1.1 BACKGROUND TO THE STUDY
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
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,
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
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 in
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:
examine the impact of
microfinance on the development of Small and medium Scale enterprises in
2. To determine the effectiveness of
microfinance in Nigeria.
3. To identify the factors limiting the
development of microfinance in Nigeria.
1.4 RESEARCH QUESTIONS
is the impact of microfinance on the
development of Small and medium Scale enterprises in Nigeria?
2. What is the effectiveness of
microfinance in Nigeria?
3. 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:
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 development.
from this study will educate the general public on the impact of microfinance
on the development of small and medium scale enterprises in Nigeria
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
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.