1.1 BACKGROUND TO THE STUDY
Small and Medium Scale Enterprises are sub-sectors of the
industrial sector which play crucial roles in industrial development
(Ahmed, 2006). Following the adoption of Economic reform
programme in Nigeria in 1981, there have been several decisions to
switch from capital intensive and large scale industrial projects
which was based on the philosophy of import development to Small and
Medium Scale Enterprises which have better prospects for developing
domestic economy, thereby generating the required goods and services
that will propel the economy of Nigeria towards development. It is base
on this premise that Ojo (2009), argued that one of the responses to
the challenges of development in developing countries particularly, in
Nigeria, is the encouragement of entrepreneurial development scheme.
Despite the abundant natural resources, the country still finds it very
difficult to discover her developmental bearing since independence.
Quality and adequate infrastructural provision has remained a
night-mare, the real sector among others have witnessed downward
performance while unemployment rate is on the increase. Most of the
poor and unemployed Nigerians in order to better their lots have
resorted to the establishment of their own businesses. Consequently,
Entrepreneurship is fast becoming a household name in Nigeria. This is
as a result of the fact that the so called white collar jobs that
people clamour for are no longer there. Even, the touted sectors (Banks
and companies) known to be the largest employer of labour are on the
down-turn following the consolidation crisis and fraudulent practices
of the high and mighty in the banking sector. The companies of course
are folding up as a result of erratic power supply, insecurity and
persistent increase in interest rate which has lead to high cost of
production and undermines profit making potentials of companies
operating in Nigeria (Hassan, 2003).
Since the office jobs that people desire are no
longer there for the teeming population, and the few ones that
succeeded in getting the jobs are thrown out as a result of the factors
identified above, the need for the government and the people to have a
rethink on the way-out of this mess became imperative. Hence, the need
for Small and Medium Scale Enterprises (SMEs) became a reality as a
means of ensuring self independent, employment creation, import
substitution, effective and efficient utilization of local raw
materials and contribution to the economic development of our dear
nation (Nigeria). All the aforestated benefits of Small and Medium
Scale Enterprises cannot be achieved without the
direct intervention of the government and financial institutions. Over
the years a number of policies have been formulated by the government
with a view to developing Small and Medium Scale Enterprises. The
Nigerian government under the then leadership of Chief Olusegun Obasajo
promulgated micro-finance policy and other regulatory and supervisory
frame work in 2005. However, the researcher is examining the impact of
microfinance on the development of Small and medium Scale enterprises
Microfinance, according to Otero (1999, p.8) is “the provision of
financial services to low-income poor and very poor self-employed
people”. These financial services according to Ledgerwood (1999)
generally include savings and credit but can also include other
financial services such as insurance and payment services. Schreiner
and Colombet (2001, p.339) define microfinance as “the attempt to
improve access to small deposits and small loans for poor households
neglected by banks.” Therefore, microfinance involves the provision of
financial services such as savings, loans and insurance to poor people
living in both urban and rural settings who are unable to obtain such
services from the formal financial sector.
1.2 STATEMENT OF THE PROBLEM
Access to finance remains a dominant constraint to small scale
enterprises in Nigeria. There have been credit constraints pertaining
to working capital and raw materials. Aryeetey et al. (1994) reported
that 68% of SMEs surveyed mentioned credit as a major constraint of
financing their businesses. This stems from the fact that SMEs have
limited access to capital markets, in part because the high cost of
borrowing, and rigidities of interest rates has also made financing of
small scale enterprises very difficult in Nigeria. Most SMEs also lack
the necessary collateral to obtain loans from financial institutions,
therefore resulting in SMEs not often obtaining long-term finance to
finance and expand their businesses.
Besides other constraints on finance, most owners and managers of
small scale enterprises in Nigeria are faced with lack of technical
knowhow, skilled labour, managerial competence in handling business
enterprises and also lack of business ideas. As a result their growth
prospect remains stagnant. There is also the problem of having access
to modern technology since most firms use old machinery, and have
problems with finding replacements parts to purchase.
Microfinance institutions in Nigeria have proven to be a powerful
tool for promoting inclusive economic growth especially in the area of
Small Scale Enterprise development and employment as well. Initiatives
are aimed at providing soft loans to individuals and small scale
enterprises, even though a microfinance institution in Nigeria is
actually in the stage of infancy, the sector has proven itself to show
positive in its growth in Nigeria. This institution also aims at helping
SMEs to expand their business up to a point of becoming viable ones.
But the issue is to ascertain if the microfinance’s having any impact
of the development of SMEs in Nigeria and to answer the question which
is to be addressed which is Impact Assessment. This assessment is used
to determine the extent to which microfinance institutions are
attaining their objectives towards the development of Small Scale
Enterprises in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the impact of microfinance on the development of Small and medium Scale enterprises in Nigeria.
- To determine the effectiveness of microfinance in Nigeria.
- To identify the factors limiting the development of microfinance in Nigeria.
1.4 RESEARCH QUESTIONS
- What is the impact of microfinance on the development of Small and medium Scale enterprises in Nigeria?
- What is the effectiveness of microfinance in Nigeria?
- What are the factors limiting the development of microfinance in Nigeria?
HO: Microfinance has not impacted on the development of Small and medium scale enterprises in Nigeria.
HA: Microfinance has impacted on the development of Small and medium scale enterprises in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- Findings from this study will reveal the gap in financing
small and medium scale business in Nigeria with of view of sensitizing
the government on the need for adequate finance to enhance growth and
- Results from this study will educate the general public on the
impact of microfinance on the development of small and medium scale
enterprises in Nigeria
- This research will be a contribution to the body of literature
in the area of the effect of personality trait on student’s academic
performance, thereby constituting the empirical literature for future
research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study will cover the operations of microfinance banks in
Nigeria with a view of identifying their contribution towards the
development of small and medium scale enterprises in Nigeria.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to
impede the efficiency of the researcher in sourcing for the relevant
materials, literature or information and in the process of data
collection (internet, questionnaire and interview).
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This
consequently will cut down on the time devoted for the research work.
Aryeetey, E., Baah-Nuakoh, A., Duggleby, T., Hettige, H., & Steel, W. F. (1994). Supply and demand for finance of small scale enterprises in Ghana (Discussion Paper No. 251). Washington, DC: World Bank.
Ahmed S. A.(2006), the role of SMEs in developing economy, Abuja, Omotayo and co.ltd.
Ojo O. (2009), Impact of Micro Finance on Entrepreneurial
Development: A case of Nigeria. A paper presented at the International
Conference on economic and administration, organized by the faculty of
Administration and Business, University of Bucharest, Romania, 14th
-15th November, 2009.
Hassan O. (2003), The contribution of various Schemes to the growth of SMEs in Nigeria, Abuja, Habib nig. Ltd.
Otero F. O. (1999), The effect of Micro level government
policies in rural development and poverty alleviation in Nigeria,
Social Science Journal, University of Ibadan, Vol. 3, p.11,