ROLE OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESSES IN OGUN STATE
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ROLE OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESSES IN OGUN STATE
ABSTRACT
This study experimentally investigated the function of microfinance banks in financing small businesses in Ogun state. The goal is to examine the influence of microfinance banks on small businesses while also providing solutions to challenges associated with microfinance.
The goals of this study were to investigate the influence of micro-credit from a microfinance bank on the performance of small businesses in Ogun state, as well as to assess the success of the microfinance bank in its function of attracting resources for use by small businesses in the state.
The study’s scope is Ogun state in 2019, with business owners as participants, and contingency management theory served as a framework. The research design employed for this study is a survey, and the target demographic is all business owners. 400 business owners were chosen as the sample size, and the cluster sampling technique was used.
This study’s instrument is a questionnaire. Data were acquired from original sources. According to the data analysis, micro-credit from microfinance has an impact on the performance of small businesses in Ogun state, and microfinance banks play a role in attracting resources for use by small enterprises in Ogun state.
Following the findings, it was recommended that micro-credit from microfinance be granted to small-scale businesses at a low interest rate and a longer repayment period
that microfinance banks play an important role in attracting resources for use by small businesses in Ogun state, and that the government encourage the existence of microfinance banks. The study shows that microfinance has a significant impact on the survival of small business enterprises.
Chapter one
INTRODUCTION
1.1. Background for the Study
Without a question, small businesses are the driving force behind economic growth, poverty alleviation, job creation, and crime reduction. They make up a huge percentage of enterprises worldwide and play an important part in any economy.
Small businesses face a variety of challenges, including financing, that threaten their long-term viability. Researchers have found that the failure rate of small-scale businesses in developing countries is higher than in the developed world (Marlow, 2009).
A company’s capacity to meet its key performance indicators in a sustainable manner is critical to achieving its goals (Simerly and Mingfanf, 2000; Wan and Yiu, 2009). Microfinance is the offering of financial services to low-income households that have restricted access to established financial institutions (Conroy, 2003).
Microfinance banks are established in Nigeria to increase impoverished people’s access to loans and savings services, hence eradicating poverty and ensuring economic progress (Shreiner, 2001).
The Nigerian government has previously launched a variety of programmes and policies aimed at small businesses in order to improve the flow of financial resources to these enterprises (Oni and Daniya, 2012). The Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the National Credit Guarantee Scheme were both created in 2003.
The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was established to address small company operators’ lack of access to credit. Despite the implementation of various programmes and policies in Nigeria, poverty, unemployment, and stunted economic growth remain pervasive (Lawson 2007; Owenubiugie and Igbinedion, 2015; Obadeyi, 2015).
Despite their important position, significance, and contribution to the national economy, small businesses continue to face numerous challenges. They face major obstacles that jeopardise their ability to function and contribute effectively to the economy.
Small business operations continue to be hampered by a variety of issues, including difficulty obtaining credit, short loan repayment periods, microfinance banks’ refusal to finance small businesses, and excessive interest rates, among others.
In Nigeria, small businesses account for approximately 90% of the industrial sector, 70% of national industrial employment, and 10% of manufacturing production (Ajayi, 2002).
According to Anwatu (2006), small and medium-sized firms account for 75% of Nigeria’s private sector. Developing the private sector is a driver of growth, wealth generation, and employment in Nigeria.
Small business enterprises in Nigeria perform below expectations (Basil, 2005; Abiodun, 2011). Thus, this study examines the function of microfinance banks in financing small-scale businesses in Ogun State.
1.2. Statement of the Research Problem
The survival of small businesses is regarded as critical in any economy for addressing issues such as poverty, unemployment, and crime while maintaining economic growth. Small firms are underperforming in terms of economic growth, job creation, and poverty alleviation, making it harder for them to achieve their targeted goals.
Most businesses fail to consider suitable funding, which reduces their prospects of long-term survival and causes a progressive reduction in their abilities. One of the most serious issues confronting small businesses is a lack of financing.
In a situation when funds/credit are readily available, there is the issue of high interest rates and a short repayment period. Furthermore, most microfinance banks are averse to lend to small business enterprises. All of them, among others, are located in Nigeria and therefore have an impact on the success of small businesses.
It is distressing to notice that the Nigerian government has historically failed to appropriately assist the poor in growing small businesses. In Ogun state, the capacity of small businesses to develop and maintain a competitive advantage is dependent on the availability of appropriate techniques for preserving their operations. Against this backdrop, the researcher examined the role of microfinance banks in financing small businesses in Ogun State.
1.3. Objectives of the Study
The purpose of this study was to analyse the role of microfinance banks in financing small businesses in Ogun state. Specific aims are to:
Examine the effect of microcredit from a microfinance bank on the performance of small businesses in Ogun State.
Evaluate the success of the microfinance bank in its role of attracting resources for use by small companies in Ogun State.
1.4. Research Questions.
This study will be led by the following research questions.
How does microcredit from a microfinance bank affect the performance of small businesses in Ogun state?
To what extent do microfinance banks help small enterprises in Ogun state access resources?
1.5 Research Hypotheses.
The investigation is guided by the following hypotheses.
H0: Microcredit from microfinance does not impact small business performance in Ogun state.
H0: Microfinance banks failed to mobilise funding for small enterprises in Ogun state.
1.6. Significance of the Study
The importance of small businesses to the success or growth of any country is highlighted. This is because the availability of financing affects a small business’s capacity to achieve its objectives. Lack of funding reduces productivity, preventing small businesses from achieving such big goals in an economy.
Empirically, the purpose of this study is to examine the function of microfinance banks in financing small-scale enterprises in Ogun state in order to alleviate the problem of poor productivity.
This study will be beneficial to small businesses because it will help guide them on how to operate. It will educate it the value of microfinance as well as the steps required to obtain company financing. It will also assist small business owners in maximising the value of their firms.
This study will be extremely valuable to investors, the government, and researchers since it will provide policy suggestions to various Nigeria stakeholders for taking appropriate actions in small-scale enterprises to accelerate capacity investment.
It is envisaged that the examination of small enterprises in Ogun state will offer investors and the government with a comprehensive understanding of how small firms operate. It will add to the current literature on the subject by doing empirical research into the role of microfinance banks in the country’s small business companies. This study will be beneficial to:
Members of the academic community will find the study useful because it will serve as a foundation for future research and a reference tool for academic work.
Government: This study will inform the government on what is happening in small-scale businesses and microfinance banks. Formulating and implementing policies based on these findings would secure the area’s development.
Investors: This study will also benefit investors, particularly those with a research interest, as it will drive their private investment selections.
1.7. Scope of the Study
The purpose of this study is to analyse the role of microfinance banks in financing small-scale enterprises in Ogun state in 2019 by interviewing small-business owners in the state.
1.8. Operational Definitions of Terms
The terms listed below have been defined operationally.
Small business venture is defined as an enterprise with a small number of employees and a limited flow of funds and supplies.
Business performance refers to an organization’s efficiency and effectiveness as expressed in its management objectives.
Microfinance is a type of financial service that aims to help individuals and small enterprises who do not have access to traditional banking and related services.
1.9. Structure of the Study
The study is organised into five chapters. The first chapter is an introduction, which includes the study’s history, statement of problem, research questions, research hypotheses, study objectives, the study’s importance, scope and constraints, and lastly the study’s organisation.
The second chapter is a survey of the literature, which includes conceptual, theoretical, and empirical material, as well as the theoretical framework.
The third chapter discusses research methodology, which includes research design, study population, sample size, sampling strategy, data collection method, data analysis instrument, data analysis method, and instrument validity/reliability.
The fourth chapter presents and analyses data, as well as discusses the findings. Chapter five includes a summary, conclusion, and recommendations.
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