IMPACT OF MICROCREDIT FINANCE IN THE PERFORMANCE OF SMALL AND MEDIUMS BUSINESS ENTERPISES
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IMPACT OF MICROCREDIT FINANCE IN THE PERFORMANCE OF SMALL AND MEDIUMS BUSINESS ENTERPISES
Chapter one
INTRODUCTION
1.1 Background for the Study
Over the years, the Nigerian government has implemented a series of policy and institutional reforms aimed at improving the flow of finance from the banking sector to Small and Medium Enterprises (SMEs), as well as those involved in petty business (Micro) activities and informal entrepreneurial ventures.
However, the crucial goal of improving the performance of SMEs’ entrepreneurial operations has not been realised. Traditional banks see micro activities as a risky risk and hence have little interest in supporting the sector.
This is compounded by difficulties of high transaction costs and a short payback period when funding is considered. Since robust economic growth cannot be achieved without putting in place well-focused programmes to reduce poverty by empowering people by increasing their access to formal financial services
the Central Bank of Nigeria (CBN 2005) embarked on licencing Microfinance Institutions (MFIs) aimed at providing financial services to entrepreneurs who are not served by traditional financial institutions (Ozioko, 2010).
As a result, the emphasis has switched from large-scale enterprises to SMEs, which have the ability to build domestic linkages that will enable quick and sustainable economic development.
According to Yarron (1998), Nigeria has amazing entrepreneurs that require assistance at all levels, including Micro, Small, and Medium Enterprises as well as large corporations. A common feature of these businesses is their need for adequate financing.
SMEs are critical agents of economic transformation because they account for more than half of the Gross Domestic Product (GDP) of developing economies, are the primary source of innovation and technological development, provide both human capital and raw materials to larger businesses, and are the primary source of entrepreneurship and enterprise (Sanusi, 2003).
The SME sector’s contribution to the Nigerian economy is critical for achieving broader development goals such as poverty alleviation, job creation, and increasing indigenous ownership of economic resources (Chidoko, Makuyana, Matungamire, and Bemani, 2011).
SMEs account for approximately half of Nigerian GDP and more than 25% of employment in the country. Nigeria has 17 million SMEs, which employ 32.41 million people and generate approximately 46.54 percent of the country’s GDP in nominal terms (National Bureau of Statistics 2013).
The microfinance agreement enables MSMEs to obtain financing from Microfinance Banks (MFBs) and other Microfinance Institutions (MFIs) on more favourable conditions. On this platform, we seek to investigate the influence of microfinance on small business growth.
As a result, the study will address a vacuum in the literature regarding the impact of both financial and non-financial services on small business growth, as well as investigate microfinance’s ability to transform small companies into small scale industries through technology/asset-related loans.
1.2 Statement of Problem
According to a 2010 SMEDAN survey, just 15% of newly founded businesses in Nigeria survive their first five years. Those that survive after this era typically do poorly. Finance plays a critical role in the growth and survival of SMEs, and microfinance has emerged as the primary source of funding for SMEs in Nigeria.
It is therefore necessary to investigate the extent to which microfinance can improve small business performance. Furthermore, empirical evidence from diverse research on the impact of microfinance on business development has revealed mixed, inconclusive, and contradictory outcomes.
Some studies only looked at microfinance and poverty alleviation (Electrin et al., 2013, Kiiru and Kenia 2007, Boadu, 2009), other studies looked at microcredit alone as an intervention tool for entrepreneur development (Akingunola et al., 2013), and others looked at the presence of microfinance institutions as a catalyst for entrepreneurial development (Ozioko, 2007, Alalade 2013, Ojo, 2009), so this research will vividly investigate the impact of microcredit finance
1.3 Object of the Study
The primary goal of this study is to determine the influence of microcredit finance on the performance of SMEs in Nigeria. Specifically, the study intends to:
1. Evaluate the impact of microcredit loans on the performance of SMEs.
2. Investigate the ways in which microcredit finance SMEs in Nigeria.
3. Discover the problems of financing SMEs in Nigeria.
1.4 Research question
1. Does microcredit finance have a major impact on the performance of SMEs?
2. How does microcredit finance small and medium-sized enterprises in Nigeria?
3. What are the barriers to financing SMEs in Nigeria?
1.5 Research Hypothesis.
Ho: There is no significant influence of microcredit finance on the performance of SMEs.
Hello: There is a considerable impact of microcredit finance on the performance of SMEs.
1.6 Significance of the Study
This study will be valuable in a variety of ways. First, it will allow microfinance institutions to examine the impact they have had in financing SMEs, as well as providing a platform for future financial sector innovations to facilitate their contributions to the SMEs.
Second, researchers will be able to use this text as a resource for future studies on microfinance for SMEs. The study will also provide information on SME debt ratings and financing conditions, which may be useful for financial sector policymakers in developing more appropriate financial solutions for SME’s.
Finally, because SMEs are vital to guaranteeing an economy’s long-term and inclusive growth, their role in development is critical in allowing governments to produce jobs for their citizens.
1.7 Scope of Study
This research will be carried out in Lagos state because it is Nigeria’s largest economy and home to many SMEs. This study will thoroughly evaluate the impact of microcredit lending in Nigeria on SMEs, as well as the issues that SMEs confront.
1.8 Delimitation of the Study
Obtaining funding for general research projects will be difficult during the course of studies. Correspondents may also be unable or unwilling to complete and submit the questionnaires provided to them.
However, it is hoped that these limits will be addressed by making the best use of existing materials and devoting more time to study. As a result, it is strongly thought that despite these constraints, their impact on this research report will be small, allowing the study’s purpose and significance to be achieved.
1.9 Definition of Terms
Microcredit finance, also known as micro banking or microfinance, is a method of giving credit, usually in the form of small loans with no collateral, to unconventional borrowers such as the impoverished in rural or underdeveloped areas
Small and Medium Business firms: made up of firms that employ less than 250 people and have an annual turnover not surpassing 50 million euros or an annual balance sheet total not exceeding 43 million euros.
Impact: a significant effect on anything.
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