TOOL FOR FACILITATING THE GROWTH OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA.
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TOOL FOR FACILITATING THE GROWTH OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA.
Chapter one
1.0 Introduction
Effectively functioning financial markets play critical roles in promoting growth. Financial markets can play an important role in people’s daily lives.
They can be a primary means for the poor to obtain financial assets; by facilitating savings, they can help reduce the vulnerability associated with uneven and unpredictable year-to-year changes in circumstances; and they can help convert illiquid assets into liquid ones in the event of an emergency without putting in place viable programmes to encourage SMEs, which are the engine of growth for all economies around the world.
The latent capacity of the poor for entrepreneurship would be significantly enhanced by the provision of microfinance services, allowing them to engage in economic activities and become more self-sufficient, thereby improving their ability to create wealth.
A few highly effective microfinance programmes have demonstrated that low-income clients, particularly women, can manage meagre resources productively if the interest rate is low.
Over the last decade, a few pioneer microfinance institutions have proved not just the ability of the poor, but also the possibility for the long-term viability of financial institutions serving the poor.
Financial sustainability is achieved when administrative, loan loss, inflation, and financial expenditures are totally covered by revenues.
Savings services are urgently needed by a huge number of impoverished people around the world to secure their income and act as an alternative to debt accumulation; as a result, microfinance institutions are under increasing pressure to mobilise savings to help the poor.
Savings deposits also provide microfinance institutions with a useful source of local money. Prior to the establishment of official microfinance banks, informal associations that run traditional microfinance in various forms were widespread in all rural and urban communities in Nigeria (Out et al., 2003).
The practice of microfinance in Nigeria dates back several centuries. Traditional microfinance institutions collaborate for the mutual advantage of its members; these groups provide credit to low-income workers in both rural and urban areas.
They are primarily informal self-help organisations or rotating savings and credit associations. Other providers of microfinance services include a model based on the group concept.
The concept works in situations where groups lack a strong commitment to savings and credit and rely on donor-sponsored loans. The informal model includes:
The Grameen Bank experience of Bangladesh, founded by Mohammed Yunus, began with the group notion of informal lending to the poor. The programme has now been tied to a formal microcredit scheme.
The approach has been quite effective as a poor-focused bank and as a social movement based on awareness and training principles, allowing the poor to actively participate.
As of 1999, the Grameen Bank has offered services to around 1.5 million poor people through the linking of approximately 60,000 tiny village banks, as well as approximately $480 million in small-scale trade to its clients.
Non-governmental organisations typically follow Grameen principles and are gender-specific and sectorally motivated. There are women’s groups, farmer unions, trade unions, and so forth.
In many parts of Nigeria, a revolving loan arrangement is used, in which participants make predetermined contributions of money at regular periods to help finance their small-scale companies.
At each interval, one member collects the total amount of money contributed by everyone. It is referred to as “Esusu” in Yoruba, “Adashi” in Hausa, and “Itutu” in Igbo. It may also serve as a savings mechanism for members.
In Nigeria, there is a strong and growing demand for microfinance services. The ongoing layoff of labour from both the public and commercial sectors since the implementation of the structural adjustment programme in 1986, combined with the expanding number of school graduates, is pushing a considerable proportion of the population into informal sector activities.
As a result, many micro-enterprises are emerging, albeit without the financial help of banks. Additionally, the domestic market is huge, with over 1450 million people in need of various goods and services. Including financial services.
The increase in microfinance activities reflects the rise of informal sector activities as well as the exclusion of a major section of the economically active people from the formal sector’s financial services.
Microfinance aims to provide long-term financial services to economically active poor, low-income workers, and micro, small, and medium-sized businesses through privately owned banks. This is to foster a thriving microfinance sub-sector that will stimulate national growth and economic development.
1.1 Statement of the Research Problem
Many research questions are relevant to the study of microfinance. This problem goes as follows:
1) The difficulty of funding actual sector operations needed to support the microfinance institution, which provides the foundation for sustainable growth and development.
2) The challenge of determining who is eligible to establish a microfinance bank.
3) The issue of the CBN’s supervision of microfinance bank activities
4) The challenge of finding persons who qualify as microfinance clients and profit from microfinance banks.
1.2 Objects of the Study
The study’s objective highlights and clarifies what the study (Micro Finance) aims to achieve, which are as follows:
1) To investigate how microfinance contributes to poverty reduction in Nigeria.
2) To investigate microfinance’s contribution to Nigeria’s economic growth.
3) Examine how microfinance might successfully supply and convey information to potential clients.
4) Investigate how microfinance gives jobs to Nigerian citizens.
5) To lessen the long-term divide between the rich and the poor.
6) To encourage and improve rural areas’ confidence so that they understand that sustainable livelihoods exist not just in cities but also in rural communities.
1.3 RESEARCH QUESTIONS.
The research questions below will be answered.
a. How does a microfinance bank operate?
b. What institutional arrangements might help microfinance banks flourish in their operations?
b. How does microfinance affect the development of small and medium-sized enterprises?
d. Can non-governmental organisations run microfinance banks?
g. How may small and medium-sized businesses profit from a microfinance bank?
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