The Impact Of Microfinance Bank In Growth Of Small And Medium Scale Business In Nigeria

The Impact Of Microfinance Bank In Growth Of Small And Medium Scale Business In Nigeria

Abstract

The impact of microfinance institutions (microfinance banks) on the expansion of small and medium-sized enterprises (SMSEs) in the Owerri Urban is covered in this study. The study looked at the specific characteristics of small and medium-sized businesses in the Nigerian city of Owerri, the role that microfinance banks play in fostering entrepreneurship, the difficulties small and medium-sized businesses face when trying to obtain credit, and the percentage of credit that small and medium-sized businesses use. An analysis of the characteristics of small and medium-sized businesses reveals that the majority of them are in their micro phases since they employ fewer than six people, and this sector is heavily controlled by the sub-sector of commerce. The results of the search also show that microfinance banks have benefited the expansion of small and medium-sized businesses. Greater access to credit, improved savings, and the provision of management, financial, and commercial training are just a few of the crucial contributions made by microfinance banks. Despite the contributions that microfinance banks have made to the growth of small and medium-sized businesses, both these businesses and microfinance banks face difficulties in their daily operations. The lengthy procedures some identify with small and medium-sized businesses are the main difficulty they encounter.

obtaining credit with high interest rates and collateral security. The issues that Microfinance Banks encounter, on the other hand, are related to credit theft and the failure to disclose material information about the business operations of Small and Medium Sized Businesses. According to their final analysis, microfinance banks have a favorable impact on the expansion of small and medium-sized businesses. Credits should be client-oriented rather than product-oriented to support a sustainable and rapid growth in the operations of small and medium-sized businesses. Clients who receive loans should receive proper and thorough monitoring procedures.

First Chapter Introduction

1.1 The Study’s Background

Government measures to support and finance small and medium enterprises (small and medium scale businesses) are believed to have a rather lengthy history in Nigeria. Due to the large number of people they employ, small and medium-sized businesses significantly contribute to Nigeria’s economic growth and development. This is the case due to the widespread acceptance that the expansion and development of small and medium-sized businesses can significantly contribute to reversing the trend of rising unemployment. In light of the aforementioned, policies and programs that would encourage the development of small and medium-sized businesses are developed and put into place to improve the quality of life for the populace. Mbuta and Nkandela (1998) claim that both developed and developing nations now recognize the value of small and medium-sized enterprises in driving economic growth and employment creation. The process by which these businesses move from micro to small to medium size is of special relevance because it is at this point that growth-oriented small and medium scale businesses are able to directly contribute to economic growth and employment creation. Dynamic medium-sized businesses offer a competitive advantage in two ways: as top subcontractors and as independent startup firms. (Referenced in Owusu’s research, 2011)

Additionally, according to Owusu, 2011 and Abugre (1994), micro and tiny businesses are those with less than 29 employees. Microbusinesses are defined as those with 1 to 5 employees and fixed assets under $10,000 USD, excluding vehicles, land, and buildings. Small businesses typically have 6 to 29 employees and fixed assets of no more than 100,000 US dollars, excluding land and buildings. It must be stressed that a shortage of funding continues to be the biggest obstacle for small and medium-sized businesses in the nation.

It is thought that Nigeria started formally supporting the operations of small and medium-sized enterprises in 1969 when the Bank of Nigeria established the credit guarantee scheme to help business owners get bank credit. The establishment of the Nigeria Business Promoting Program came next in 1970. These efforts sought to increase financial and technical support for newly founded and established micro, small, and medium-sized firms, but their results were modest. The majority of the beneficiaries of the schemes were Nigerian managers of manufacturing firms with foreign ownership (Abugre, 1994).

In fact, the rise of financial non-governmental organizations on the country’s economic and business scene was forced by the necessity for reliable sources of capital for small and medium-sized businesses. Opare-Djan (2002) asserts that Kraban Foundations has had a substantial impact on the microfinance industry. Another example of an NGO implementing microfinancing initiatives is Kiva or Sinapi Aba, among others.

Situation Of The Problem

The majority of formal banking institutions do not cultivate the habit of doing business with individuals and small businesses customers because they consider them to be high risk clients, according to a 2009 Bank of Nigeria report on the major operations of Banks and other financial institutions in Nigeria. Small and medium-sized enterprises are regarded as high-risk industries because they lack the essential assets to secure loans and because doing so is expensive. This is due to the fact that borrowers from the informal sector typically seek for small loans, which necessitate the same administrative process and scrutiny as relatively bigger loan requests submitted by medium- or large-scale businesses. The cooperative culture of banks and other financial organizations is therefore very different from the unstructured environment of the microentrepreneur.

1.3 Study’s Objectives

This study’s main goal is to determine how microcredit affects the performance of small and medium-sized businesses. The study specifically intends to:

1. To determine the total amount of loans given by microfinance institutions to small and medium-sized businesses

2. To learn about the difficulties small and medium-sized businesses encounter while evaluating microcredit

3. To assess the rate at which small and medium-sized businesses borrow money from microfinance institutions in comparison to other sources of funding.

1.4 QUESTIONS FOR RESEARCH

1. How does microcredit affect the performance of small and medium-sized businesses?

2. How many loans are given by microfinance banks to small and medium-sized businesses?

3. What difficulties do small and medium-sized businesses have when evaluating microcredit?

4. How much do small and medium-sized businesses borrow from microfinance banks compared to other sources of funding?

1.5 RELATIONSHIP TO OTHER STUDIES

The results of this study, which looks into how microfinance affects small and medium-sized businesses in Owerri, will be used as a guide for future policy development and decision-making. Economic policy makers in Nigeria will also use the study’s findings as a further guide when deciding how to support small and medium-sized businesses. Additionally, the study’s findings can be used and used as a roadmap for making more practical judgments. The study will also reveal the operations of the two microfinance organizations that are the subject of the investigation, highlighting their operations in a broader context in terms of providing credit and loans to various Small and Medium Scale Enterprises. The study will also act as literature that advances and broadens our understanding of the subject at hand.

1.6 The Study’s Scope

The study will concentrate on the city of Owerri, which has experienced significant growth along with an equally significant inflow of small and medium-sized businesses and microfinance institutions. The phenomena has actually caused the city to become rather dynamic for commerce, making it an ideal place for these study works. The study concentrated specifically on the Deson and GIFS microfinance institutions in Owerri Urban as well as the numerous people and organizations in the SME sector that make up the clientele of these two Microfinance banks.

Limitations of the research

Both a shortage of time and insufficient funding are blamed for the project’s potential limitations. If the survey had included all microfinance organizations in the country, it would have been fairly comprehensive and representative. However, the study is only focused on two Owerri-area microfinance institutions.

1.8 HOW THE STUDY WAS ORGANIZED

Five chapters make up the complete endeavor. The first chapter serves as the introduction. The topic’s historical context, the problem statement, the study’s significance, the research aims, the study’s questions, and its limitations and delimitations are all covered. The second chapter includes a survey of the study’s pertinent literature. The concepts of micro, small, and medium-sized enterprises, sources of financing for small and medium-sized businesses, activities of financial non-governmental organizations, and difficulties facing the microfinance industry were a few of the noteworthy topics examined.

The methodology, the study’s instrument, the population, the sample, and the sampling procedures are all covered in chapter three. Following an analysis of the data from the field survey in chapter four, chapter five gives the summary, conclusions, and recommendations of the study.