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IMPACT OF MICRO-FINANCE
BANKS ON SMEs IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In Nigeria, credit has been recognized as an essential tool
for promoting small and Micro Enterprises (SMEs). About 70 percent of the
population is engaged in the informal sector or in agricultural production. The
Federal and State governments have recognized that for sustainable growth and
development, the financial empowerment of the people is vital. If this growth
strategy is adopted and the latent entrepreneurial capabilities of this large
segment of the people is sufficiently stimulated and sustained, then positive
multipliers will be felt throughout the economy. To give effect to these
aspirations various policies have been instituted over time by the Federal
Government to improve rural and urban enterprise production capabilities
(Olaitan 2006)
Small Business Enterprise (SBE) transformation is all about
seeking to bring about improvement in the living condition of the farmer, the
artisan, the tenant and the landless within the simple and rustic economies of
the country-sides and urban slums. The basis for employment generation and
entrepreneurship development in the country, therefore, is to enhance the
improvement of the living condition of the people (Mustapha, 2009).
The Micro business entrepreneurs lack the necessary financial
services, especially credit from the commercial banks; this is because they are
considered not credit worthy. Consequently they depended on families, friends
and other informal sources of funds to finance their businesses.
Successive governments have come up with special programs,
whose principal targets are the overall empowerment of low income earners in
urban centers. These programmes range from Agricultural Development Projects
(ADPs), the establishment of Agricultural Credit Banks to Better Life Programme
for Rural Women and the like. Unfortunately most of the programmes failed to
achieve the desired result. That led to the emergence of microfinance banks
which aimed at extending credits to micro enterprises and encouraging
entrepreneurship.
The Nigerian microfinance industry has come a long way; it
boasts of all the four well-known models in the industry. A CBN study
identified, as of 2001, 160 registered MFIs in Nigeria with aggregate savings
worth N99.4 million and outstanding credit of N649.6 million, indicating huge
business transactions in the sector (Anyanwu, 2004). Institutional structures for the provision of
micro credit vary and may be any of the following: government or public
sector-oriented, NGO supported, traditional or a mixture of two or more of
these.
Lagos state, with a population of about 15 million (2006
census report) of which about two -thirds of the residents are poor and
struggling for survival in the face of high rate of unemployment, the need for
micro finance support cannot be over emphasis. Most of these people in Lagos
are dependent on micro and small-scale farming and off-farm enterprises for
their livelihood. As such, their entrepreneurial contributions are strategic to
the Nigerian economic development and growth has great potential to contribute
to income generation and poverty alleviation.
In the light of the foregoing, this study is conducted to
examine the impact of microfinance banks on Micro Business Enterprises (SBE) in
Nigeria.
1.2 Statement of Problem
One of the challenges of micro financing in Nigeria at
present is how to the Micro Finance Institutions (MFI) can reach a greater
number of small scale business enterpreneurs. The CBN survey indicated that
their client base was about 600,000 in 2001, and there were indications that
they may not be above 1.5 million in 2003. The existing microfinance banks in
Nigeria serves less than 1 million people out of 40 million potential people
that need the service (CBN, 2005).
Also, the aggregate micro credit facilities in Nigeria,
account for about 0.2 percent of GDP and less than one percent of total credit
to the economy. The effect of not appropriately addressing this situation would
further accentuate poverty and slow down growth and development of SMEs in the
country.
The Microfinance Banks replaced the ailing Community Banks
created by former military head of state General Ibrahim Babangida but was soon
caught in the throes of an inefficient Nigerian economic system. This laudable
concept has been hijacked by money bags; it has been caught by bureaucracy of
the Nigerian politics and economics. The concept of micro financing is
presently being misapplied. The CBN directs that every microfinance bank should
have a minimum reserve of not less than N20 million, while at the same time
directing that the NDIC insures each depositor for a maximum N100,000.00
regardless of the amount of money invested.
These requirements takes the microfinance industry out of the
reach of the people it was intended to serve; the very poor. While at the same
time it discourages prospective investors because their funds are not
sufficiently secured. It is interesting to know that the CBN does not regulate
interest rates charged by microfinance banks; so with N20m tied up in the CBN
vaults as legal reserve ratio, high cost of incorporation of business ventures;
taxes, approvals, rents, salaries etc the operators hardly have enough left to
commence operations.
Having failed to capture its target market, Microfinance
banks in the country are now trying to compete with full fledged banks but are
grossly lacking in the most important aspect of its operations; that is raising
funds from depositors and getting prospective clients to shed their phobia for
bank loans for fear of exorbitant interest rates charged and hidden bank
charges.
According to Akindutire,(2008) Operators of microfinance
banks believe it is a short cut to owning a bank without going through the
rigours of procuring a banking license or paying the over N250m CBN deposit
required to start a banking business. It is commonplace to find a microfinance
bank taking out expensive paid adverts and expensive corporate imaging in the
hope that it will open them up to the market.
On the contrary it extrapolated their problems. For instance
what would a microfinance bank be doing at AdeolaOdeku or Ikoyi? When the
target market is at Okokomaiko, Mile 2, or all other places where you can find
an akara, plantain (boli) seller, recharge card seller, okada rider e.t.c
instead microfinance banks are competing for corporate accounts they want to
have salary accounts for government parastatal, or finance petroleum marketing
industries, consequently you will find them in suits, chauffeur driven in state
of the art cars.
Against the backdrop of the foregoing problems, this study
will examine the micro finance institutions and their impact on small scale
businesses in Nigeria.
1.3 Objectives of Study
The primary objective of this study shall be to examine the
impact of micro finance bank on the Growth and development of Micro Business
Enterprises in Nigeria and Lagos in particular.
Other salient objectives will include;
i. To
determine the relationship between Micro finance banks and Small Business
Entrepreneurs in Nigeria.
ii. To examine
the challenges of micro financing in Nigeria
iii. To identify
the impact of lack of financial support on small scale businesses
iv. To suggest
means by which micro finance institutions
can be more responsive to Small business needs in Nigeria
1.4 Research Questions
The following research questions shall guide the study;
i. what is the relationship between micro finance Banks and
small business enterprises in Nigeria?
ii. What are the challenges of Micro Finance in Nigeria?
iii. What are the effects of lack of financial support on
Small business?
iv. How can micro Finance institutions be responsive to small
business enterprises demands?
1.5 Research hypotheses
The following hypotheses will be tested in the study;
Ho:There is no relationship between Micro finance Banks
and Small Business Enterprises in Nigeria
Hi:There is a relationship between Micro finance Banks and
Small Business Enterprises in Nigeria
Ho: Micro finance banks do not encourage small business
owners in Lagos
Hi; Micro finance banks do not encourage small business
owners in Lagos
1.6 Significance of the Study
Robust economic growth cannot be achieved without putting in
place well focused programmes to reduce poverty through empowering the people
by increasing their access to factors of production, especially credit. The
latent capacity of the poor entrepreneurs would be significantly enhanced
through the provision of microfinance services to enable them engage in
economic activities and be more self-reliant; increase employment
opportunities, enhance household income, and create wealth.
However, the lack of required financial support from the
microfinance banks to Micro Business operators in Lagos state has become a
major concern in Nigeria. Hence, this study shall be relevant to policy makers
in the areas of finding out the impact of micro financing on the small scale
investors. Also, this study shall enhance further research in the subject area.
1.7 Scope and Limitations of the Study
The scope of the study shall cover micro finance banks and
micro business entrepreneurs in Lagos state metropolis. However, owing to
shortage of literature and financial data, raw data shall be generated from
selected small business operators in Ojo local government area of Lagos state.
1.8 Research Methodology
The study shall employ the survey research method in the
process of data collection. The method entails identifying population of study
and collection of data through questionnaire administration.
Population of Study
The population of study shall comprise of Small Business
Entrepreneurs in Ojo local government area of Lagos state. The population size
is at about 420 Micro and Small Businesses Entrepreneurs which largely includes
owners of supermarkets, electronic shops, pharmacies, Business centers/ cyber
cafes, restaurants, barbing and hair dressing salons, pure water companies and
paint companies in the metropolis.
Sample Size
A sample size of 110 respondents was drawn from the study
population. The constitution of the sample was as follows;
Sampling Technique
The study shall adopt the stratified random sampling
technique. The method entails grouping respondents into strata on the bases of
common characteristics which in this case is the industrial affiliation. After
the grouping, the simple random sampling technique is then applied to select
the required sample size
Data Collection Instrument
Data collection will be done through the questionnaire
method. The questionnaire was structured into section A and B with close ended
questions. Section A shall generate information on respondents’ bio-data while,
section B, will elicits information on respondents perception of the impact of
Microfinance Banks on small business enterprises in Lagos State.
The questionnaire is in a close ended format which allowed
the respondents to offer their views according to the Lickert scale of
responses as follows;
SA – Strongly Agreed
A - Agreed
U - Undecided
D -disagreed
SD – Strongly Disagreed
Administration of the Instrument
To foster quick response to the questionnaire, the researcher
will personally administered the questionnaires to the respondents. The effort
enable the researcher to clear some of the items contain in the instrument with
the respondents while, at the same time, respondent attention were drawn to
some items yet to be filled.
Method of Data Analysis
All data collected shall be analysed using statistical tools
such as frequency distribution table, percentages, and chi-square analysis for
testing the formulated hypotheses.
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