EFFECT OF FINANCIAL INCLUSION ON THE PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMES) IN SOUTH WESTERN NIGERIA
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EFFECT OF FINANCIAL INCLUSION ON THE PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMES) IN SOUTH WESTERN NIGERIA
Chapter one
INTRODUCTION
1.1 Background for the Study
Micro, Small, and Medium Enterprises (MSMEs) are widely recognised as the oil required to lubricate every nation’s socioeconomic change engine. Small businesses are critical to economic development because they promote entrepreneurship, create jobs, decrease poverty, and provide a sufficient livelihood.
MSMEs are an essential component of the economic fabric in developing countries, and they play a critical role in promoting growth, innovation and prosperity. In this regard, Palmarudi and Agussalim (2013) note that MSMEs have historically been the dominant actors in domestic economic activity, particularly as job creators and hence producers of primary and secondary sources of income for numerous households.
Ojokuku and Sajuyigbe (2014) verified that MSMEs are worldwide recognised as the driving force behind economic growth and development. MSMEs are answers to the problem of slow economic growth in developing countries.
The National Policy on MSMEs defines MSMEs (which, according to SMEDAN, account for 90% of Nigerian firms) in terms of both employment and assets (excluding land and buildings) (SMEDAN, 2009). According to this policy, a micro enterprise is an entity that employs fewer than ten people and has assets worth less than five million naira
whereas a small enterprise has ten to 49 employees and assets worth between five and fifty million naira, and a medium enterprise employs 50 to 199 people and has assets worth between N50 and N500 million.
Micro, small, and medium-sized companies (MSMEs) play a significant part in both the Nigerian and global economies. MSMEs outweigh major corporations by a significant proportion and employ many more people. MSMEs are also credited for encouraging innovation and competitiveness in a wide range of economic sectors.
According to SMEDAN and National Bureau of Statistics (NBS) Collaborative Survey (2013), the total number of MSMEs as of 2013 stood at 37,067,416 (Micro-36,994,578, Small-68,168, and Medium-4,670), out of which South West Nigeria has 9,628,993 (Micro- 9,602,249, Small- 25,157, and Medium- 1,587), that is, Ekiti- 965,208,
Lagos-3,235,987, Ogun-1,167,642, Ondo- 1,028,769, Osun- 1,358,446, Oyo- 1,87. According to the Ministry of Industry, Trade, and Investment, MSMEs in Nigeria account for more than 84 percent of total jobs, 48.5 percent of GDP, and 7.27 percent of goods and services exported from the country.
The 2017 National Survey of MSMEs covers firms in Nigeria that employ fewer than 200 people and was undertaken in all 36 states of the federation as well as Nigeria’s Federal Capital Territory, Abuja. According to statistics, MSMEs increased to 41,543,028 in 2017 (Micro-41,469,947
Small-71,288, and Medium-1,793), of which South West Nigeria has 9,886,473 (Micro- 9,863,183, Small- 22,720, and Medium-570), that is, Ekiti- 1,018,438, Lagos-3,337,552, Ogun-1,180,574, Ondo- 1,060,388, Osun- 1,373,915, Oyo- 1,915,606; the majority of the businesses are located in Lagos, Nigeria’s largest commercial city.
According to Olowe, Moradeyo, and Babalola (2013), many MSMEs in Nigeria are unable to progress to the growth stage of their life cycle due to a lack of financial resources. MSMEs are the major employers in many low-income countries
But their survival may be jeopardised by a lack of access to risk-management tools such as savings, insurance, and loans. Their expansion is frequently hampered by limited access to financing, equity, and payment services.
Financial inclusion is critical to MSMEs’ development. The classic definition of financial inclusion is having access to and using a variety of simple, cheap financial services.
According to the Centre for Financial Inclusion, financial inclusion is a situation in which all people who can use them have access to a suite of excellent financial services that are delivered at cheap costs, in a convenient manner, and with dignity for the clients. Access to financial services can thereby improve job creation, income, vulnerability reduction, and human capital investment.
Financial inclusion, as defined by the Central Bank of Nigeria (CBN, 2019), is the provision of formal financial services in a reliable, convenient, inexpensive, continuous, and flexible manner to persons who would not otherwise have access to regular financial services.
The Central Bank of Nigeria (CBN) is leading the effort to promote financial inclusion. The bank’s policy acknowledges the importance of microfinance in providing financial access to MSMEs operators who are typically excluded or underserved by available banking institutions.
As a result, financial exclusion would have a negative impact on the growth and development of Micro, Small, and Medium-sized Enterprises.
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