otero F. O.
(1999), The effect of Micro level government policies in rural development and poverty
alleviation in Nigeria, Social Science Journal, University of Ibadan, Vol. 3,
p.11, Ibadan-Nigeria.