ABSTRACT
The
study evaluated the effects of capital structure of small and medium scale
agro-enterprises on access to microfinance banks credit in Enugu state,
Nigeria. A multistage sampling technique was used to select 120 agro-
enterprise loan recipients from microfinance banks. The data collected were
analysed using descriptive statistics, capital structure ratio analysis,
multiple regression analysis, simple linear regression analysis and likert
scale rating technique. The result showed that 64.2% of enterprise owners were
between the ages of 41 to 50 years, 61.7% were males while 38.3% were females.
Majority (53.3%) of the loan recipients had secondary education, 64.2% had
experience in management 9-12 years, all the agro-enterprises examined were
small scaled and 71.6% were located close to microfinance banks. About 62.5%
incurred debt of between N1500001 to N2500000, 40.8% had equity
position of N4000001 to N5000000, 60.0% had savings level of N
300001 to N600000 with the banks, 93.3% accessed credit at the rate of
21% to 30% and 35% made profit before interest and tax (PBIT) of N2000001
to N2500000. The multiple regression analysis revealed that experience
in enterprise management had positive sign and was significant (p<0.05) on
volume of credit accessed, savings level was also positive and significant
(p<0.01) on volume of credit accessed. Age, interest rate and debt-equity
ratio had negative signs and were significant (p<0.05) on volume of credit
accessed. The agro-enterprises had debt-equity ratio of 0.54, debt-assets ratio
of 0.35, equity- assets ratio of 0.65 and interest coverage ratio of 3.29.
Debt-equity ratio was positive and significant (p<0.05) on demand-access
gap. The major constraints to access were interest rate charged by the banks
(3.07), savings level with the banks (3.12) and quality of business plan (2.54).
The study therefore, recommends that agro-enterprises should adjust their
capital structure in such a way that the equity level should be greater than
debt by a high margin in order to access microfinance bank credit without much
difficulty; agro-enterprises should increase their savings level with
microfinance banks by increasing their cash deposits; and agro-enterprises
should adopt methods that will increase the returns on investment in order to
increase their interest coverage ratio. This can be done through strategic
marketing which will in turn increase sales.
CHAPTER ONE
INTRODUCTION
1.1 Background of Study
The term capital structure is used to represent the proportionate
relationship between debt and equity. Equity includes paid-up share capital,
share premium and reserve and surplus (retained earnings) (Pandey, 2010), while
debt can be classified into bank debt, straight bond debt, convertible bond
debt, program debt (such as commercial paper), mortgage debt, and all other
debts (Rauh & Sufi, 2008). A firm can issue a large amount of debt or a
large amount of equity; hence it is important for a firm to deploy the
appropriate mix of debt and equity that can maximize its overall market value.
Utilization of different levels of equity and debt by managers is one strategy
used by firms to improve their financial performance (Gleason, Mathur &
Mathur, 2000).
Capital structure is important for agricultural firms, lenders, and
policy analysts because all of them need information about financial structure
of agricultural enterprises in order to make justified decisions about farm
viability (Nurmet, 2011). It is the most significant aspect of company’s
operations. Capital structure theories predict that leverage level influences a
firm’s performance (Orua, 2009). Maina and Ishmail (2014) reported that there
was evidence of a negative and significant relationship between capital
structure and all measures of performance. This implies that the more debt the
firms used as a source of finance they experienced low performance. Capital
structure decision is a vital decision with great implications for the firm's
sustainability. The ability of the organization to meet its stakeholders need
is closely related to the capital structure (Leon, 2013).
Agricultural credit is the present and temporary transfer of purchasing
power from a person who owns it to a person who wants it, allowing the later
opportunity to command another person’s capital for agricultural purposes, but
with confidence in his willingness and ability to repay at a specified future
date with or without interest (Nwaru, 2011). According
Access to agricultural credit has been positively linked to agricultural
productivity in several studies in Nigeria (Rahaman & Marcus 2004; Abu,
Odoemenem, & Ocholi, 2010; Ugbajah, 2011), higher credit levels are
associated with higher input use (Satyasai, 2012). Access to credit by small
and medium agro enterprises is vital because the contributions which small and
medium scale enterprises (SMEs) make to the economic growth process have been
well documented (Mambula, 2002). Small and medium scale enterprises (SMEs)
generate more direct job per naira of investment than do larger enterprises.
They serve as a training ground for developing technical and entrepreneurial
skills and; by virtue of their greater use of indigenous technological
capabilities, they promote local inter-sectoral linkages and contribute to the
dynamism and competitiveness of the economy. Prior to the 1970s, the small and
medium scale enterprises (SMEs) belonged to the past but this view has since
changed because the contributions of SMEs to industrial and economic growth of
countries have been recognised internationally (Nnanna, 2001). SMEs access to
credit therefore will play an important role in enhancing economic recovery.
The extent to which firms can access external financing has been shown to have
an influence on the investment activity of the firm and the ability of the firm
to trade internationally (McCann, 2001). Unfortunately, SMEs, the engine of
economic growth and development in many developing economies are still a shadow
of themselves (McCann, 2001)......
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Item Type: Postgraduate Material | Attribute: 77 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
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