The Role of Microfinance in Small Scale Enterprise a Case Study of Ohha Microfinance Bank Enugu State
CHAPTER ONE
OBJECTIVE OF THE STUDY
- It is against this backdrop that the purpose of this work attempts to ascertain the role of microfinance banks in small and meduim scale enterprise in Enugu State, and specifically:
- To Identify and analyze the effect of microfinance banks on socio economic development i.e. employment and income generation of the rural communities in state.
- To examine the influence of microfinance bank credit subsidy, interest etc, on the level of credit demand by small scale businesses.
- To ascertain the extent to which Microfinance Bank has been assisting in providing credit facilities for rural development and problems hindering the assistance.
- To identify the problems encountered by small scale business in obtaining credit facilities from Microfinance Bank.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
ORIGIN OF MICRO FINANCE BANK IN NIGERIA
In the federal government budget address of 1990 President Ibrahim Badamosi Babangida gave government intention to establish micro finance banks in the country within the fiscal year. This was within a year after the government had established Peoples Bank in October 1989, which become apparent that the bank lacked the capacity to meet the desired expectations, because of its credit a ailment that was limited to (=N=200 to =N=500)
- A higher percentage of Nigerians’ population lives in the rural areas and in communities which require development.
- Income earning ability of the rural dwellers was very low which resulted in their being poverty ridden despite 75% of the country’s resources endowment abounding in this area.
- Nearly everybody engaged in economic activities in the rural area have need for credit facility access in order to redress the low level of economic growth and development of the areas.
- Rural inhabitation lacked access to loan able fund for their economic emancipation, liberation and meaningful contribution to national economic development.
- Available credit services provided by orthodox or conventional banks in rural area through their branches were inadequate restrictive sophisticated for rural operators and relied heavily on legalistic insistence on collateral.
To attract the interest group in this banking systems the government designed the bank to be community owned and self reliant with capital requirement of =N=250,000 (now million) as initial capital with government matching loan up to =N=5, 000.000. Concessionary interest charges (50%) CBN minimum rediscount rate with microfinance banks implementation committee (MFBIC) set up in July 1990, later in July 1991 (NBCB) National Board for Micro finance Banks replace (MFB) and the number of microfinance banks increased from 94 in 1991 to 1368 in 1996 then declined to 881 in 2000 as a result of many factors among which is financial distress, according to Ogbunka (2003) CBN Bullion April to June (2002) sources.
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access factors of production, especially credit. The latent capacity of the poor for entrepreneur ship would be significantly enhanced through the provision of microfinance bank services to enable them engage in economic activities and be more self reliance, increase employment opportunities, enhance household income and create wealth.
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
RESEARCH DESIGN
A research design is the framework or the plan for study as a guide in collecting and analyzing the data. Thus, for the purpose of this study, the exploratory and descriptive research design is adopted. Exploratory research design is meant to identify the role of micro finance bank in promoting small and meduim scale enterprise in Enugu state. It is concerned with discovering the general nature of a problem and the variable that relate to it. The descriptive design is to seek or ascertain and present the activities of Microfinance Bank, In terms of loan disbursement or credit facilities as survey the standing of the staff of Microfinance Bank on some silent issues to this end, descriptive as well as survey research designs were employed.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
In this chapter, the researcher carefully presented and analyzed the data gotten from the respondents who contributed the sampling population. 25 questionnaires were distributed and all were completed and returned.
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
FINDINGS
From the research study carried out, the following findings and observation took place Microfinance Bank performances were very impressive during the period under study especially in making fund available for small and meduim scale enterprise in Enugu state. Although it based on operation or services on savings deposit account, loan and advances (credit facilities) to customers and few small scale industrialists and also payment of salaries to workers of different organizations.
The average annual percentage of credit facilities allocated to small and medium scale industries authorized by CBN were not fully complied by the bank. This according to the accountant is because of the liquidity position of the bank that is unavailability of cash. The credit facility portfolio of the bank was dominated by short term loan and advances to customers and few small scale industrialists who provided the required collateral for loan, with the short term credit facilities. Small scale industrialists should not be favored because it will only serve for working capital and not for plants and machineries which required long term loans.
Misappropriation and late payment of loan granted to customers made the bank to insist on securing of collateral. This is contrary to government directive on micro finance banks credit guideline.
RECOMMENDATION
Having highlighted the problem and shortcomings of micro finance banks in granting credit facilities to small and medium scale industries, the following recommendations are aimed at eliminating or limiting the constraints that affect the smooth operation and granting of credit facilities to small and medium scale industries.
- In order to reduce the risk of doubtful credit or facilities, the government should increase the percentage grants to micro finance banks for small and medium scale enterprises.
- Government should also put more emphasis on credit guarantee scheme by introducing more of such scheme for the benefit of small and medium scale enterprises.
- Rediscounting by the CBN can be made possible to encourage micro finance banking gain experiences in medium and long term banking operation, through this, a number of discontinuing procedures can be adopted such as preferential discount rate, multiplier discount or quota discount rates, the favor certain purposes of credit facilities.
- Government should design a programme to facilitate the issuance of loan facilities to indigenes with established skills in diverse businesses.
- Government should set-up a monitoring and evaluation team to facilitate a cordial link between small scale business enterprises and microfinance banks in rural communities.
- Women and youths, especially those within the ages of 20 to 30 years should be encouraged to be fully involved in setting up of business out-lets.
- An adult educational scheme embracing business techniques should be developed and introduced in rural communities in the state in order to create awareness on the essence of business transactions especially at a larger scale.
- Radio and television programmes which centers on enterprise development should be designed to create rooms for business opportunities and awareness on the way withal in business transactions.
- We further recommend as follows; that government should re-introduce
Finally, the quality and quantity of micro, and small scale enterprises products should be high at all times. This will attract more customers. Besides, operators should exploit ways of producing at low costs and selling at relatively low price. This will make demand to be high always.
CONCLUSION
The role of microfinance bank in financing small scale business has not been encouraging due to social psychological and economic problems. Indeed, industrialist should in future lay their emphasis on the development of well managed small size in order to avoid risk of bank lending securities.
However, this research reveals that in spite of all the images micro finance banks have always portrayed in Nigeria, the situation on ground appears to be different. The role played by micro finance banks in Enugu State in terms of granting credit subsidies, interest rate disparities, and the number of micro finance bank branches operating and evens its technological growth, has no significant effect on credit demand by small scale business enterprises, and hence, has no significant effect on the socio-economic development of the rural communities. Our universities, polytechnics, colleges of technology and research institutions should devote more time and resources to solve the problems of small scale industries, so that the ultimate objectives of industrialist on economic development of the nation could be achieved.
Micro finance banks should adopt a more developed approach to the financing of small and medium scale industries. This can be achieved through their advice and guidance to small scale industries/customers.
They should also encourage them to use the facility at the stock exchange particularly under the second tier security market as a base for acquiring needed capital and spreading ownership consequently, reducing the risk of concentrated control. They should also emphasize on collateral as the over-rising conditions for granting credit facilities to small scale businesses.
When these are achieved, the beneficiary of small and medium scale enterprises will avail it as a source of raw material, provision of food, creation of employment, reduction of unemployment and self reliance to accomplish the objectives.
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