The Impact of Microfinance Banks on the Performance of Small-Scale Businesses
Chapter One
OBJECTIVES OF THE STUDY
The general objective of this study is to examine the impact of micro-finance banks on the performance of small-scale businesses in Delta State.
The study will be on the performance of small-scale industry businesses in Delta State the specific objectives not necessarily in order of priority are:-
- To see how microfinance banks will be the best to encourage banking habits among rural dwellers.
- The study also aims to improve the economic status of small-scale producers in rural areas by giving them more capital.
- Also the purpose of this study is to find out how best microfinance bank credit can be used to promote community, performance, and the attitude of community or rural dwellers toward the exercise.
- To investigate the impact of microfinance banks on community performance.
CHAPTER TWO
REVIEW OF LITERATURE
As has been said elsewhere, Micro finance and the impact it produce, go beyond just business loans. The poor use financial services not only for business investment in the micro enterprise but also to invest in the health and education, to manage household emergencies, and to ment the wide variety of other cash need that they encounter. The range of services includes loans, savings, facilities, insurance, transfer payment and been micro pension.
Kabeer (1999) find out that in Micro finance programmes changes occurred at a personal level in the form of increased self word, political empowerment of Micro finance client, in terms of participation in political mobilization or for political offices is not well documented.
The issue of Micro finance bank in Nigeria, Profession Chukuma Soludo in his conference with leadership on news paper June, 30 2008 he sees it as sub – sector critical to achieving the Millennium Development Goals, the successful implementation of the National Economics Empowerment and Development Strategy (NEEDS) and the attainment of 7 point agenda of President Umaru Musa Yar’adua administration (2007).
The policy target include: covering the majority of poor but economically active population by 2020 increasing the share of micro credit as a percentage of total credit to the economy from 0.9 percent in 2005 to at least 20 percent in 2020 increasing the share of micro – credit as 9 percentage of GDP from 0.2 percentage in 2020 and promoting the participation of at least two – thirds of state and local government in micro – credit financing by 2005. It is also targeted at improving women access to financial service by 5 percent annually and increasing the number of linkages among Universal Bank, Development Bank, specialized finance institution and Micro finance bank by 10 percent.
DEFINITION OF MICRO FINANCE
According to Sebstad and Gregory (1996) Micro finance has been described small scale financial to client that are economically activities in various urban and rural areas has been proven to be effective in fighting poverty by providing entrepreneurs with the necessary capital to start and expand their entrepreneurial activities. Over time, Micro finance has come to include a broader range of service like credit, savings, insurance, and others, as it has been realized that the poor and very poor who lack access to traditional formal financial institution require a variety of access of finance.
Micro finance is seen differently by different individual in Nigeria.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION:
Academic research is often undertaken to maintain, further and promote knowledge. In doing so, research seeks to delve into the unknown, seeking answers to questions and solutions to problems. In-so-far as this involves circumstances, ideas and at times guesses, gut feelings and definitions all of which must be submitted to scrutiny and subsequently, agreement. A research consequently opens the door for a debate, especially about claims on contribution to knowledge as well as about methods and meanings.
POPULATION SIZE
The population comprises of the entire group that contains all the sources of the information that are being examine. In other words, population deals with the volume of sample dement being considered in a particular situation.
Although a lot of Microfinance Banks in Nigeria today are involved in financing small and scale industries, in this research only First bank Plc has been considered to serve as a representative of the entire population.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Table 4.15 Types of business ownership
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
CONCLUSION
From the analysis of the results in chapter four, one can deduce that the accessibility to credit market for small and medium scale businesses in Nigeria is extremely difficult due to the fact that the macroeconomic instability and uncertainty in the business environment has forced banks to lend short to SMEs. Also such facilities i.e. overdrafts and short term loans are made available at a very high interest rate of over 26 percent and they are heavily collaterised. In a situation in which SMEs are mainly dependent on bank loans, this situation could be very disastrous. The implication is that many SMEs do not have access to bank loans with grave implications for their growth and development. Also the inconsistency in government industrial policies for example the inability of the government to execute budgets on time is a major restriction on the ability of manufacturing firms to factor tariff measures into their trade decisions. The lack of infrastructural facilities is also part of external problems that affect the growth of small and medium scale industries. Here, many banks blame their inability to fund SMEs on the poor economic climate prevalent in the country, citing for instance the low performance of public utilities as one of the factors threatening fund managers.
Apart from the external problems that harm the growth of SMEs, there are also serious internal problems that greatly constrain their growth and serve as a deterrent for banks to lend. These problems include among others poor management practices, high rate of business failure, poor accounting standards, shortage of skilled manpower and financial indiscipline.
On the basis of these problems, some recommendations are made below which , if implemented will improve the dwindling state of our economy in general and the small and medium scale industries in particular.
RECOMMENDATIONS
There is no way Nigeria can achieve sustainable funding of small and medium scale enterprises by microfinance banks and other agencies such as NERFUND, NIDB etc established for the funding purposes until both the external and internal problems of SMEs are solved. Banks react to the stimulus of the macroeconomic environment and as long as the environment remains unconducive, banks will continue to exhibit risk-averse behavior irrespective of the programs put in place to address this problem including the SMIEIS program that was already highlighted.
The following recommendations in my opinion will help improve the growth and development of the SMEs:
- The government should cut down the interest rate since interest rates are not favorable to investors in the sense that the cost of funds could undermine profits and cause a loss of the investment.
- Interest rates in Nigeria officially are as high as 23.6% and this has a negative impact on the ability of small and medium scale industries to obtain credit from the banks.
- The government should be consistent in its industrial policies so as to enable manufacturing firms to factor tariff measures into their trade decisions.
- The government should provide adequate infrastructural facilities like electricity, roads and water supply for the SMEs as this will reduce the high cost of doing business. This will encourage banks to fund the SMEs as their investment will be recouped.
- The government should regard SMEs should regard SMEs as the ‘eggs’ that hatch big businesses. Apart from the adequate incentives in (3) above, the government should support SMEs by bulk purchasing their products and retailing them both for the domestic market and for exports.
- To facilitate their access to bank credits, the government should be issuing LPOs to the SMEs and payment should be made promptly to the SMEs as this will encourage their growth and the banks can also accept such contract papers as collateral.
- On the issue of the internal problems of the SMEs like poor management practices, high rate of business failure, poor account standards, shortage of skilled manpower and financial indiscipline, the government should set up small business management assistance agencies manned by highly skilled and dedicated workers with the view of tackling these problems. The agencies should compliment the provision of credit by insuring its efficient use through training and counseling of the small and medium scale entrepreneurs.
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