Project Materials

THE IMPACT OF MICRO FINANCIAL INSTITUTIONS ON THE GROWTH ON SMALL AND MEDIUM SCALE BUSINESS

Chapter one

INTRODUCTION

1.1 Background of the Study

Microfinance is the facilitation of financial services to meet the needs of low-income individuals such as micro-entrepreneurs by providing small loans (microloans), small savings deposits (micro-savings), micro-insurance, and improving simple payments services required by micro-entrepreneurs and economically active poor people who do not have access to formal banking services (USAID, 2000).

The loans provided are small in amount and are intended for entrepreneurial ventures. The loans are collateral-free, group-based, and mostly go directly to entrepreneurs, with low or no interest charges. This is due to their ability to manage small sums of money profitably (UNITUS, 2000).

The National Council of Industries defines SMEs as small enterprises with a total cost of less than two million naira (N2,000,000) excluding land.

The federal ministry of commerce and industry defines SMEs as businesses with up to 50 paid employees and a total investment of up to $750,000, excluding land costs.

Small and medium-sized enterprises (SMEs) play an important role in national economic development. This position entails technological and industrial development, job creation, technology acquisition, capacity building, boosting growth, raising living standards, industrial expansion, serving large-scale enterprises, export promotion, rural development, and innovation.

The study aims to explore the impact of microfinance on the growth of small and medium-sized businesses in Lagos, Nigeria.