IMPACT OF MICROFINANCE SCHEME ON SMALL AND MEDIUM ENTERPRISE DEVELOPMENT IN NIGER DELTA REGION

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPTER ONE

INTRODUCTION

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5       Research question

1.6        Significance of the study

1.7        Scope and limitation of the study

1.8       Definition of terms

1.9       Organization of the study

CHAPTER TWO

LITERATURE REVIEW

2.1   theoretical review

2.2   Conceptual review

2.3   empirical review

CHAPETR THREE

RESEARCH METHODOLOGY

3.1        sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5         Area of the study

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1    Introductions

4.2    Data analysis

CHAPTER FIVE

5.1    Introduction

5.2    Summary

5.3    Conclusion

5.4    Recommendation

Appendix

 

 

 

 

Abstract

This study investigated the impact of microfinance scheme to the development of small and medium scale enterprises in Nigeria The nature of the research was descriptive and the research design was survey design which covered both the Small Scale Businesses and the Microfinance Banks in the Niger Delta region. Structured questionnaires were designed to enhance the collection of related data used for the analysis involving simple percentages. Despite the challenges, and coupled with the unwillingness of the commercial banks to lend to the Small Scale Businesses, the study show that the Microfinance scheme have very significant impact on the growth of Small and Medium Businesses. The result also demonstrated that increased awareness on the activities of Microfinance Banks impacted positively on the establishment of Small Scale Businesses. Nevertheless, since the Microfinance scheme has become the major source of credit to the Small Scale Businesses in Nigeria, the study recommends that the Central Bank of Nigeria should regulate the interest rates charged by the Microfinance Banks so that the Small Scale Businesses will not close shops due to high interest rate burden.

 

                                        CHAPTER ONE

                                        INTRODUCTION

1.1 Background of the study

It is apparent that developing economies all over the world strive to achieve industrial development. Nigeria, being a country with a developing economy is not exempted. Over the year, the Nigeria economy has been dominated by large industries which are mostly multinational. This is obviously due to the government policies which encouraged and emphasized the development of these large industries at the expense of the small scale industries. Eventually, the Nigerian government recognized the development of small scale industrial as an imperative prerequisite for sustaining a well-balanced industrial sector. Faust (2000) submits that four basic interrelated inputs are required to give impetus to their development. They included; i. Favorable government policies and incentives ii. Technical assistance iii. Managerial assistance iv. Finance assistance Due to the uncertainties, the lower rate of return, the expense of administration and the mediocre expense of previous government lending programs, Faust added, financial assistance for the small entrepreneur has been lacking from both government and commercial source. Consequently this heralded the institution dedicated to assisting small enterprises, the poor and households who have access to financial services. Microfinance institutions are designed financial institutions dedicated to assisting small enterprises, who have no access to financial services. Institutions offering microfinance services are very diverse, including commercial banks, community banks and state owned development banks. Over the years, the means of attaining this development has shift attention from large scale and public conglomerate and focused more on privately owned small and medium scale enterprises (SMEs). This is because the SMEs are seen as the engine room for the achievement of economic growth and development as they provide the best opportunity for job creation and rural development. SMEs generate employment, bring industrialization and development to the rural areas, utilize indigenous material resources and redistribute income among the poor. From literature, it is evident that the small and medium enterprises (SMEs) contribution to economic growth and development has global recognition (Okoy, 2010; CBN 2004). According to Kirby (2002), it has successfully worked in most parts of the world; such as South Africa, Japan, Singapore, Indonesia, Brazil, France and Sweden. In the view of Ofoegbu, Et al (2013), SMEs are the panacea for the economic growth and development of many developing countries including Nigeria. They believe that interest on SMEs would contribute to the creation of jobs, as well as providing fertile ground for skill development and acquisition, which serve as a mechanism for backward integration and vehicle for technological innovation and development. Throughout the process of financial deregulation and modernization, the government and Central Bank of Nigeria have developed a number of financial services programs to target these small scale industries and local operators to encourage self-sufficiency and promote main-stream financial transactions. However, these SMEs assistance programs initiated by the government over the years have failed to yield the desired result. (Yumkella and Vinanchiarachi, 2003). The reason behind the failure is due to the myriad of challenges faced by the SMEs which include the following:

• Lack of long term financing
• Inappropriate management skills
• Low market access
• Lopsided legislation
• Dearth of adeq uate infrastructure etc (Lawson, 2007). In response to the failure of Small and Medium Enterprise Equity Investment Scheme (SMEEIS) initiated in 2001, the government of Nigeria decided to introduce microfinance banks to bridge the gap between the commercial banks and small and medium business owners. According to the Central Bank of Nigeria, the Nigerian formal financial system, consisting largely of commercial banks, only carters to about 35percent of the economically active population, therefore leaving 65 percent of the population to be serviced through NGO’s (MFIs), money lenders, friends, relations and credit unions which are unregulated and problematic. The small and medium enterprises contributions to economic growth and development have been recognized globally, Nigeria inclusive. Ofoegbu, Akanbi and Joseph (2013) agree that SMEs are the panacea for the economic development of many developing countries including Nigeria. They believe that interest on SMEs would contribute to creation of jobs, reduction in income disparity, production of goods and services in the economy, as well as providing a fertile ground for skill development and acquisition, serve as a mechanism for backward integration and a vehicle for technological innovation and development especially in modifying and perfecting emerging technological breakthroughs. SMEs contribute to improved living standards, bring about substantial local capital formation and achieve high level of productivity and capability. SMEs are recognized as the principal means of achieving equitable and sustainable industrial diversification and dispersal. Previous studies (Ogujiuba, Fadila and Stiegher, 2013; Musa and Aisha, 2012) agree that SMEs account for well over half of the total share of employment sales and value added SMEs constitute the most viable and veritable vehicle for self -sustaining industrial development, as they possess the capability to grow an indigenous enterprise culture more than any other strategy. SMEs represent the sub sector of special focus in any meaningful economic restructuring program that targets employment generation, poverty alleviation, food security, rapid industrialization and reversing rural urban migration. One of the responses to the challenges of the lack of financing options for SMEs is the introduction and development of microfinance. According to the China Association of Microfinance, microfinance in China refers to financial services provided for the middle and low income population that cannot get loans from traditional banks. Microfinance has the ability to strengthen SMEs and encourage best practices among operators of SMEs. The Nigeria microfinance institution have come a long way, a central bank study has identified as at 2001, 160 registered microfinance institutions in Nigeria with aggregate savings worth N99.4m and outstanding credit of N649.6m indicating huge business transactions in the business (Anyanwu, 2004). Institutional structures for the provision of micro credit vary and may be Government, NGO supported, traditional, or mixture of two or more of these. There are all those that operate on the line of informal models. They are credit and savings association which are based on the traditional experience, they provides savings and credit services to their members. 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 (Anyanwu, 2004). 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 frame work for the operation of microfinance institutions. The workshop recognized that the development of appropriate microfinance policy was critical to the development of sustainable micro finance institutions and by implication through micro enterprises in Nigeria. (CBN, 2001). Hence the Objective of this study was to undertake a survey of microfinance institutions impact on the development of small scale enterprises in Niger delta region of Nigeria.

1.2 STATEMENT OF THE PROBLEM

Most of the SMEs in Nigeria have remained relatively small and seen stunted growth over the years. This is due to the fact that a large percentage of entrepreneurs in the country remain unserved by the formal financial institutions. The microfinance institutions available in the country prior to 2005 were not able to adequately address the gap in terms of credit, savings and other financial services. As reported by the CBN, the share of micro credit as a percentage of total credit was 0.9%, while its contribution to GDP was a mere 0.2% (CBN, 2005). The CBN in 2005 identified the unwillingness of conventional banks to support micro-enterprises, paucity of loanable funds, absence of support institutions in the sector, as well as weak institutional and managerial capacity of existing microfinance institutions among other reasons as the major reasons for the failure of past microfinance initiatives in the country. In order to remedy the situation, the Microfinance Policy, Regulatory and Supervisory Framework (MPRSF) for Nigeria was launched by CBN in 2005 to provide sustainable financial services to micro entrepreneurs. However, although microfinance has proven to be one of the ways of bridging the resource gap created in the Nigerian economy, the country has not enjoyed the full benefits from it due to problems militating against its proper execution. A number of small scale businesses lack access to financial services from micro finance institutions, either for credit or savings, which further fuels the vicious cycle of poverty. Lack of access to micro finance institutions hinders small businesses to engage in new business ventures. Small scale business, industrialists have frequently faced discrimination from lending institutions since they are perceived to be less credit worthy. The challenge of microfinance institutions on the other hand, is how to efficiently improve lending practices and at the same time cover their operating cost so as to survive in the long run (Anyawu, 2004).

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the impact of microfinance scheme on small and medium enterprise development in Niger delta region; but to aid the completion of the study the researcher intend to achieve the following specific objectives;

1. i) To examine the impact of microfinance scheme on small and medium enterprise development in Niger Delta region in Nigeria
2. ii) To ascertain if there is any significant relationship between microfinance scheme and development of small and medium scale enterprise in Niger delta region

iii) To examine the role of Microfinance scheme in capital formation and financing of small and medium enterprise in Niger Delta region

1. iv) To ascertain the effect of microfinance scheme on the growth of small and medium enterprise.

1.4 RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

1. i) Does microfinance scheme have any impact on small and medium enterprise development in Niger Delta region in Nigeria?
2. ii) Is there any significant relationship between microfinance scheme and development of small and medium scale enterprise in Niger delta region?

iii) Does Microfinance scheme play any role in capital formation and financing of small and medium enterprise in Niger Delta region?

1. iv) Does microfinance scheme have any effect on the growth of small and medium enterprise?

1.5 RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H₀: there is no significant relationship between microfinance scheme and development of small and medium scale enterprise in Niger delta region

H₁: there is a significant relationship between microfinance scheme and development of small and medium scale enterprise in Niger delta region

H₀: Microfinance scheme does not play any role in capital formation and financing of small and medium enterprise in Niger Delta region

H₂: Microfinance scheme does play a role in capital formation and financing of small and medium enterprise in Niger Delta region

1.6 SIGNIFICANCE OF THE STUDY

The relevance of the roles played by modern microfinance institutions cannot be overemphasize. When the objectives of this study are achieved it will go a long way to create awareness among small and medium entrepreneurs about the existence of MFIs as well as correct the perceptions of small and medium entrepreneurs that have unfounded reservations about the operations of the modem MFIs. The study may provide solutions to the challenges faced by modern MFIs in services delivery and provide a platform for the improvement of their services which the state economy undoubtedly needs to attain the millennium development goals. The research may help entrepreneurs and managers understand the major role of microfinance institutions in financing small scale businesses as well as how to benefit from the loans given to them by these institutions. It will also serve as a guide or reference to scholars and writers who need to know more about microfinance role in financing small scale businesses.

1.7 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of microfinance scheme on small and medium enterprise development in Niger delta region. The scope of the study was primarily on the small and medium enterprise in the Niger delta state which comprise of Bayelsa, Delta, and Rivers States. In 2000, however, Obasanjo's regime included Abia, Akwa-Ibom, Cross River State, Edo, Imo and Ondo States. But in the course of the study, there were some factors that limited the scope of the study which is beyond the control of the researcher;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Finance: the finances at the disposal of the researcher was very limited, as such adversely affect the scope of the studies.

1.8 OPERATIONAL DEFINITION OF TERMS

SMEs

Small and medium-sized enterprises or small and medium-sized businesses are businesses whose personnel numbers fall below certain limits. The abbreviation “SME” is used by international organizations such as the World Bank, the United Nations and the World Trade Organization.

Microfinance scheme

Microfinance is a category of financial services targeted at individuals and small businesses who lack access to conventional banking and related services.

Economic Development

Economic development is the process in which a nation is being improved in the sector of the economic, political, and social well-being of its people.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

 

 

 

 

 

 

 

 

 

 

 

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