THE IMPACT OF MICROCREDIT FINANCE ON THE PERFORMANCE OF SMALL AND MEDIUM-SIZED BUSINESSES
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FIRST PART
INTRODUCTION
1.1 Background of the Research
Over the years, the Nigerian government has implemented a series of policy and institutional reforms aimed at enhancing the flow of finance from the banking sector to Small and Medium Enterprises (SMEs) as well as those involved in microbusiness activities and entrepreneurial endeavors at the informal level in particular. However, the significant objective of enhancing the performance of SME entrepreneurial endeavors has not been achieved. Traditional banks view micro activities as high risk, therefore they have little interest in funding the sector; this is compounded by the sector’s high transaction costs and short payback period. The Central Bank of Nigeria (CBN 2005) as part of its banking reform agenda embarked on licensing Microfinance Institutions (MFIs) to provide financial services to entrepreneurs who are not served by conventional financial institutions. This is because robust economic growth cannot be achieved without putting in place well-focused programmes to reduce poverty through empowering the people by increasing their access to formal financial services (Ozioko, 2010). Therefore, the emphasis switched from large-scale industries to small and medium-sized enterprises (SMEs), which have the ability to build local links for rapid and sustained industrial development. According to Yarron (1998), Nigeria has amazing entrepreneurs at every level, including Micro, Small, and Medium Enterprises as well as large firms, who want support. A characteristic shared by many businesses is their need for adequate financing.
SMEs are essential 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, the primary source of human capital and raw materials for larger businesses, and the primary source of entrepreneurship and enterprise (Sanusi, 2003). The contribution of the SME sector to the Nigerian economy is essential for achieving broader development goals such as poverty alleviation, employment expansion, and increased indigenous ownership of economic resources (Chidoko, Makuyana, Matungamire, & Bemani, 2011). Small and medium-sized enterprises (SMEs) generate about half of Nigeria’s gross domestic product (GDP) and account for over 25 percent of the country’s employment. There are 17 million SMEs in Nigeria, which employ 32.41 million people and generate around 46.54 percent of the country’s nominal GDP (National Bureau of Statistics 2013).
The microfinance agreement enables MSMEs to obtain financing on more favorable terms from Microfinance Banks (MFBs) and other Microfinance Institutions (MFIs). On this platform, we seek to evaluate the influence of microfinance on the expansion of small businesses. Therefore, the study will address a vacuum in the literature about the impact of both financial and non-financial services on the growth of small businesses and assess the capacity of microfinance to turn small firms into small-scale industries via their technology/asset related loans.
1.2 Description of the Problem
In Nigeria, just 15% of newly founded businesses survive their first five years, according to a SMEDAN 2010 survey. Those that survive after this era typically do poorly. The importance of finance to the growth and survival of small and medium-sized enterprises (SMEs) and the acceptance of microfinance as the primary source of financing for SMEs in Nigeria are significant. Therefore, it is essential to investigate the extent to which microfinance can improve the performance of small businesses. In addition, the empirical evidences emanating from numerous studies about the effect of microfinance on business development have thus far produced contradictory and unsatisfactory outcomes. Some studies only looked at microfinance and poverty alleviation (Electrin et al., 2013, Kiiru and Kenia, 2007, Boadu, 2009), others looked at microcredit alone as an intervention tool for entrepreneur development (Akingunola et al., 2013), and still others looked at the presence of microfinance institutions as a catalyst for entrepreneurial development (Ozioko, 2007, Alalade 2013 Ojo, 2009). Consequently, this study will investigate the impact
1.3 Objective of the Research
This study aims to determine the effect of microcredit financing on the performance of small and medium-sized enterprises (SMEs) in Nigeria.
Analyze the effect of microcredit financing on SME performance.
2. Analyze how microcredit is used to finance SME in Nigeria
Determine the obstacles to SME finance in Nigeria
1.4 Investigative Question
Is there a strong relationship between microcredit financing and SME performance?
How does microcredit finance small and medium enterprises in Nigeria?
What are the obstacles to SME funding in Nigeria?
1.5 Scientific Hypothesis
There is no substantial relationship between microcredit financing and SME performance.
Hello: microcredit financing has a substantial effect on the performance of SME
1.6 Importance of the Research
This study will be valuable in a variety of ways. Initially, it will help microfinance institutions evaluate their impact on funding small and medium-sized enterprises (SMEs) and provide a foundation for future developments in the financial industry to facilitate their contributions to the SMEs sector.
Second, researchers will be able to utilize this paper as a source of information for future studies concerning microfinancing of small and medium-sized enterprises. The study will also provide information on the debt rating of SME’s and the requirements for SME and entrepreneurship funding, which may be useful for policymakers in the financial sector to provide more appropriate financial solutions for SME’s. Lastly, because SME’s are vital in promoting inclusive and sustainable economic growth, their involvement in development is crucial in helping governments to offer employment opportunities for their citizens.
1.7 Scope of the Research
This study will be undertaken in the state of Lagos, which has the largest economy in Nigeria and is home to numerous SME. This study will investigate in depth the impact of microcredit financing on small and medium-sized enterprises (SMEs) in Nigeria, as well as the obstacles faced by SMEs.
1.8 Limitations of the Research
During the course of study, obtaining funding for general research will be a struggle. In addition, respondents may not be able to or want to submit the questionnaires provided to them.
However, it is anticipated that these limitations will be overcome by maximizing the use of available resources and devoting additional time to research. Therefore, it is strongly expected that despite these constraints, their impact on this research report will be small, allowing the study to achieve its purpose and significance.
1.9 Explanation of Terms
Microcredit Finance: sometimes known as micro banking or microfinance, a method of giving credit, typically in the form of small unsecured loans, to non-traditional borrowers such as the impoverished in rural or underdeveloped areas.
Small and Medium-Sized Businesses: Businesses with less than 250 employees and an annual revenue or balance sheet total of less than 50 million euros or 43 million euros, respectively.
Impact: a significant effect or influence on something
THE IMPACT OF MICROCREDIT FINANCE ON THE PERFORMANCE OF SMALL AND MEDIUM-SIZED BUSINESSES
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