The Roles of Microfinance Banks on the Performance of Small Scale Businesses a Case Study of Ab Microfinance Bank
CHAPTER ONE
OBJECTIVES OF THE STUDY
The objective of the study highlights & explains what the study (Micro Finance) is set to achieve and these are as follows:
- To examine how micro finance contribute to poverty alleviation in Nigeria.
- To examine the contribution of micro finance to economic growth in Nigeria.
- To analyze how micro finance can effectively provide and disseminate information to prospective clients.
- To examine how micro finance provides employment to Nigerian citizen.
- To reduce the gap between the rich and the poor on the long-run.
- To promote and increase confidence of the rural areas so as to make them understand that sustainable livelihood dwells not only in the urban area but also in rural areas.
CHAPTER TWO
LITERATURE REVIEW
conceptual framework
Micro and Small Enterprises in Nigeria
The SME nomenclature is used to mean SMEs. It is sometimes referred to as Small and Microenterprises (SMEs).
Micro Enterprises
A micro enterprise in the industrial sector (manufacturing, construction and mining) is one which operates with up to five peoples including the owner and/or has total assets not exceeding N 100,000 (approx. US$5,000). Similarly, for activities in the service sector(retailer, transport, hotel, tourism, ICT and maintenance), a micro enterprise is one which operates with up to five people including the owner and/or has total assets not exceeding N 50,000 (approx. US$2,500).
Small Enterprises
A small enterprise in the industrial sector is one which operates with between 6 to 30 persons and/or has paid up capital or total assets not exceeding N 1.5 million. Similarly, a small service sector enterprise is one that has between 6 and 30 persons and/or has total assets or paid up capital of Nigerian N(ETB) 500,000.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The method used in this study is mainly of doctrinal or library research in nature. The theory-based teaching methodology will allow the researcher to consult, address, examine, study and fill in the gaps in the authors’ work contained in textbooks, magazines and the Internet. The data collected through library research, which the researcher reads, writes and collects relevant information about this project. When seeking information from related documents, such as books, scientific journals and others that consider the main problem of this subject of study, the researcher tries to draw conclusions from examining various views.
Population, Sampling Frame and Sample Size
Population
There is a set of 53,044 SMEs populations or entities to which the sampling findings are generalized from Lagos business reports. This population is given priority due to the needy of getting empirical evidence in Lagos. However, for comparison purposes, control group will include households which do not access micro financing services.
Sampling Frame
In order to perform non probability sampling, a sampling frame was constructed basing in the study area. The list of SMEs in the study areas are generated Microfinance institutions selected from ten locations in Lagos. The lists of control group are selected randomly. The households included in the control group are those living in close proximity to the households which access and use Micro-financing services.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Respondents Demographics
As stated earlier in the section on methodology, a total of 680 informants constituting SMEs and households of different sub-cities of Lagos city administration participated in the study. Out of a total distributed questionnaires to SMEs 86.4 percent are returned and 13.6 questionnaires were unreturned. From house-hold side, out 150 questionnaires distributed, a total of 131 or 87.3 percent were returned and while the remaining percentage is unreturned. See the participants’ distribution of the informants in the next table.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
Conclusion
Micro finance plays a central role in the development and performance of Micro and Small Business Enterprises in the real world especially for developing country like Nigeria, Lagos. Data have been analyzed by applying both descriptive and inferential. From the data collected and analyzed Micro and Small Enterprises had a positive change after got access of loan from MFIs on their productivity, introducing new technology, expanding their market share, upgrading their capital goods, introducing new products/services, by diversifying their business, by adopting new business strategies, by increasing employment opportunity, increasing their competiveness and increasing their profit. Micro and small Enterprises in Lagos faced various challenges. These are lack of business skill, lack of training, lack of skilled labour, lack of finance, government policy problem, lack of market access, high competition in the economy, weak management skill, shortage of row material supply, land, e.t.c. Among these finance is the central problem for Micro and small Enterprise development performance in Lagos. The majority of SMEs are not benefited from existed MFIs because of high collateral requirement, long process, high interest rate, small loan size, bureaucracy, high rate matching fund, problem of liquidity of matching fund, existence of corruption, small suppliers/numbers of MFIs, ect.; constraint manly on their credit service. From all the above challenges collateral requirement accounts for higher degree of severity for SMEs to get access of credit from MFIs. Monitoring and evaluation of SMEs by MFIs is significant for Micro and small Enterprises development and performance but MFIs monitoring and evaluation for their credit on SMEs is so poor; this is assured by 76.80 percent respondents.
As the regression analysis indicated that positive relation was build between enterprise development and performance and loan size of Micro Finance Institution and also there was a negative relationship was build between enterprise development and performance and collateral, interest rate and matching fund respectively in the model. In addition, when the independent variables loan size of Micro Finance Institution, collateral, interest rate and matching fund has zero values the dependant variable EDAP value would be 9.655. To sum up, the findings due to the effect of the independent variables a majority of the Micro and small Enterprises in Lagos will not beneficiary from Micro Finance Institution service especially from microfinance loan or credit.
Policy Recommendation
In light of findings and conclusions, the research found that, it is important to make recommendation to guide the enterprises, Micro Finance Institutions, trade and industry associations, microenterprises, concerned government and non-government bodies and researchers. From the study the following recommendations are provided to sustainably improve the development and performance of Micro and small Enterprises.
The government will intervene more in increasing finance supplier or financial institutions according to the population of the small enterprises in the nation economy.
The Micro and small Enterprises will organize their own associations who reflect their voice together to solve financial and non-financial problems for their sustainable development and performance.
The trade and industry associations will work together with government by taking memorandum of understanding and by creating by laws in the sense of public private partnership/PPP/ on Micro and Small Enterprises issues especially on financial institutions.
The Micro Finance Institution will create conducive environment for their credit and other MFIs services. The MFIs also provide non-financial services for Micro and small Enterprises like business development services; strengthen micro and small business association and capacity building trainings.
The government in collaboration with the private sector needs to accelerate the pace of financial reforms to improve the range and availability of loans and other financial services for Micro and small Enterprises and also encourage financial literacy a key component of financial inclusion. Reforms could include a framework that allows SMEs to collateralize their assets and policies that promote saving mobilization, encouraging liquidity of matching fund, balance interest rate and matching fund.
A special credit will aimed to special sectors which have higher employment opportunity like manufacturing sector and construction sector in Lagos.
The Micro Finance Institutions will facilitate new services that are not exercised to day like check payment service, mobile banking services, guaranty service as insurance when Micro and small Enterprise will have access to business contract agreements with others.
The government will improve information dissemination on relevant institution and project that provide assistance to Small and Micro Enterprises
Research institution, universities and all concerned bodies will conduct a number of researches on specific problem of SMEs.
The government and MFIs should develop the quality and accessibility of the service of supporting institutions by assigning employees that have accurate knowledge in the specific area to identify the SME gaps and to provide continuous follow up of the development and performance of Micro and small Finance Institution and their execution program.
The Financial Institutions like banks will provide credit service for Micro and small Enterprises based on their business proposal and stage of SMEs development.
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