This research work was
undertaken to roles of microfinance banks in financing small and medium scale
enterprise. The work was intended to achieve the following objectives to
ascertain the extent to which micro finance bank has been assisting in
providing credit facilities to small scale industrialists, to determine the
cost of variability in small scale industrial financing by micro finance bank.
The literature review also describe objectives and functions of the microfinance
bank, roles of microfinance policy and importance of micro and small
scale enterprises in Enugu state and Nigeria as a whole. All the aspect of this
work is relevant to both management and those who may be interested in carrying
out further study on this topic. Relevant data were collected from both primary
and secondary sources. Questionnaire was the main primary data instruments
employed while data from various relevant publications such as textbooks,
journals and internet articles constituted the sources of secondary data. The
data collected were analysis using simple tables and percentage analysis. The
study observed that Microfinance Bank performances were very impressive during
the period under study especially in making fund available for small and meduim
scale enterprise in Enugu state;
although it based on operation or services on savings deposit account, loan and
advances (credit facilities) to customers and few small scale industrialists
and also payment of salaries to workers of different organizations. The study
recommended that In order to reduce the risk of doubtful credit or facilities,
the government should increase the percentage grants to micro finance banks for
small and medium scale enterprises and also put more emphasis on credit
guarantee scheme by introducing more of such scheme for the benefit of small
and medium scale enterprises. Finally, the government and management of micro
finance bank should emphasize on collateral as a condition for granting credit
facility to small scale business in Nigeria.
TABLE OF CONTENTS
Background of the
1.1Statement of the study
1.2Objective of the study
1.4Scope of the study
1.5Significance of the study
1.6Limitation of the study
2.1 Origin of Micro Finance Bank in Nigeria
2.2Definition of Microfinance Banks
2.3Objectives and Functions of the Microfinance Bank
2.5Roles of Microfinance Policy
2.6Types and Importance of Micro and Small Scale
2.7The Roles of Microfinance Bank in Financing Business
2.8Problems of Micro and Small Scale Enterprises
2.9Challenges Facing Micro and Small Scale
2.10Ways of Developing Micro and Small Enterprises
3.0 Research methodology
3.2Area of Study
3.3Population of the Study
3.4Sources of Data
3.5Sample Size Determination
3.7Method of Investigation
4.0Presentation analysis and interpretation of data
4.1Analysis and Interpretation of Findings
recommendation and conclusion
5.1Summary of Findings
Table 1. Do you think that microfinance
banks have played a significant role in small and meduim scale enterprise in
Table 2. Have the microfinance banks
positive effect on socio economic development of Nigeria as a whole?
Table 3. To what extent has Microfinance
Bank assisted in providing credit facilities for rural development and problems
hindering the assistance?
Table 4. Are the problems encountered by
businesses in obtaining credit facilities from Microfinance Bank in Enugu?
CBN: Central Bank
National Board of Micro Finance Bank
Microfinance Banks in Mobilizing the Rural Infrastructures and Directorate for
1.1 BACKGOUND OF THE
In the past, government
has initiated series of micro programmes targeted at the poor with the
overriding objective of making credit readily available to those who were
traditionally denied access to credit. Such credits in the world over were used
for the development of small and meduim scale enterprise, which has been
described as the springboard for sustainable development. In all emerging
economies like Nigeria, the government has shown a great concern for the
development of small and meduim scale enterprise because of the underlying
socio economic factors plaguing the nation. some of the reasons include: the
past policies failed to generate efficient self sustaining impetus needed to
uplift the country to the ‘take-off’ stage of growth, the increased emphasis on
self-reliant approach to the development and the recognition that dynamic and
growing petty-business can contribute substantially to a wide range of
developmental objectives. However, the full potential of the micro business in
the development process have not been realized owing to numerous bottlenecks.
In the light of this, the Central Bank of Nigeria (CBN) as part of its reform
agenda, initiated Micro Finance Banks, a policy initiative aimed at bringing
credit to the door step of the poor who do not have such access under the
conventional financial system. The thrust of this project is to articulate the
prospects of the micro finance banks towards boosting the performance thereby
reducing the level of poverty and enhancing employment generation.
Micro finance banking institution were conceived and came into
been in December 2007. It was packaged to address the issue of cultivating
appropriate modern banking habits in the rural area, through the social local
institution such as community social clubs and other individuals who are
encouraged to be co-owner of the bank through the purchase of shares. The
government came in as a second tier supervisory agency through the National
Board of Micro Finance Bank (NBMFB) to oversee the establishment and operation.
From December 2007, a total of 402 community now micro finance Banks came into
being with a total deposit of =N=20 million. Loan and advances disbursed to
individuals and enterprises stood at (=N= 155.1million) all these are with
share capital cash of (=N=239.8 million). To complement the efforts of
microfinance banks in mobilizing the rural infrastructures and directorate for
social mobilization (MAMSER) by virtue of their grass roots oriented programmes
conducted extensive research into the introduction of the microfinance banking
system in area that it will be of good benefit to the people. Okafor (1992), in
his reports for micro finance banks being the main link between the formal and
informal financial sectors.
It is now common
knowledge according to Egbe (2000) that the 1980s witnessed a rapid growth of
commercial banking activities in many Nigerian rural communities where banking
habits, culture, commitment and community development was poor if not
non-existent. It is instructive to note that during this period, community
funds among rural dwellers were hardly gathered for savings and loans in order
to stimulate domestic investment. Suffice it to say that in rural communities,
the rural business class hardly seeks formal institutional credits to improve
their economic base.
It would be observed
that, despite the presumed developments in the Nigerian economy, the country is
still largely being regarded as a developing country (Onyema, 2006). More so,
its industrial growth is not quite impressive. Before the emergence of formal
microfinance institutions, informal microfinance activities flourished all over
the country. Traditionally, microfinance in Nigeria entails traditional
informal practices such as local money lending, rotating credit and savings
practices, credit from friends and relatives, government owned institutional
arrangements, poverty reduction programmes etc (Lemo, 2006). The Central
institutions in Nigeria are relatively new, as most of them never registered
Before now, commercial banks traditionally lend to medium and
large enterprises which are judged to be credit-worthy. They avoided doing
business with the poor and their micro enterprises because the associated cost
and risks are considered to be relatively high (Anyanwu, 2004).
Barbara (1999), posit
that the need for microfinance banking among rural dwellers has been on the
increase, and as such, between 1989 and 1990, the Federal Government initiative
aimed at actualizing this growing need expanded the rural banking scheme with
the launching of Peoples Bank and Community Bank respectively. To make
borrowing easy enough for rural communities, these banks do not require
sophisticated collateral for borrowing. Also, interest on borrowed money was made
as low as possible by the two banks to enable small-scale rural community
industrialist and agriculturist to borrow with ease. Today, many rural
communities in Nigeria have one or more of this microfinance bank, and they
have had far more reaching implications for the entire socio-economic
development of rural communities in Nigeria. It is worthwhile to note,
according to Usang (2006), that many would recall how lack of funds often
caused the collapse of small businesses and the extinction of ingenious ideas
before they could be translated into reality.
It is now widely believed that following government’s acclaimed
policies on rural development, rural investment will be given a boost via
microfinance banking as all frustrations of our hardworking, devoted but
under-privileged masses would come to an end. However, the idea behind
microfinance banking is to encourage rural development through rural commitment
in modern financial institutions within the rural environment.
Thus, microfinance banking is supposed to be the machineries for
financial and economic emancipation as its growth is connected with the
community in which it serves. It is therefore not certain whether or not
micro-finance banks actually impacts on small and meduim scale businesses
in the rural communities.
1.2 STATEMENT OF THE
financing in most cases in normally provided by the owners. The owners fail to
realize the importance of external source of capital in order affect expansion
in the business; in most cases, the by the owner, members of the family and
friends in most cases. In another development, small and medium enterprise
experiences difficulties in raising equity capital from the finance houses or
individuals. Even when the finance house agrees to provide equity capital, the
conditions are always dreadful. All these result to inadequate capital
available to the sector and thus lead to poor financing. This is the bane of
most cottage industries in Nigeria. About 80% of small and medium enterprises
are stifled because of this problem of poor financing and other problems
associated with it (Chukwuemeka, 2006). The problems that emanated from poor
a) Lack of competent management which is the consequence of
inability of owners to employ the services of experts. b) Use of obsolete
equipment and methods of production because of owner’s inability to access new
technology. c) Excessive competition which resulted from sales which is a
consequence of poor finance to cope with increased competition in the industry.
The statement of the
problem or challenges facing micro finance bank in financing small and meduim
scale enterprises in Enugu are:
Operating Cost: Small
units of services pose the
challenges of high operating cost, several loan applications to be
processed, numerous accounts to be managed and monitored, and repayment
collection to be made from several locations especially in rural communities.
Problem: Loan default
is a major threat
to micro finance banks’ sustainability; it is the deadly “virus”
which affects the operation of the banks. It demoralized staff and deprives
beneficiaries of further valuable services.
Experienced Credit Staff: Micro
financing is more than dispensing loans, to be viable micro
finance banks require experienced and skilled personnel. As a young and growing
industry, there is a dearth of experienced staff in planning, product
development and effective engagement with clients.
affects record keeping
and decisions-making ability of borrowers and consequently affects
their relationship with the banks.
1.3 OBJECTIVE OF THE
It is against this
backdrop that the purpose of this work attempts to ascertain the role of
microfinance banks in small and meduim scale enterprise in Enugu State, and
1.) To Identify and analyze the effect of
microfinance banks on socio economic development i.e. employment and income
generation of the rural communities in state.
2.). To examine the influence of microfinance bank
credit subsidy, interest etc, on the level of credit demand by small scale
3.) To ascertain the extent to which Microfinance
Bank has been assisting in providing credit facilities for rural development
and problems hindering the assistance.
4.) To identify the problems encountered by
small scale business in obtaining credit facilities from Microfinance Bank.
1.4 RESEARCH QUESTIONS
The following research
question guided this study
1.Do you think that microfinance banks have played
a significant role in small and meduim scale enterprise in Enugu State?
2.Have the microfinance banks positive effect on
socio economic development of Nigeria as a whole?
3.To what extent has Microfinance Bank assisted in
providing credit facilities for rural development and problems hindering the
4.What are the problems encountered by businesses
in obtaining credit facilities from Microfinance Bank in Enugu?
SCOPE OF THE STUDY
The study is aimed at
investigating the roles of microfinance banks in financing business in the area
concern. Due to current emphasis on industrialization of the country by the
government and in order to reduce the country’s import bills and solving the
problem of unemployment that the study focused attention on the needs for small
and medium scale business and it’s financing.
1.6 SIGNIFICANCE OF THE
development of business and self reliance in industrial and food production
coupled with adequate provision of raw materials as inputs to other businesses
among the top most priority of the successive government plan.
background, the study of financial problems facing business is very essential,
such study will enable the sector solve the problem and face every increasing
demand for production.
Microfinance Bank performance in financing business in Enugu revealed to a
large extent why there has been a decline in industrial output in recent years.
This study will enable the government get to know the problems facing small and
meduim scale enterprise especially in the area of finance banks and realized
how difficult the porches is, and device a measure to solve the problems.
Through this study the government will consequently be able to know how to
uplift the status of microfinance banks.
Secondly, this study
will be relevant to other researchers because it will enable them to look into
other related areas of study, which this could not cover. The significance of
this study enables the researcher widens their scope of knowledge in
microfinance banks financing of businesses.
1.8DEFINITION OF TERMS
following definitions are defined in the context for which they are used in
this research work;
Micro Finance Banks
is a self sustaining financial institution owned and managed by a community or
group of communities for the purpose of providing credit deposits, banking and
other financial services to its members, largely on the basis of their self
recognition and credit worthiness.
Small Scale Businesses
is a business that is independently owned and operated not dominated in its
field of operation. It is a business established whose total assets in capital,
equipment, plants and working capital is less than (=N=4, 000, 000) four
million naira and employing less than 50 full time workers and wholly
This refers to the steady process by which the productive
capacity of the economy is increased over time to bring about rising levels of
This can be known as nothing less than “The upward movement of the
entire social system or it many be interpreted as the attainment of a number of
ideas of modernization such as a rise in productivity, social and economic
equal section. Modern knowledge improved institutions and attitudes and a
traditionally co-ordinate systems of policy measures that can remove the host
of undesirable conditions in the social system that have perpetuated a state of
These are institutions either private or public that channels
loanable funds from savers to borrowers. Example, commercial banks and
development banks, micro finance bank.
Bank is a financial institution where money and other valuable
items are kept for safe custody, Example commercial banks, development banks,
merchant banks e.t.c. Each of these banks performs different roles or functions
in the economy.
This is a unit and self sustaining financial institution owner and
managed by a community or group of communities.
They are instrument collected by the banks inform of cash valuable
items e.t.c. for safety.
Rural areas: They are those remote villages that have no or little
Bank of Nigeria: This is the apex financial institution that supervises,
regulates and controls other banks, volume of money in a country in established
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