AN ASSESSMENT OF THE ROLE OF MICROFINANCING INSTITUTIONS ON FUNDING NEEDS, PROFITABILITY AND DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

AN ASSESSMENT OF THE ROLE OF MICROFINANCING INSTITUTIONS ON FUNDING NEEDS, PROFITABILITY AND DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

(A CASE STUDY OF MICROFINANCE BANK NASARAWA, NASARAWA STATE)

ABSTRACT

The fundamental objective of this study is to assess the impact of microfinance institutions on small scale enterprises in Nigeria. Despite the availability of microfinance and the establishment of microfinance institutions in Nigeria, there are yet no established government policies and mechanisms for regulating and supervising activities in the sector. Simple random technique was employed in selecting the small scale enterprises used in the research. The findings reveal that significant number of small scale enterprises benefited from the microfinance institution loans even though only few of them were suitable to secure the required amount needed. The study recommended that the government should provide adequate infrastructural facilities such as electricity, good roads network and training institutions to support small scale enterprises in Nigeria.

CHAPTER ONE

1.0 INTRODUCTION

 1.1  BACKGROUND OF THE STUDY:

A micro finance institution is a semi-formal organization. It can be non-governmental or community development initiative. It is a sub-set of flexible structures and system which provide a wide range of financial and savings needs of small scale enterprises in developing countries where top-town formal financial institutions have failed to address the credit need real of the sector of the economy.

The Nigeria micro-finance institution have come a long way, a Central Bank study has identified as at 2001, 160 registered micro finance institutions in Nigeria with aggregate savings worth N99.4M and outstanding credit of N649.6M indicating huge business transactions in the business.

According to Anyanwu, (2004), despite the availability of micro finance institutions in Nigeria there are yet no established government policies and mechanisms for regulating and supervising activities in the sector. In 2000, a national conference on microfinance was organized by the Federal Government of Nigeria and the World Bank recommended that the Central Bank of Nigeria to take up the responsibility of developing an appropriate policy as well as regulatory and supervisory framework for the operation of microfinance institutions. The workshop recognized that the development of appropriate microfinance policy was critical to the development of sustainable microfinance institutions and by implication through micro enterprises in Nigeria (CBN, 2001).

According to Fasua, (2006), the problem of sustainable development in the third world countries like Nigeria has been a growing concern to both the government and the private sector. The huge amount of money the government has been investing on this platform over the years have not yielded any meaningful result due to the following challenges; infrastructural decay, insecurity of lives and properties, inadequate capital, illiteracy, maladministration, corruption and unpredictable fiscal policy by successive administrations.

One of the responses to the challenges of development in the developing countries is the encouragement of small and medium scale enterprises development scheme. Nigeria had even taken more robust step by including entrepreneurial studies in her educational system. They believe of such policy makers is that such decision will inculcate entrepreneurial spirit in the mind of individuals so as to get them ready for wealth creation through small scale enterprises.

Small and medium scale enterprises are sine qua non to national development, poverty eradication and employment generation. It is therefore the bed rock of any nation industrialization.

1.2 STATEMENT OF THE PROBLEM:

Despite the availability of microfinance and the establishment of microfinance institutions in Nigeria, there are yet no established government policies and mechanisms for regulating and supervising activities in the sector.

Most small and medium scale enterprises are illiterate who need to be enlightened on how to manage the affairs of their establishments efficiently, especially in the aspect of financial administration.

Also another is that of corruption, i.e. to say it is very difficult to succeed in honest business in a corrupt environment.

Poor transportation system; the transportation system in Nigeria is very poor. The roads are full potholes, the railway system is not functioning very well, and the water way is underdeveloped. It is therefore expensive moving both raw materials as well as finished products from one place to another.

Inadequate electricity supply- so many manufacturing firms have shutdown due to their inability to compete with foreign products. The reason is not farfetched; it is expensive running a factory with power generating set. In organized societies, generators are as back up plants to avoid disruption in production process whenever there is power failure. The reverse is the case in Nigeria; generators are the main source of electricity for all and sundry. Constant power supply is still a fairy tale.

1.3 OBJECTIVES OF THE STUDY:

The main objective of this study is to access the impact of microfinance institutions on the development of small scale enterprises in Nigeria. In order to achieve the above objectives, the study focuses on the following specific objectives:

1. To assess the differences in the number of small and medium scale owners who used microfinance institutions and those who do not.
2. To assess the effect of microfinance institution activities in predicting small and medium scale enterprises productivity.

1.4 RESEARCH QUESTIONS:

In light of the above stated objectives, the study considers the following research questions:

• Does any difference exist between the number of small and medium scale owners who used microfinance institutions and those who do not?
• Does the activity of microfinance institutions have any effect in predicting the productivity of small and medium scale enterprises?

 1.5 STATEMENT OF HYPOTHESIS:

The following research hypothesis will be investigated and tested in this study in order to draw conclusions on them.

HO:  There is no significant difference in the number of small and medium scale owners who used microfinance institutions and those who do not.

HI:    There is a significant difference in the number of small and medium scale owners who used microfinance institutions and those who do not.

HO:  There is no significant effect of microfinance institutions activities in predicting small and medium scale enterprises productivity.

HI:   There is a significant effect of microfinance institutions activities in predicting small and medium scale enterprises productivity.

1.6 SIGNIFICANCE OF THE STUDY:

This study will assist the management of the banks by providing means through which small and medium scale enterprises activities can be improved. This study is significant because it will help to evaluate the operation of a vital segment of the industrial sector- small and medium scale industries which have been identified as having very high potential in promoting economic growth and development.

It will also assist the customers through the improvement in the banking service.

To accounting students and other researchers, it will serve as a guide to collecting of information.

1.7 SCOPE OF THE STUDY:

This study is limited to microfinance bank in Nasarawa and some selected small and medium scale enterprises in Nasarawa state. Attention will be focused on the activities of the bank relating to entrepreneurship development and the business activities of the selected small and medium scale enterprises.

1.8 DEFINITION OF TERMS:

• LOAN: Is a sum of money placed in a bank or account, in other words, it is amount money borrowed from the bank. It is also an arrangement in which a lender gives money or property to a borrower and the borrower agrees to return at a particular point in time.
• CAPITAL: Is the amount of money or asset invested into a business so as to ensure its existence. Therefore, capital of a business can be found in various ways like money, premises, equipment, stock etc.
• INTEREST: Is the extra money you pay back when you borrow money or that you received when you invest money.
• MICRO FINANCE INSTITUTIONS: Is financial institutions that specialize in borrowing services for low-income groups or individuals. Micro finance institutions provides account services to small balance accounts that would not normally be accepted by traditional banks and offer transaction services for amount that may be smaller than the average transaction fees charged by mainstream financial institutions.
• SMALL SCALE ENTERPRISES: Is a business that employs a small number of workers and does not have a high volume of sales. Such enterprises are generally private owned and operate sole proprietorships, corporations or partnerships.
• ECONOMIC GROWTH: Is defined as increase in the output that an economy produces over a period of time, the minimum being two consecutive quarters. It is also the increase in the amount of goods and services produced in an economy over a given period of time.
• INFRASTRUCTURAL FACILITIES: Is a basic physical and organizational structures needed for the operation of a society or enterprises or the services and facilitates necessary for an economy to function. It also refers to the technical structures that support a society, such as roads, bridges, water supply, electricity etc.
• DEVELOPMENT FINANCE INSTITUTIONS: Are specialized financial institutions established by the government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development. These strategic sectors include: small and medium scale enterprises (SMEs), infrastructures, maritime, export-oriented sector as well as capital intensive and high technology industries.