Full Project – IMPACT OF MICROFINANCE BANK CREDIT ON SMALL AND MEDIUM ENTERPRISES IN NIGERIA
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
According to Ayodele (2005), microfinance bank credit has enjoyed a wealth of literate in the past and is quite often seen as one of the mast significant tools developed (in recent history) to. combat poverty at the grass root level. Today, microfinance institution allow for both the “pooled saving” model as well as the small lending using favorable terms. The concept is simple, loan small funds to the poor for a small fixed period of time, and thus the individual is able to access further lending at paint of repayments or thereafter. This would tend to empowers the entrepreneur to make up a trade and allow them to start earnings and thus to provide their families with income stability. Recently, concerns are band regarding the sustainability of the microfinance enterprises, specifically because of the nature of the lending itself. Loans are constantly being made of high risk law income individuals with unique and innovative methods being utilized to create re-payment incentives. Thus, the most significant concern at the moment is whether the formal microfinance institutions are actually impact positively or negatively in the developing economy like Nigeria.
According to Omolumo (2005), the introduction of MFI is a welcome development as this will help to improve individual standard of living in a developing economy, while the place of microfinance will help evaluate the effectiveness of MFI in various dimensions. Loosely state, the goal of MFI is to reduce poverty, sustain income inequality and increase entrepreneurship.
The term “Microfinance bank credit” pertains to the lending of extremely small amount of capital to poor entrepreneurs in order to create a mechanism to alleviate poverty by providing the poor and destitute with resources that are available. This particular form of lending has existed in the world far quite sometime, though formalized by Yunus (2007) in Bangladeshi during the 1970s. Ayodele (2005) won the noble peace prize in 2006 for his efforts in combating poverty and providing resources to the poor via the Grameen Bank and the Microfinance model.
Historically, the place of microfinance credit in the developing economy cannot be over-emphasizing as microfinance has existed among the poor in various shapes and forms. The most common example cited is that of a rotary club, whereby people pool their savings into a certain fund every month, and that are randomly picked (without replacement) to receive the entire fund every year. This method require, of course that each member of the club belong to a tightly knit social circle in order to be trusted and thus allowed to participate. This “pooled savings” method of financing has quite popular in various cultures across the globe. Furthermore, there have existed lending institutions extending credit to the poor and vulnerable, though a very strict and often extraordinary terms.
1.2 Statement of the Problem
The statement of problem is on the contribution of microfinance in the developing economy. The identified problems have constituted the causes of failure of microfinance institutions and entrepreneurs. The problems of inefficiency and ineffective MFI implementations though various dimensions in a developing economy. Microfinance is only serving the people slightly above or below the poverty line, however the really poor and destitute are being systematically excluded in a developing economy. Recourses of business does not use itself, they have to be managed by skilled personnel, the absence of which lead to business failure. The problem of inadequate capital to run business through microfinance will cripple its apportion. Many MFI institutions were short of the new minimum capital base as speculated by the Apex bank, thereby affecting the small and medium enterprise or entrepreneurs who do not have reserve funds to take advantage of discount while same entrepreneur lacks good credit control system. Government policy has not been friendly with microfinance institution which automatically has adverse effect an the development economy.
- Aims and Objectives of the Study
The following are the objectives of this study:
- To determine the impact of microfinance bank credit on Small and Medium Enterprises in Nigeria.
- To establish the need for microfinance bank credit in the developing economy like Nigeria.
- To checkmates the problems and challenges being faced by microfinance bank credit in the developing economy and thereby procuring solutions.
- To identify the importance of microfinance scheme and microfinance credit institution in a developing economy.
- Capital for individual entrepreneur and small and medium scale enterprise.
1.4 Relevant Research Questions
The research questions of the study are as follows:
- What is the impact of microfinance bank credit on Small and Medium Enterprises in Nigeria?
- Is there need for microfinance bank credit in the developing economy like Nigeria?
- How can the problems and challenges being faced by microfinance banks in the developing economy be checkmate?
- What are the importance of microfinance scheme and microfinance institution in a developing economy?
- How can microfinance bank credit be use to sustain the standard of living through small and medium scale enterprises in Nigeria?
- Is there need for adequate sufficient capital for individual entrepreneur and small and medium scale enterprises?
1.5 Relevant Research Hypotheses
Hypothesis One
H0: The role of microfinance Bank credit does not have significant influence on SME Economic performance in Nigeria.
H1: The role of microfinance Bank credit has significant influence on SME Economic performance in Nigeria.
For Hypothesis Two
Ho: Microfinance Bank credit will not significantly facilitates the operations of SMEs in Nigeria
H1 Microfinance Bank credit will significantly facilitates the operations of SMEs in Nigeria
1.6 Significance of the Study
The significance of this research study is on the impact of microfinance bank credit to the SMEs on the economy growth. The management and operators of MFB and the governments, the small and medium scale entrepreneur, and individual stake holders. The significance of study will help to definite to the problems and challenges being faced by most microfinance institutions, and how it will help to sustain economic growth and development thereby improving the standard of living of individuals in a developing economy like Nigeria.
It will aid management effectiveness of small and medium enterprises in Lagos State, it will enhance government agency and individual stake holders to formulate policies that will ensure smooth growth and development of small & medium enterprises in Nigeria. The study will help to identify the problems and challenges being faced by most entrepreneurs, institutions, and how it will help to sustain economic growth and development thereby improving the standard of living of individuals in a developing economy like Nigeria.
The study would be of significant to the government as it will help to improve the welfare of its citizens through small and medium scale scheme. The study would also be of useful to the students who have the interests of carrying out a further research in small and medium scale enterprises in Nigeria.
1.7 Scope of the Study
The scope of the study is within the impact of microfinance bank credit on Small and Medium Enterprises in Nigeria. The scope of the study is also limited to popular MFI and microfinance schemes. The limitation of the study is as a result of time constrains and distances to be covered in the, process of this research project.
1.8 Definition of Terms
- Micro/Cottage Industry: An industry with a labour size of not more than 10 workers, or total cost of not more than N1.50million, including working capital but excluding cost of land.
- Small – Scale Industry: An industry with a labour size of 11-100 workers or a total cost of not more than N50 million, including working capital but, excluding cost of land.
- Medium Scale Industry: An industry with a labour size of between 101-300 worker’s or a total cost of over N50million, but not more than N200million, including working capital, but, excluding cost of land.
- Large Scale: An industry with a labour size of over 300 workers or a total cost of over N200 million, including working capital, but, excluding cost of land.
- Absolute poverty: Inability to purchase the basic essentials of life like food, clothing, shelter, basic education etc.
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