IMPACT OF MICROFINANCE BANK ON SMALL AND MEDUIM SCALE ENTERPRISES IN NIGERIA

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 Nigeria. 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
Microfinance banks in Nigeria play very positive roles towards sustaining the economy of the country these are small scale banks that are approved by the federal government of Nigeria through the central bank of Nigeria to give loans to people to use and boost their existing business, or to give to the people to start up their business. The banks also provide a good condition for people like market traders, small scale business operators and even the non-literate to open a savings account with them and also encourage them on how to save their money. Micro-finance banks have help small and medium scale enterprises to increase productivity, create jobs and help alleviate poverty.

Also, in developed economies Small and Medium Scale enterprises (SMEs) represent more than half of their GDP and account for nearly two/ third (2/3) of employment (Sanusi, 2003). But, these Small and Medium Scale Enterprises are largely absent from the formal economic sector of Nigeria. Small and Medium Scale Enterprises are often able to sustain macro-enterprises and huge conglomerates but in Nigeria, their impact are missing because of lack of funding for SMEs, therefore increasing funding for Small and Medium Scale Enterprises could help big firms become a powerful engine of growth not only in Nigeria but in the rest of the world. (Soludo, 2005).


For Small and Medium Scale Enterprises in the developing world, although they are a potentially high impact and high return on investment, only a trickle of capital reaches them. Large business has access to formal, bank-based credit and in some markets, private equities and public markets unlike at the other end of the spectrum. However, over the last 30 years, the micro finance movement has made substantial strides in making capital available to households and micro-entrepreneurs. But, Small and Medium Scale Enterprises have remained under-served and lack access to the tools and finance necessary for rapid expansion, they are the “missing middle” (USAID, 2005).

According to a UN report in 2004, there are indications that SMEs could generate high returns on invested capital. Today, these investments are expensive to find, execute and manage relative to their sizes and the returns on investment often do not match the expense, because the cost of sourcing and completing deals are high. (USAID, 2005)

Microfinance is a living idea. As the awareness grows, this idea will continue to evolve. No wonder on 15th December 2005, the Central Bank of Nigeria launched the micro finance policy and framework basically to assist SMEs. Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor for entrepreneurship would be significantly enhanced through the provision of micro finance services to enable them engage in economic activities and be more self-reliant; increase employment opportunities, enhance household income and create wealth (CBN, 2005).

The practices of Micro finance in Nigeria have always existed in Nigeria at a traditional level. The traditional Micro finance institutions provide access to credit for the rural and urban low-income earners. They are mainly of the informal Self-Help Groups (SHGs) or Rotating Savings and Credit Associations (ROSCAs). Other providers of Micro finance services include savings collectors and co-operative societies. The informal financial institutions generally have limited outreach due primarily to paucity of loanable fund (Adewusi, 2007).

In order to enhance the flow of financial services in Nigerian rural areas, government has in the past, initiated a series of publicly financed micro/rural credit programmes and policies targeted to the SMEs. Notable among such programmes were the Rural Banking programmes, sectoral allocation of credit, a concessionary interest rate and the Agricultural Credit Guarantee Schemes (ACGS). Other institutional arrangements were the establishment of the Nigerian Agricultural and....

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Item Type: Postgraduate Material  |  Attribute: 80 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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