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IMPACT OF MICROFINANCE BANK IN GROWTH OF SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA

IMPACT OF MICROFINANCE BANK IN GROWTH OF SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA

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IMPACT OF MICROFINANCE BANK IN GROWTH OF SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA

CHAPTER ONE INTRODUCTION

1.1 Background of the Study

Nigeria is claimed to have a long history of government programmes aimed at promoting and financing small and medium-sized businesses. These small and medium-sized businesses make significant contributions to Nigeria’s economic development and growth since they employ a large number of people.

This is because it is well acknowledged that the creation and expansion of small and medium-sized businesses can play an essential role in reversing the rising unemployment rate.

In view of the aforementioned, policies and programmes to encourage the development of small and medium-sized businesses are developed and executed to improve the lives of citizens.

According to Mbuta and Nkandela (1998), the role of small and medium-sized businesses in job creation and production growth is now well recognised in both developed and developing countries.

The process of expanding these organisations from micro or tiny to medium size is particularly interesting, as it is at this stage that growth-oriented small and medium-sized businesses make their most tangible contribution to economic growth and employment creation.

Dynamic medium-sized businesses offer a competitive advantage in two ways: as leading subcontractors and as venture firms in their own right. (cited in Owusu’s research work, 2011)

According to Owusu’s 2011 research, Abugre (1994) defines micro and small firms as those that employ 29 or less workers. Microenterprises employ one to five people and have fixed assets of no more than $10,000 USD, excluding vehicles, land, and buildings.

Small businesses employ 6 to 29 people and have fixed assets worth less than $100,000 USD (excluding land and buildings). It should be noted that a shortage of financing remains the most significant limitation on the country’s small and medium-sized firms.

It is claimed that Nigeria began publicly fostering the activities of small and medium-sized firms in 1969, when the Bank of Nigeria established the credit guarantee scheme to aid entrepreneurs in securing bank credit.

This was followed in 1970 by the establishment of the Nigeria Business Promotion Programme. These efforts aimed to provide financial and technical assistance to newly founded and existing micro, small, and medium-sized firms

however their influence was limited. The schemes mostly benefited politically connected Nigerian managers of foreign-owned manufacturing enterprises (Abugre, 1994).

In fact, the demand for long-term finance sources for small and medium-sized businesses prompted the establishment of financial non-governmental organisations on the country’s economic and corporate landscape.

According to Opare-Djan (2002), Kraban Foundations has had a significant impact on the microfinance industry. One might also reference the cases of Kiva and Sinapi Aba, among others, as examples of NGOs implementing microfinance initiatives.

1.2 Statement of the Problem

According to the 2009 Bank of Nigeria report on the major operations of Nigerian banks and other financial institutions, most formal banking institutions avoid doing business with individuals and small businesses because they consider them high-risk clients.

Small and medium-sized firms are classified as high risk because they lack the requisite assets to provide as security for loans, which is expensive. This is because informal sector applicants typically seek for small loans, which require the same administrative procedures and scrutiny as bigger loan requests made by medium or large-scale enterprises.

As a result, the cooperative culture of banks and financial institutions differs significantly from the informal world of the microentrepreneur.

1.3 GOALS OF THE STUDY

The overall goal of this study is to determine the influence of microcredit on small and medium-sized business performance. Specifically, the study attempts to

1. To determine the volume of loans issued by microfinance banks to small and medium-sized businesses.

2. To learn about the issues that small and medium-sized businesses encounter when appraising microcredit.

3. To compare the rate at which small and medium-sized businesses borrow from microfinance banks versus other sources of funding.

1.4 RESEARCH QUESTIONS

1. What is the impact of microcredit on small and medium-sized business performance?

2. What is the amount of loans issued by microfinance banks to small and medium-sized businesses?

3. What problems do small and medium-sized businesses face when assessing microcredit?

4. What is the rate at which small and medium-sized businesses borrow from microfinance banks compared to other sources of capital?

1.5 Significance of the Study

The findings of this study, which seeks to explore the impact of microfinance on small and medium-sized businesses in Owerri, will be used to inform policy formation and decision-making in the future.

Furthermore, the outcomes of this study would be used as an extra guide by economic policymakers for small and medium-sized businesses in Nigeria. The study’s findings can also be utilised to guide more pragmatic decision-making.

The study will also reveal the actions of the two microfinance institutions under consideration, highlighting their overall role in extending loans and credit to various small and medium-sized businesses. The study will also act as literature, contributing to and expanding upon current understanding on the proposed topic.

1.6 SCOPE OF THE STUDY

The study will focus on the city of Owerri, which has seen significant development and an influx of both small and medium-sized businesses and microfinance banks. The phenomena has resulted in the city becoming fairly dynamic for business, making it an ideal setting for this study work.

The study specifically focuses on Deson microfinance and GIFS microfinance institutions in Owerri, as well as the various individuals and organisations within the SME sector who serve as clients of these two microfinance banks.

1.7 Limitations of the Study

The project’s possible limitation is due to a lack of time and funding. If the survey had included all microfinance institutions across the country, it would have been much more comprehensive and representative. However, the study is limited to just two microfinance institutions in Owerri.

1.8 Organisation of the Study

The entire project is divided into five chapters. The first chapter serves as the introduction. It discusses background information about the topic, the problem statement, research objectives, the study’s significance, research questions, constraints, and delimitations.

The second chapter reviews the study’s relevant literature. Some of the key topics covered included micro, small, and medium-sized firm concepts, small and medium-sized business financing sources, financial non-governmental organisation operations, and issues facing the microfinance sector.

The third chapter covers the methodology, the study’s instrument, the population, the sample, and sampling methodologies. Chapter four summarises the study’s findings through an analysis of field survey data, followed by a summary, conclusions, and suggestions in Chapter 5.

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