ABSTRACT
Micro Finance is a living
idea and Nigeria and the rest of the world cannot do without Micro finance and
SMEs in their bid to improving the living conditions of citizens and the
alleviation of poverty around the world. The objectives of this research are,
to; examine the impact of MFBs loans and advances on the net profit of SMEs,
examine the impact of loans and advances on shareholders’ funds of SMEs and
examine the impact of loans and advances on investment levels of SMEs in Ilorin
Metropolis. The ex post facto research design was adopted to enable the
researcher make use of secondary data and determine cause-effect relationship.
The data were analyzed using simple linear regression model. The results as
revealed by the hypotheses tested indicated that; there was a negative
non-significant impact of loans and advances on profitability; there was a
positive significant impact of loans and advances on shareholders’ fund and
lastly, there was a positive significant impact of loans and advances on the
investment level of SMEs. It was also revealed from the study that since the
introduction of Micro finance banking in Nigeria in December 2005, SMEs
financing options have increased productivity and growth. Also, government
policies on Micro finance have been effective, thus, Micro Finance banks have
an impact on Small and Medium Scale Enterprises in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
Micro
and small businesses are believed to be the engine room for the development of
any economy because they form the bulk of business activities in a growing
economy like that of Nigeria (Ashamu, 2014). Since Nigeria attained
independence in 1960, considerable efforts have been directed towards
industrial development. The initial efforts were government led through the
vehicle of large industry but lately emphasis has been shifted to small and
medium scale enterprises following the lessons learnt from the success of micro
and small enterprises (MSEs) in the economic growth of Asian countries (Ojo,
2003). Thus, the recent industrial development drive in Nigeria according to
Abiola (2012) has now focused on sustainable development through small business
development.
The
contribution of micro and small enterprises (MSE) to the economic growth and
sustainable development is globally acknowledged (CBN, 2004). They form an
important part of the business landscape in any country, but they are however
faced with significant challenges that inhibit their ability to function and
contribute optimally to the economic development of many African countries. The
position in Nigeria is not different from this generalised position (NIPC, 2009
as indicated by Abiola & Salami, 2011). In line with this, Owualah,
Carpenter, Lawson and Anyanwu (as cited by Abiola 2012) identified lack of
access to finance as one of the major constraints to successful small business
performance. The reason is that provision of financial services is an important
means for mobilizing resources for more productive use (Watson & Everett,
1999). The extent to which small businesses can access funds determines the
extent to which they can save and accumulate their own capital for further
investment, but small businesses in Nigeria find it difficult to gain access to
formal financial institution such as commercial banks for fund (Holmes &
Kent, 1991).
Abdul
(2008) cited that a study carried out by Rweyemamu, Kimaro and Urassa (2003)
also revealed that, formal financial institutions have failed to serve the
small business in both urban and rural communities. It was also emphasized by
Ogawa and Suzuki (2000) that bank do not want to offer loans to MSEs because
the nature of loans required by the informal sector is too small and those
banks find it more expensive to offer such loans. In line with this,
Chijoriga and Cassimon (2000) are of the opinion that most of the
conventional institutions regard low- income households as too poor to save, do
not keep written accounts or business plans and they usually borrow small and
uneconomic sums as such they find it difficult to extend their credit
facilities to them.
The
dismal performance of the conventional finance sectors coupled with the need to
fill the credit gap created by these same conventional financial institutions
through haemal social networks triggered the avocation of microfinance by
policy makers, practitioners and international organisation as a tool for poverty
reduction and provision of credit facilities to low income earners (Nwanchukwu
& Mejeha 2008). According to Ronaldo (2010), microfinance is a good way of
supporting entrepreneurs and small businesses because it provides poor
borrowers with access to sustainable funds through granting of zero or very low
interest loans. The establishment of microfinance banks as an effort by the
government to improve access to loans and savings services for small businesses
through microfinance banks (MFBs) and other microfinance institutions (MFIs) is
currently being promoted as a key development strategy to enhancing poverty
eradication and economic development (Alalade, Amusa & Bolanle, 2013). In
line with this, Abimiku (2000) also asserted that finance is the pre-occupation
of the banking industry that brings together the factors of production such as
land labour, and entrepreneur. According to Babagana (2010), there is no doubt
that small businesses need the assistance through microfinance banks to become
sustainable and competitive, thus the promotion of small businesses has been
carried out by subsidizing credit, providing preference treatment and target
location for business.
1.2
Statement of the Problem
The
establishment of microfinance banks arose as an effort of the government to
cater for the financial needs of the informal sector who find it difficult to
access funds from the conventional banks (commercial banks) due to insufficient
collateral, small amount of loan transaction and low earning capacity (Olowe,
Moradeyo & Babalola, 2013). However, the financial and credit needs of the
informal sector which are the major target for the establishment of
microfinance banks have not been adequately met by the banks as they
face challenges in accessing the facilities rendered by the microfinance
banks . In the light of this, this research work investigates the impact the
microfinance banks have on the performance of small businesses, who are the
major constituents of the informal sector in terms of productivity, profitability
and sustainability and continuity.
1.3
Research Questions
Based
on the statement of problem, the following research questions were raised
i.
What impact do microfinance banks have on the performance of small businesses?
ii
Has micro financing improved the productivity level of small businesses?
iii
Does microfinance credit increases the profitability of small businesses?
iv
In what ways will the continuity of small business be determined by micro
financing?
1.4
Objectives of the Study
The
main objective of the study is to evaluate the impact of microfinance banks on
the performance of small businesses in Ilorin metropolis. While the specific
objectives are to
i
Determine if the services rendered by microfinance banks have improved the
performance of small businesses
ii
Analyse the impact microfinance services has on the productivity level of small
businesses.
iii
Ascertain the impact of microfinance credit on the profitability of small
businesses.
iv
Find out the impact of microfinance services on the continuity of small
businesses.
1.5
Hypotheses of the Study
Based
on the research questions the following hypotheses were formulated
HO1:
There is no significant relationship between services rendered by microfinance
bank and small business performance
Ho2:
There is no significant relationship between micro financing and the
productivity level of small business
Ho3:
There is no significant relationship between microfinance credit and the
profitability of small businesses
Ho4:
There is no significant relationship between microfinance and the continuity of
small businesses
1.6
Justification of the Study
Many
researches have been done relating to this study, such as Babajide (2012) who
examined the effects of microfinance banks on micro and small enterprises
(MSEs) growth in Nigeria, Oyeniyi (2014) who investigated the influence of
Microfinance bank on the performance of small businesses at the community level
and Ashamu (2014) who studied the impact of micro finance on small scale
business in Nigeria. However, not so many researches have been carried out on
the impact of microfinance banks on the performance of small businesses in
urban areas like Ilorin in which this study was conducted. This study is
therefore justified in filling this observed gap by examining the various
services rendered by microfinance banks in order to determine its impact on the
performance of small businesses in Ilorin metropolis in terms of profitability,
productivity, continuity and also to provide empirical evidence on the impact
of micro credit on the short term and long term performance of small
businesses.
1.7
Scope of the Study
Majority
of small business are either individually owned or family owned, have a low
capital base, are located in urban and semi urban areas and largely reside in
the informal sector (Ojo, 2003). The research work therefore focuses on the
various small businesses in Ilorin metropolis in order to analyse what impact
the microfinance banks have on their performance.
1.8
Definition of Terms
•
Micro enterprise: Micro- enterprise is the informally organized business
activity undertaken by entrepreneurs; excluding crop production by convention,
employing less than ten people and having assets less than N5 million
excluding land and building ( Abiola, 2011).
•
Micro and Small Business: According to Babajide (2012), The MSE nomenclature is
used to mean Micro and Small Enterprises. It is sometimes referred to as micro,
small and medium enterprises (MSMEs). A small business is any business that is
independently owned and managed; started with little capital and is being
operated using a few number of employees to produce goods and services to
satisfy the needs of the local community for profit.
•
Microfinance Banks: Microfinance Banks are licensed financial institutions
meant to serve the un-served, but economically active clients in the rural and
peri-urban areas by providing diversified, affordable and dependable financial
services to the active poor, in a timely and competitive manner, which would enable
them to undertake and develop long-term, sustainable entrepreneurial activities
and mobilize savings for intermediation (CBN, 2005).
•
Microfinance Institutions: Microfinance Institutions are organizations whose
activities consist wholly or in significant part, of the provision of financial
services to micro entrepreneurs.
•
Microfinance: By definition microfinance is described as the provision of
appropriate financial services to significant numbers of low income,
economically active people with an end objective to alleviate poverty ( Ledger
wood, 1998).
•
Microfinance Services: These are servies rendered by microfinance banks and
these icludes; provision of cheap or low interest loan, savings, advisory
services, training services, micro insurance and microcredit.
•
Microcredit: Microcredit is commonly defined in terms of loan amount as a
percentage of average per capita income. In the context of Nigeria, with a GDP
per capita of N42,000 (about $300) in 2003, loans up to N50,000 (around $350)
will be regarded as micro loans (UNDP, 2009 as cited in Dunn, 2012).
•
Small Business Performance: Enterprise performance implies attributes that show
changes in volumes of activities or physical size. It indicates the
enterprises ability to prevail. When these changes are increasing the
performance is generally positive. These attributes i.nclude profitability,
productivity, employment levels and expansion in physical facilities
•
Profitability: A typical enterprise defines profitability as follows: Gross
Margin = (Sales - Cost of Goods Sold) ÷ Annual Sales. Profitability reflects
the financial performance of an enterprise.
• Productivity: Productivity is an overall measure of
the ability to produce a good or service. More specifically, productivity is
the measure of how specified resources are managed to accomplish timely
objectives as stated in terms of quantity and quality.
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Item Type: Postgraduate Material | Attribute: 48 pages | Chapters: 1-5
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