Project Abstract

Project Overview

<p> </p><p>&nbsp; INTRODUCTION</p><p>1.1 Background to the Study</p><p>The<br>development of the various sectors of any economy is the basis for its<br>survival, different measures have been &nbsp;put in place by the Federal Government of<br>Nigeria in order to achieve this objective, such as, the establishment of the Finance and Research Institution in 2001,<br>provision of direct financial assistance to small business organization, the Small and Medium Industries Equity Investment Scheme (SMIEIS) &nbsp;in 2001, establishment of Small Scale Industrial Credit Scheme,<br>establishment of Government Intervention Strategies in 2002, provision of <br>Credit Scheme, establishment of National Economic Reconstruction<br>Fund (NERFUND) &nbsp;in 1989, establishment of Industrial<br>Development Centres and Industrial Estate <br>Scheme, etc. The initial efforts were government-led through the vehicle<br>of large industries, but lately emphasis have shifted to Small and Medium Scale<br>Enterprises (SMEs) following the success of Small Scale and Medium Enterprises<br>in the economic growth in the Asian countries. (See Ojo, 2003) as cited in<br>Babajide, 2012). However, the growth of Small and Medium Scale Enterprises over<br>the years has been stunted because they have not been able to meet the<br>requirements for obtaining financial services from the conventional commercial<br>banks, thus their opportunity for expansion has been greatly limited. This<br>shortcoming of the formal financial institution is what initiated micro financing.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; In 2005, the Federal<br>Government of Nigeria adopted microfinance as the main financing window for<br>SMEs in Nigeria. The Microfinance Policy Regulatory and Supervisory Framework<br>(MPRSF) was launched in 2005 with the core objective of making financial<br>services accessible to a large segment of the potentially productive Nigerian population<br>.It also addressed the problem of lack of access to credit by small business<br>operators who do not have access to regular bank credit. It also created the<br>framework for licensing, regulation and supervision of privately owned<br>microfinance banks, provides for the participation of various institutions such<br>as deposit money banks, non-governmental organizations, microfinance<br>institutions and financial cooperatives in the provision of financial services.<br>This framework was also extended to SMEs that have little or no access to<br>financial services..</p><p>The<br>Microfinance Policy (MPRSF) provides for two categories of Microfinance Bank in<br>Nigeria, namely: Microfinance licensed to operate as a unit bank otherwise<br>known as community bank which can only operate branches or cash centres within<br>a local government with the minimum paid up capital of ₦20 million and the<br>Microfinance Bank licensed to operate in a state or Federal Capital territory<br>with the minimum paid up capital of ₦1 billion.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Small and Medium Scale<br>Enterprises play important roles in the economic growth in both developing and<br>developed nations. Apart from increasing per capital income and output, micro<br>enterprises create &nbsp;employment<br>opportunities, enhance basic standard of living of the populace, enabling<br>entrepreneurs to be self reliant, create wealth, alleviating the adverse<br>effects of growing population and generally promoting effective resources<br>utilization,onsidered critical to engineering economy development and growth.(See<br>Tijani, M.O., 2011). (Ogujiuba, Fadila &amp; Stiegler, 2013; Musa &amp; Aisha,<br>2012) agree that Small and Medium Scale Enterprises account for well over half<br>of the total share of employment sales and value added and they constitute the<br>most viable and veritable vehicle for self sustaining industrial development,<br>as they possess the capability to grow an indigenous enterprises culture more<br>than any other strategy.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; However, as cited in Tijani,<br>M.O.(2011), the role played by Small and Medium Scale Enterprises<br>notwithstanding, its development is constrained by inadequate funding and poor<br>management. The unfavourable micro-economic environment has also been<br>identified as one of the major constraints which most times encourage financial<br>institutions to be risk-averse in funding Small and Medium Scale businesses.<br>Also, the reluctance on the part of the financial institutions to fund Small<br>and Medium Scale Enterprises can be explained by the insufficient capital base<br>of banks. As a result, these enterprises rely onpersonal assets for working<br>capital, thua making it difficult to operate at full capacity and increase<br>output and sales which will serve as impetus in increasing Gross Domestic<br>Product (GDP) of a nation like Nigeria. Thus, the concern of this research is<br>to examine the impact of microfinance bank on the growth of Small and Medium<br>Scale Enterprises in Ilorin metropolis</p><p>1.2 Statement of the Problem</p><p>The microfinance banks (MFIs) promoted by the Federal Government<br>of Nigeria was meant to &nbsp;purview credits<br>entrepreneurs who owned Small and Medium Scale Enterprises because of their<br>limited access &nbsp;to sources of finance. Small<br>and Medium Scale Enterprises face a lot of problems in obtaining finance from<br>the conventional finance banks because of the cost of finance, collateral<br>security and the bureaucracy involved in accessing loans; the high interest<br>rate etc. In addition, this entrepreneurs are predominantly made up of<br>illiterates who cannot understand all the paperwork &nbsp; involved in applying &nbsp; for a<br>loan. Also, the banks are not very excited because of the fact that the credit<br>deposited by them is so little compared to what is deposited by customers in<br>other big businesses. These problems and more necessitated the emergence of the<br>MFBs. &nbsp;</p><p>1.3 &nbsp;Statement of the<br>Research Questions</p><p>Thus,<br>the above problems raises the following questions:</p><p>i) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>What are the nature of SMEs<br>financing before the establishment of &nbsp;<br>MFBs? &nbsp; &nbsp;</p><p>ii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>&nbsp;What role does microfinance banks play in the<br>growth of SMEs?</p><p>iii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>What are the problems<br>Microfinance banks faces in providing finance to SMEs?</p><p>iv) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>In what ways can the services<br>rendered by microfinance banks be improved upon to enhance the growth of SMEs?</p><p>1.4 &nbsp; &nbsp; &nbsp; Objectives of the Study</p><p>The<br>broad objective of this study is to examine the impact of microfinance banks on<br>the growth of small and medium scale enterprises in Ilorin metropolis. This<br>specific objective include the following:</p><p>· &nbsp; &nbsp; &nbsp; &nbsp;<br>To examine the nature of SMEs financing before MFBs<br>establishment?</p><p>· &nbsp; &nbsp; &nbsp; &nbsp;<br>To examine the role of microfinance banks’ in the growth of<br>SMEs in Ilorin metropolis.</p><p>· &nbsp; &nbsp; &nbsp; &nbsp;<br>To examine the problems Microfinance banks face in providing<br>finance to SMEs.</p><p>· &nbsp; &nbsp; &nbsp; &nbsp;<br>To examine in what ways the services rendered by the<br>Microfinance banks can be improved upon to enhance the growth of SMEs.</p><p>1.5 &nbsp; &nbsp; &nbsp; Justification<br>for the Study</p><p>A considerable number of literatures have<br>been written on this subject matter both inside and outside the country; (see Babajide,<br>2011; Olowe, 2013; Moradeyo, 2013; Babalola, 2013 and Agboola, 2012).To the<br>government and policy makers, the study on the impact of microfinance banks on<br>the growth of SMEs will enable them come up with policies i.e fiscal and<br>monetary policies to improve the efficiency of the SMEs. The result from this<br>finding would enable the stakeholders to employ ways to improve the<br>contribution of SMEs to the country. This research work will contribute to the<br>literatures on the impact of microfinance on the growth of SMEs for the benefit<br>of researchers.</p><p>1.6 Scope<br>of the Study</p><p>This study covered microfinance<br>banks and Small and Medium Scale Enterprises in Ilorin metropolis &nbsp;because Ilorin metropolis is a fast developing<br>city where many Small and Medium Scale Enterprises are springing up and more<br>microfinance banks are being established and also because of the convinience &nbsp;and low cost of carrying out the research<br>work. &nbsp;This work covered the period of<br>5yrs from year 2009- year 2013.</p><p>&nbsp;Five years is often used as a yardstick for<br>survival by demographers (Alexander, Davern and Stevenson, 2010) to permit<br>greater balancing of statistical power of test (as cited in Babajide, 2011).</p><p>1.7 Hypothesis<br>of the Study</p><p>The hypothesis for this study<br>is stated in null form as follows:</p><p>: There is no significant<br>difference between the roles of microfinance &nbsp;<br>banks and the growth of SMEs in Ilorin metropolis.</p><p>: There is no significant difference<br>between microfinance banks and the problems they face in providing finance to<br>SMEs in Ilorin metropolis.</p><p>: The<br>services rendered by MFBs have no significant difference on the growth of SMEs.</p><p>Definition of Terms:</p><p>Microfinance Banks: These are special banks established by<br>the federal government to promote the growth and development of Small and Medium<br>Scale Enterprises/businesses.</p><p>Microfinance: It is the provision<br>of a broad range of financial services such as deposits, loans, payment<br>services, money transfer and insurance to the poor and low income households<br>and their microenterprises. (Asian Development Bank, 2000).</p><p>SMEs:<br>Nigeria’s<br>national Council on Industry; an SME is defined in terms of employment i.e. as one<br>with between 10 and 300 employees.</p><p>Entrepreneurs: This refers to<br>the proprietor or owner of a privately owned business enterprise. The<br>entrepreneur employs his capital in the business, manages the business &nbsp; resources and takes the risk of business<br>alone. He is self employed i.e he is not<br>employed by anyone but instead he employes <br>others to work for him. &nbsp;</p><p>Regression analysis: This is<br>a statistical approach to forecasting change in a dependent variable on the<br>basis of change on more independent variables.</p><p>Development: An event<br>constituting a new stage in a changing situation.</p><p>GDP (Gross Domestic Product):<br>It is the value of goods domestically produced in a country.</p><p>Growth: An increase in size,<br>number, value or stren ght. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</p><br> <br><p></p>