CONTRIBUTION OF MICRO FINANCE BANKS TO THE SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
CONTRIBUTION OF MICRO FINANCE BANKS TO THE SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In developing nations like Nigeria, such financial marketplaces as microfinance banks play critical roles in promoting the growth of small and medium-sized businesses. Small and medium-sized businesses are industrial sector subsectors that are essential to the growth of the industry (Ahmed, 2006).
Following the implementation of the Economic Reform Programme in Nigeria in 1981, several decisions have been made to shift from capital-intensive and large-scale industrial projects that were founded on the theory of import development to Small and Medium Scale Enterprises that have better prospects for developing the domestic economy and thereby producing the necessary goods and services that will propel the economy of Nigeria towards development.
Based on this premise, Ojo (2009) claimed that encouraging entrepreneurial development schemes is one way to address the issues of development in poor nations, notably in Nigeria. Despite having a wealth of natural resources, the nation still struggles to understand where she stands in terms of development since independence.
The supply of necessary and high-quality infrastructure has remained a nightmare; among other industries, the real estate market has seen declining performance as the unemployment rate is rising.
The majority of Nigerians who are impoverished and jobless have turned to starting their own enterprises as a means of improving their circumstances.
As a result, entrepreneurship is quickly spreading throughout Nigeria. This is due to the disappearance of the so-called white collar employment that people beg for.
Even the industries that have been hailed as the major employers of workers (banks and businesses) are in decline as a result of the banking sector’s high-level corruption and consolidation issue.
The enterprises are, of course, going out of business as a result of the unstable power supply, the lack of security, and the ongoing rise in interest rates, which has increased the cost of manufacturing and reduced the ability of businesses operating in Nigeria to turn a profit (Hassan, 2003).
The need for the government and the people to rethink the way-out of this mess became imperative because the office jobs that people desire are no longer there for the teeming population, and the few who succeed in getting the jobs are thrown out as a result of the factors identified above.
Small and medium-sized businesses (SMEs) are therefore now necessary in order to ensure self-reliance, job creation, import substitution, effective and efficient utilisation of local raw materials, and contribution to the economic development of our beloved nation (Nigeria). All the advantages of Small and Medium Businesses
Without the direct involvement of the government and financial institutions like microfinance banks, scale enterprises cannot be achieved. The government has developed a number of measures over the years with the goal of fostering the growth of small and medium-sized businesses.
In 2005, the Nigerian government, then led by Chief Olusegun Obasanjo, published a microfinance policy as well as additional regulatory and supervisory frameworks. However, the researcher is investigating the role that microfinance banks play in Nigeria’s small and medium-sized businesses.
“The provision of financial services to low-income poor and very poor self-employed people,” according to Otero (1999, p. 8), is what microfinance is. According to Ledgerwood (1999), these financial services often comprise credit and savings, but they can also include other financial services like insurance and payment services.
Microfinance, according to Schreiner and Colombet (2001, p. 339), is “the attempt to improve access to small deposits and small loans for poor households neglected by banks.” A bank is a financial entity that accepts public deposits and extends credit, as defined by Wikipedia.
Through capital markets, lending activities can be carried out directly or indirectly. Banks are heavily controlled in the majority of nations due to their significance to the stability of a nation’s finances.
The majority of countries have institutionalised the fractional reserve banking system, in which banks keep liquid assets that are only partially equivalent to their current liabilities.
Banks are typically subject to minimum capital requirements based on an international set of capital rules known as the Basel Accords, in addition to other restrictions meant to ensure liquidity.
Therefore, microfinance banks offer impoverished people in urban and rural settings who cannot access these services through the traditional financial sector financial services like savings, loans, and insurance.
STATEMENT OF THE PROBLEM
The majority of Nigeria’s small and medium-sized businesses have seen stunted growth over the years and have stayed relatively small in size. This is because a sizable portion of the nation’s business owners do not have access to established financial institutions.
Prior to 2005, the country’s microfinance institutions were unable to sufficiently close the gap in terms of lending, savings, and other financial services. The CBN reported that microcredit accounted for 0.9% of total credit while making a meagre 0.2% contribution to GDP (CBN, 2005).
The CBN identified the main causes of previous microfinance initiatives in the nation’s failure in 2005, including the unwillingness of conventional banks to support micro-enterprises, a lack of loanable funds, a lack of support institutions in the sector, as well as weak institutional and managerial capacity of existing microfinance institutions.
The Microfinance Policy, Regulatory and Supervisory Framework (MPRSF) for Nigeria was introduced by CBN in 2005 to address the issue and offer microbusiness owners sustainable financial services.
However, despite the fact that microfinance has demonstrated to be one method of closing the resource gap generated in the Nigerian economy, the nation has not fully reaped its rewards as a result of issues that hindered proper implementation.
It has been challenging to develop supportive programmes for the expansion of the industry in Nigeria due to the dearth of documentation regarding the practise of microfinance. Because of this, developing economies are very concerned about the high percentage of SMEs failing.
According to a 2002 International Finance Corporation (IFC) assessment, only two out of every ten newly founded enterprises in Nigeria make it to their fifth year.
The Small and Medium Enterprise Development Agency of Nigeria (SMEDAN, 2007) confirmed the report’s finding that just 15% of newly founded enterprises in Nigeria survive their first five years.
This serves as a warning sign that there is a problem. It is crucial to investigate the extent to which microfinance can improve SME growth and performance given the crucial role that finance plays in the development and performance of SMEs and the acceptance of microfinance as the primary source of financing for SMEs in Nigeria.
1.3 OBJECTIVES OF THE STUDY
i) To investigate how microfinance banks in Nigeria have helped small and medium-sized businesses grow.
ii) To evaluate the performance of microfinance institutions in Nigeria.
iii) To pinpoint the elements preventing the growth of microfinance institutions in Nigeria.
iv) To ascertain the impact of financial services provided by microfinance institutions on the expansion of small and medium-sized enterprises.
1.4 RESEARCH QUESTIONS
1. How do financial services provided by microfinance institutions affect the expansion of small and medium-sized businesses?
2. Are there obstacles small businesses must overcome to obtain bank loans?
3. How do microfinance banks’ non-financial services affect the performance of small and medium-sized businesses?
4. What circumstances in Nigeria are preventing the growth of microfinance banks?
5. In Nigeria, do microfinance institutions support small and medium-sized businesses?
1.5 RESEARCH HYPOTHESES
H0: There is no discernible difference between small and medium-sized businesses in Nigeria in terms of their awareness of microfinance institutions.
H1:Small and medium-sized businesses in Nigeria have significantly different levels of awareness of microfinance institutions.
H0: The challenges faced by small and medium-sized businesses in obtaining financing from diverse sources are essentially the same.
H2:Small and medium-sized businesses have a variety of challenges when trying to obtain financing from different sources.
1.6 SCOPE AND LIMITATIONS
This study focuses on Crutech Micro Finance Bank, Calabar specifically, covering the activities of microfinance banks in Nigeria with a view to recognising their contributions to the growth of small and medium-sized businesses in Nigeria.The scope of the study was constrained by some difficulties the researcher encountered while conducting the investigation;
personnel Reluctance: The personnel at Crutech Micro Finance Bank, Calabar frequently expresses hesitation when asked to provide the researcher with the necessary information. This led to the discovery of information that the structured questionnaires were unable to.
Researcher’s Commitment: As a full-time student, the researcher spent the majority of her time on other academic tasks such tests, class work, assignments, and exams, which detracted slightly from the study’s concentration.
Lack of Materials: A lack of materials is another barrier. The researcher has trouble handing in a number of necessary materials that could greatly aid in the achievement of this research project.
Financial restraint: A researcher’s ability to collect data (through the internet, a questionnaire, and interviews) and locate relevant materials, literature, or information is often hindered by a lack of funding.
1.7 SIGNIFICANCE OF THE STUDY
A study of this kind is absolutely necessary because it gives the typical Nigerian a way to gain access to local financial services that will raise their standard of living and help them achieve the millennium development objective of eradicating poverty in emerging nations.
The study will help microfinance organisations implement the essential steps to guarantee the industry’s planned growth for small and medium-sized businesses (SMEs).
It is also helpful for the federal and state governments as they may be planning to take the necessary actions to stop the collapse or failure of small scale firms in Nigeria, and specifically Cross River State.
Once more, it will help business owners understand how to finance their ventures better and give them the knowledge they need to support additional research in the field. The study would also be used as a resource for the general public and other researchers that require knowledge on the topic.
More importantly, small and medium-sized business owners may find it helpful in running their companies successfully because the study will highlight some of the reasons why some SMEs find it challenging to repay their loans.
1.8 DEFINITION OF TERMS
A source of financial services for entrepreneurs and small enterprises without access to banking and related services, microfinance is described as the provision of microloans to the lowest of the poor (essentially those who are neglected by banks, microfinance provides them loan facility).
Bank: A financial institution known as a bank issues credit and takes deposits from the general population. Through capital markets, lending activities can be carried out directly or indirectly. Banks are heavily controlled in the majority of nations due to their significance to the stability of a nation’s finances.
The majority of countries have institutionalised the fractional reserve banking system, in which banks keep liquid assets that are only partially equivalent to their current liabilities.
Banks are typically subject to minimum capital requirements based on an international set of capital rules known as the Basel Accords, in addition to other restrictions meant to ensure liquidity.
Contribution: The act of contributing or the thing contributed (such as free time, money, ideas, private property, or help) are both considered contributions.
SMEs: Small and medium-sized enterprises (SME), sometimes known as small and medium-sized businesses (SMBs), are companies with fewer than a certain number of employees.
The World Bank, the United Nations, and the World Trade Organisation (WTO) all use the acronym “SME” in their communications.
The European Union also does. Small businesses are far more prevalent than large ones, and they also employ a much larger number of people. In several economic sectors, SMEs are credited with fostering competition and innovation.
1.9 ORGANIZATION OF THE STUDY
For ease of understanding, this research paper is divided into five chapters, as follows: The first chapter is devoted to the introduction, which includes a (overview of the study), a problem statement, study objectives, a research question,
the significance of the investigation, a description of the research methodology, a list of words used, and information about the study’s historical context.
The theoretical foundation for the investigation is highlighted in Chapter 2, which is why a review of related literature is included.
The third chapter covers the study’s methodology and research strategy. The gathering, processing, and presentation of data are the main topics of Chapter 4. The study’s summary, conclusion, and suggestions are presented in Chapter 5.
Need help with a related project topic or New topic? Send Us Your Topic