The Impact of Microcredit Finance in the Performance of Small and Medium Business Enterprises
CHAPTER ONE
Objective of the Study
The main objective of this study is to find out the impact of microcredit finance in the performance of SME in Nigeria, specifically the study intends to:
- Analyze the impact of microcredit finance in the performance of SME
- Examine ways in which micro credit finance SME in Nigeria
- Find out the challenges of financing SME in Nigeria
CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter discusses works of various scholars and authors who contributed their information concerning this study. And it consists of theoretical literature, empirical literature, conceptual framework and research gap.
Conceptual Definition
Microfinance
Otero (1999) defines “microfinance as the provision of financial services to the poor who are above the official poverty line and to the core poor households”. According to ledgerwood (1998) microfinance services are given based on payment behavior of the borrower which shows the capability of the borrower to recover the debt.
According to Schreiner and Colombet (2001) state that “microfinance program is appropriate when there are improvements in credit accessibility especially to those who are in need of assistance rejected by banks” apart from loan provision microfinance also provide non-financial services such as training.
Microcredit and Microfinance
Microcredit and microfinance are different terms and they differ in content, although the two terms are used interchangeably because they are related. Therefore according to the study conducted by Sinha (1998) states that “microcredit refers to micro loan, whereas microfinance is appropriate when involves NGO’s and other financial institutions in the loan supplement along with non-financial facilities.”
And some argued that, microcredit is a component of microfinance which only involved in providing credit to the poor, whereas microfinance is far from that since it also provides non-financial service to un-served markets. Basically the primary social objective of microfinance is to reach under-served market both in urban and rural areas.
Small and Medium Enterprises
The SMEs stands for Small and Medium Enterprises sometimes referred to micro, small and medium enterprises (MSMEs). Any activity involved in production and distribution of outputs to meet the expectation of client can be referred to as small and medium enterprises as respectively explained by Kessy and Urio (2006).
Tanzanian government defines SMEs based on the number of employments, whereby it was considered to the facts that, micro enterprises range to 0 up to 5 employees, 5 up to 49 employees for small businesses, medium business comprises with 50 up to 99 employees and more than 100 employees for big enterprises. And investment expenditure demand differ from each level of enterprises.
According to the United Republic of Tanzania (2003) the definition sometime do not include informal sectors especially those who are engaged in low income generation activities in Tanzania.
Theoretical Reviews
The transaction cost theory explained in the article titled “The Problem of Social Cost” by Ronald Coase (1937) and expectancy theory proposed by Victor Vroom in 1964 explained by Salaman et al, (2005)., was used as the theoretical framework in this study.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In this chapter, we would describe how the study was carried out.
Research design
Research design is a detailed outline of how an investigation took place. It entails how data is collected, the data collection tools used and the mode of analyzing data collected (Cooper & Schindler (2006). This study used a descriptive research design. Gill and Johnson (2002) state that a descriptive design looks at particular characteristics of a specific population of subjects, at a particular point in time or at different times for comparative purposes. The choice of a survey design for this study was deemed appropriate as Mugenda and Mugenda (2003) attest that it enables the researcher to determine the nature of prevailing conditions without manipulating the subjects.
Further, the survey method was useful in describing the characteristics of a large population and no other method of observation can provide this general capability. On the other hand, since the time duration to complete the research project was limited, the survey method was a cost effective way to gather information from a large group of people within a short time. The survey design made feasible very large samples and thus making the results statistically significant even when analyzing multiple variables. It allowed for many questions to be asked about a given topic giving considerable flexibility to the analysis. Usually, high reliability is easy to obtain by presenting all subjects with a standardized stimulus; observer subjectivity is greatly eliminated. Cooper and Schindler (2006) assert that the results of a survey can be easily generalized to the entire population.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of seventy (70) questionnaires were administered to respondents of which 65 were returned. The analysis of this study is based on the number returned.
CHAPTER FIVE
DISCUSSION OF FINDINGS, CONCLUSION AND RECOMMENDATION
Introduction
This chapter discusses the findings by comparing what is established in this study with what other scholars have been established before in the literature review. It helps to draw conclusions as well as recommendations and other areas for future research. So this discussion is according to the study objectives.
Discussion of Findings
Assessment of the Impacts of MFI Loans in the Business Expansion of Small and Medium Enterprises
The results indicated that the majority of the respondents agreed on the increase of their fund, ability to cope with new technology and to compete, access to market as well as increased number of experienced employees as the result of loan. And this leads to the increased of branches, increased number of customer, creation of employment opportunities and profits has increased, improvement in standard of living as well as SMEs were able to enjoy economies of scale.
Recommendation
In view of the findings made and conclusions drawn from the study the following recommendations are provided to help in the enhancement of an accelerated and sustained performance in the SME sector and also provide recommendations to help in the improvement of the services of MFIs.
- Therefore, it is recommended that MFIs and SMEs should be done sustainably. The Government should ensure that the institutions adhered to the laws and regulation of the country in a reasonable manner. MFIs and SMEs should be used in consideration to benefit the present and future generation. And this should be integrated into economic and other development plan which should be taken into account by applying financial objectives.
- on their regular basis. MFIs can research into very profitable business lines and offer credit to clients who having the capacity to exploit such business in order to reduce the rates in case of any default arises.
- Researcher also recommended that it is important to consider the reliability and ethical practices in order to avoid the occurrence of other indirect costs that may never be in knowledge of abilities to SMEs owners. This means that SMEs were driven by the credit terms as the basis for choosing the MFIs.
REFERENCES
- Adams, D. and Picshke, J. D. (1992). “Microenterprise Credit Programs: Déjàvu” World Development, Vol. 20, issue 10, pp 1463-1470.
- Amin, et al (2001). “Does microcredit reach the poor and vulnerable? “Evidence from northern Bangladesh, Journal of Development Economics, Vol. 70, issue 1, pp 59-82. Retrieved from http://econpapers.repec.org/article/eeedeveco/ on 16th September, 2015.
- Ayyagari, M., Beck, T., and Demirgüç-Kunt, A. (2005). “Small and Medium Enterprises across the Globe” World Bank Working Mimeo. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi…pdf on 11th March, 2016.
- Bhatt, N. and Tang, S. Y. (1998). The Problem of Transaction cost on group-based micro lending: an institutional perspective. World Development, Vol. 32, issue 4, pp 623-37. Retrieved on 23rd September, 2015 from http://www. microfinance.com/…/Microenterprise_in_First_and_Third_Worlds.
- Chijoriga, M. M. (2000). “The Performance and Sustainability of Micro Finance Institution in Tanzania.” Working Paper. Retrieved on 21st December, 2015 from http://www.devnet.org.nz/conf/ Papers/cornford.pdf .
- Chijoriga, M. M. and Cassimon, D. (1999). “Micro Enterprise Financing: Is there a Best model?” in Rutashobya and Olomi(eds). African Entrepreneurship and Small Business Management, Dar es Salaam: DUP.
