CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The major problem
facing African nations (including Nigeria) today is the eradication of poverty
which every government has built in as part of its development programme. This
research examines the effects of micro financing on and Medium Enterprises (SMEs)
development in Nigeria. Tracing backward historical policies of Federal
government of Nigeria on the Small and Medium Enterprises enhancement
especially in relation to financial challenges which brought about schemes and
policies include: Small and Medium
Enterprises Equity Investment schemes (SMEEIS), the Small and Medium Enterprise
Development Agency of Nigeria (SMEDAN), NDE, NEEDS, the Bank of Industry and
Community Banks transformed to Micro Finance Banks (MFBs) under the supervision
of the Central Bank of Nigeria (CBN august 2009).
The concept of
microfinance started in the late '70s and early '80s. The first organization to
receive attention for its success was the Grameen Bank, which was started by
Muhammad Yunus in Bangladesh in 1983.
The global importance
of Microfinance Institutions in poverty reduction, grass root business
financing has created a compelling need to design strategies for providing
financial service to the vulnerable, poor and low income group on a sustainable
basis.
This research intends
to contribute to the array of literature written by different scholars on Microfinance
and SMEs development. SMEs in Nigeria have the tendency to serve as sources of
livelihood to the poor, create employment opportunities, generate income and
contribute to economic growth. Despite its increasing roles, its accessibility
to credit remains one major constraint (Godquin m. 2004).
However, Small and
Medium scale Enterprises play important economic and social roles in employment
creation and generation, economic growth and development, important linkages
with larger enterprises, social security, creativity and innovations, financial
markets profitability and growth (Olumide, 2011).
Microfinance is a form
of financial development that has its primary aim to alleviate the poverty of
the poor who are generally remained un-served or were offered improper
financial service. Bank and other financial institutions are currently
estimated to provide services to only 25% of potential clients worldwide.
However, government at
all levels recognised the need to encourage the small enterprises through the
provision of credit schemes and policy reforms which brought about the
emergence of Micro Finance Banks the Federal Government of Nigeria introduced
during the Obasanjo regime to replace the formal community Bank in Nigeria
which became operational in 2005 (Ehigiamuso E.G 2005).
Nigerians in line with
their governments acknowledge the need to alleviate poverty and encourage SMEs,
through the provision of credit and inform policy reforms with respect to
bringing the Microfinance Banks under the supervision of Central Bank of
Nigeria to create enabling environment for SMEs access to small loans (Satta
T.A 2003).
More so, to ensure that
the mission of the policies were achieved, which include ensuring that the
majority of the active population are reached with financial services, and that
total credit as a percentage of Gross Domestic Product (GDP) ratio increase
steadily, as well as micro credit as a percentage of total credit to the
economy. Equally important was the need to improve access of poor active most
especially women to microfinance on a consistent basis (Attah, 2008).
Finally, the other
chapters arrangements were as follows: The second section reviews literatures
by different authors on alternative financial sources available to SMEs and
challenges facing SMEs in reaching them. The third and fourth sections describe
the methods applied in collecting and analyzing data, while the last two
sections represent data presentation and findings, and conclusion respectively.
1.2 STATEMENT OF PROBLEM
In
view of government aims to tackle financial challenges facing Small and Medium
Enterprises (SMEs) over years, there are ways to encourage and improve
indigenous participation at real sector of the economy that can translate to improved
GDP.
Sequence to the above
roles performed by governments at all levels on SMEs, there were noticeable
challenges faced by same such as long, cumbersome and time consuming process of
incorporation or business registration to afford the business easy access to
better funding opportunities.
Another challenge is the
inability of most SMEs to provide collaterals for loan security creates misalignment
that further compounds the existing funding gap (Olumide, 2011).
However, this research
has indentified major challenges of the SMEs ranges from poor capacity of newly
established MFBs to fund, CBN policy on MFBs single oblique limit, undefined
interest rate for MFBs, price inflation rate on raw material, non availability
of some basic infrastructures like roads networks, electric power, among
others.
1.3.0 OBJECTIVE OF THE STUDY
Generally,
the study seeks to examine the effects of microfinance institutions on SMEs in
Nigeria. The study will specifically seek to:
i.
Examine the types of SMEs who access support from MFIs
in Nigeria
ii.
Examine the MFBs
capital adequacy by providing cooperate loans to their customers including
SMEs.
iii.
Assess the specific products and services offered by
the MFIs to SMEs and on what conditions;
iv.
Ascertain
whether there is other financing options available to the SMEs
1.3.1
RESEARCH QUESTIONS
In other to achieve the
identified objectives the following questions would be relevant in proffer
reasonable conclusion:
i.
Examine the positive
differences that happen to SMEs financing since establishment of MFBs in
Nigeria?
ii.
Examine the financial
capability of MFBs to meet the financial needs of SMEs with CBN lending policy?
iii.
Examine whether there
is difficulty in accessing loan from MFBs by SMEs?
1.3.2 RESEARCH HYPOTHESIS
However, the following
null hypotheses were proffer in line with the research question.
Ho: There are no significant effects of
microfinance institutions on the SMEs development in Nigeria.
Hi: There are significant effects of
microfinance institutions on SMEs development in Nigeria.
1.4
SIGNIFICANCE OF STUDY
This topic became
attractive among others because my personal experience and familiarity with
micro financing activities. Also to put into test the assumption of generic and
unsealing interest rate to MFBs. This means that interest rate should be regulated
by force of demand and supply for fund at grass root in line with the
corresponding variables involved (i.e. Micro finance bank and SMEs) with
respect to the well being of the Nigerians at grass root of the economy. The
recent increase in the CBN direct supervision and guidelines for the micro
finance bank to concentrates on SMEs.
1.5
SCOPE AND LIMITATIONS OF THE STUDY
Specifically on this
work, there were some constraints that affect the extent and detailed as planed
which include available time, fund among others. The research findings and data
collected were subject to the constraint stated and conclusions with
recommendations were made therein. Reasonably and reliably the information
gathered through personal interview and questionnaires were treated
confidential.
1.6 DEFINITION OF TERMS
Micro finance
institutions (MFBs): are the grass
root banks formally known as community banks but currently known as Micro
finance banks.
SMEs: Small and Medium scale Enterprise
CBN: Central Bank of Nigeria (that is
the apex bank in Nigeria)
Economic active poor: The entrepreneurs,
who have business ideals, experience and have little or no capital to establish
on their own.
GDP: Gross Domestic Products are the
total goods and services produce by all citizens of a country either at home or
abroad at a particular period (usually a calendar year)
Development: Maturity; Optimum;
Advancement.
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