The Impact Of Microcredit Finance In The Performance Of Small And Mediums Business Enterpises

The Impact Of Microcredit Finance In The Performance Of Small And Mediums Business Enterpises

Chapiter 1

Introduction

1.1 The Study’s Background

Over the years, the Nigerian government has implemented a number of institutional and policy reforms with the goal of improving the flow of financing from the banking industry to Small and Medium Enterprises (SMEs), as well as those engaged in petty business (Micro) activities and entrepreneurial ventures at the informal level in particular. The crucial goal of improving the performance of SMEs’ entrepreneurial endeavors, however, has not been achieved. Traditional banks view micro activities as high risk and have little interest in supporting the industry as a result. When money is taken into consideration, there are also concerns about high transaction costs and a short payback period. The Central Bank of Nigeria (CBN 2005), as part of its banking reform agenda, started issuing licenses to microfinance institutions (MFIs) with the goal of providing financial services to entrepreneurs who are not served by the traditional financial institutions. This was done because robust economic growth cannot be achieved without putting in place well-focused programs to reduce poverty by empowering people by increasing their access to formal financial services (Ozioko, 2010). The focus has thus turned away from large-scale businesses and toward SMEs, which have the ability to create domestic connections for quick and sustainable industrial development. Yarron (1998) asserts that both large corporations and small enterprises, as well as Nigeria’s exceptional entrepreneurs, need support at all levels. These businesses all share the requirement for quality funding.

SMEs are important drivers of economic change because they produce more than half of the GDP in developing countries, serve as the primary engine for technological advancement, provide raw materials and human capital to larger companies, and foster entrepreneurship and enterprise (Sanusi, 2003). To achieve broader development goals like reducing poverty, expanding employment opportunities, and increasing indigenous ownership of resources in the economy, the SME sector’s contribution to the Nigerian economy is essential (Chidoko, Makuyana, Matungamire, & Bemani, 2011). Over 25% of jobs in Nigeria are held by SMEs, which provide close to 50% of the country’s GDP. According to the National Bureau of Statistics (2013), there are 17 million small and medium-sized enterprises (SMEs) in Nigeria, which employ 32.41 million people and represent 46.54 percent of the country’s nominal GDP.

MSMEs can now obtain financing from Microfinance Banks (MFBs) and other Microfinance Institutions (MFIs) on more lenient terms thanks to the microfinance agreement. We plan to investigate how microfinance affects the expansion of small businesses on this platform. In order to fill this vacuum in the literature, the study will look at how financial and non-financial services affect small business growth. It will also look at how microfinance might help turn startups into small-scale firms by providing loans for technology and other assets.

1.2 Definition of the Issue

Only 15% of newly founded businesses in Nigeria survive the first five years, according to a SMEDAN 2010 survey. After this time, the ones that remain typically have subpar performances. The adoption of microfinance as the primary source of financing SMEs in Nigeria and the critical role that money plays in the growth and survival of SMEs are both critical. Therefore, it is crucial to research how much microfinance can improve the performance of small businesses. In addition, the empirical evidence about the impact of microfinance on the development of entrepreneurs that has come from numerous research has so far produced conflicting and mixed outcomes. Due to the fact that some studies have only focused on microfinance and poverty alleviation (Electrin et al. 2013, Kiiru and Kenia 2007, Boadu, 2009), others have examined microcredit as a standalone intervention tool for entrepreneur development (Akingunola et al. 2013), and still others have examined the presence of microfinance institutions as a catalyst for entrepreneurial development (Ozioko, 2007, Alalade 2013, Ojo, 2009), this research will vividly

1.3 The Study’s Objectives

The major goal of this study is to determine how microcredit financing affects SME performance in Nigeria. More specifically, the study aims to:

1. Examine how microcredit financing affects small business performance.

2. Examine the methods used in Nigeria to finance SME through microcredit

3. Learn about the difficulties in financing SME in Nigeria.

1.4 Research Question

1. Has microcredit financing had a noticeable effect on the performance of SMEs?

2. How are small and medium-sized businesses in Nigeria financed by microcredit?

3. What are the difficulties in Nigerian SME financing?

1.5 Research Hypothesis

Ho: The performance of SMEs is not significantly impacted by microcredit financing.

Hello: The performance of SMEs is significantly impacted by microcredit financing.

1.6 Importance of the Research

This study will be helpful in a variety of ways, including helping microfinance institutions evaluate the effect they have had on financing SMEs and providing a platform for upcoming financial innovations that will help them contribute to the SMEs sector.

In addition, researchers can utilize this paper as a source of data for upcoming studies on microfinancing for SMEs. In order to help financial sector policy makers develop more effective financial solutions for SME’s, the study will also provide information on SME debt ratings and terms for SME and entrepreneurship financing. Last but not least, as SME’s are vital to ensuring an economy grows sustainably and inclusively, their involvement in development is crucial in helping governments to create jobs for their residents.

1.7 Purpose of the Research

As the largest economy in Nigeria and the home of many SME, this research will be carried out in Lagos State. The influence of microcredit lending on SMEs and the difficulties they encounter in Nigeria will be extensively examined in this study.

1.8 The Study’s Limitations

A hurdle during the study period will be finding funding for the general research activity. Additionally, respondents might not be able or willing to complete the surveys that were sent to them.

However, it is anticipated that these limitations will be overcome by making the best use of the resources at hand and investing more time in the research than is strictly necessary. It is therefore firmly anticipated that despite these restrictions, their impact on this research report will be negligible, making the study’s purpose and significance attainable.

1.9 Definition of Key Phrases

Microcredit Finance, also known as microfinance or microbanking, is a method of providing credit to unconventional borrowers, such as the underprivileged in underdeveloped or rural areas, typically in the form of small loans without collateral.

The term “small and medium business enterprises” refers to companies with fewer than 250 employees, an annual revenue of up to 50 million euros, or an annual balance sheet amount of up to 43 million euros.

Impact: a significant influence over something