THE EFFECT OF MICROFINANCE BANK AS A TOOL FOR DEVELOPING SMALL AND MEDIUM SCALES ENTERPRISES IN LAGOS STATE
CHAPTER ONE
INTRODUCTION
- Background of the Study
Microfinance refer to the provision of thrift, Credit and other financial Services and products in very small amount to the poor to enable them raise their income level and improve their standard of living (Eluhaiwe, 2005). This is based on their belief that the goals of microfinance have keen poverty reduction and accessibility to market.
Canadian International Development Agency (CIDA, 2005) defined microfinance as the provision of very small loan to micro enterprise, agriculture, education and consumption propose as well as insurance facilities and other financial product such as insurance service, housing and pension funds. Micro enterprises are a business that is independently owned and operated by its owners and does not meet certain standard of size which is most cases operated as informal business.
Small and medium scales enterprises are sub-sector if the industrial sectors which plays crucial role in industrial development (Ahmed, 2006).
Following the adoption of economic reforms programmes in Nigeria in 1981, there have been several decision to switch from capital intensive and large scales industrial projects which was based on the philosophy of import development to small and medium scales enterprises which have better prospect for developing domestic economy, there by generating the required goods and services that will propel the economy of Nigeria towards development. It in base on this promise that (Ojo, 2009) argued that one of the responses to the challenges of development in developing countries, particularly Nigeria in the encouragement of entrepreneurial development schemes. Most of the poor and unemployed Nigerians in order to better their lots have resorted to establishment of their own business.
Since the touted sector (banks and companies) known to be the largest employer of labour are in 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 potential of companies operating in Nigeria. Hence the need for small and medium scales enterprises (SMES) became a reality as a means of assuring self independent, employment creation, import substitution, effective and efficient utilization of local raw materials and contribution to the economics development of our dear nation (Nigeria). All the afore-stated benefits of small and medium scale enterprises cannot be achieved without the direct intervention of the government and financial institution.
Over the years as member of polices have been formulated by the government under the then leadership of Chief Olusegun Obasanjo promulgated microfinance policy and other regulatory and supervisory framework in 2005. These programme range from Agriculture Development Project (ADP) the establishment of Agricultural Credit Bank to better life programme for moral women and the likes. Unfortunately most of the programme failed to achieve the desired result. This lead to the emergence of micro finances bank aimed at extending credits to micro entrepreneurship especially in semi-urban and rural areas in Lagos State.
Credit to micro or small and medium scale enterprises are assuming importance in rural area, in response to the need of the less privilege entrepreneurs with limited capital taste. In Nigeria especially Lagos State, access to formal Geo it is a major problem tracing the small and medium scale enterprises due to prevalent factors, such as delay in loans disbursement in the part of the financial institutions and payment defaults on the part of the beneficiaries (Olajule, 1980). Hence, the need of microfinance bank to promote entrepreneurship and boost rural financial market that will provide sustainable access to financial services by creating a relationship between those with financial resources and those who need them.
1.1 Statement of the Problem
This research study is to trace the effect of micro financial tank as a tool for developing small and medium scale enterprises an Lagos state and the ascertain the problem tracing the micro finance banks.
The role of micro finance bank in promoting small and medium enterprises in Lagos State in more than to be over emphases but has been faced confronted with some problems which include.
- Replacement Problem: Loan detent in a major threat to micro finance bank sustainability, it is the deadly virus which affect the operation of the bank. It demoralizes staff and deprives beneficiaries of further valuable services.
- Problem Illiteracy: This affects record keeping and decision making ability of borrowers and consequently affects the relationship with the tanks.
- Inadequate Experienced Credit Staff: Micro financing is more than dispensing loan. To be viable, micro finance in planning, product development and effective engagement with clients.
- High Operation Cost: These problem crops up dirty the replacement collections to be made from severs locations especially in rural communities.
- Inadequate/iron monitoring of micro and small enterprises by the bank leading to defaults finance bank requires, experienced and skilled person as a young and growing industry, there is a dealt of experienced staff in planning product development and effective engagement with clients.
1.2 Purpose of the Study
The purpose of the study therefore is to critically look at the following.
- To examine the effect of micro finance bank in small and medium scale enterprises.
- To identity the major problems/challenges facing micro finance bank.
- To ascertain the rationale of the entry of micro finance bank.
- To examine the impact of small and medium scale enterprises to the production capacity of Lagos state.
1.3 Research Questions
A tentative statement based on the purpose of this study in made to help investigate this search problem. Then the following questions are:
- What effect does microfinance bank have on small and medium scale enterprises?
- Will the itemized problems pose a set bank to Micro Finance Bank (MFB) pose a set bank to (MFB) and the development of (SMES)?
- What impact do the small and medium scale enterprises (SMES) have in the production capacity in Lagos?
1.4 Research Hypotheses
Ho! There is no significant effect of micro finance bank on the small and medium scale enterprises (SME).
Ha! There is a significant effect of micro finance bank in the small and medium scale enterprises.
Ho2! There is no significant relationship between the problems comforting micro finance bank (MFB) and the development of small and medium scale enterprises (SME).
Ha2: There is significant relationship between the problems confronting (MFB) and the development of (SME).
Ho2: Small and medium scale enterprises (SME) contribute to the gross national product in Lagos state.
1.5 Significance of the Study
The result of this study is expected to provide basis to see micro finance bank as a tool for developing small and medium scale enterprises. It is also believed that the findings of their research will rote of help to numerous stakeholders in the economic and as such, we can view the beneficiaries (stakeholders) independently which are analyzed below.
- The individual reader that come in content of this research work will have the search of coming investor in a small and medium space enter price in other to live beyond and average individual within his or her locality.
- The Nigeria populace will benefit much from this student because from any economics and individual growth the idea work the populace must be the centre piece and as such they are made to see the importance and effect of their authority on the success or talent to the nation plan.
- The government will have the incentives to establish more micro finance tannic so as to further promote and facilitate access to loan by more enterprises.
- The researcher will benefit from ethic work as much that the present work contains absolute fact for the frontier of knowledge.
1.6 Scope and Delimitation of the Study
This study will be focused mainly on the development of the small and medium scale enterprise employing microfinance bank as a tool in Lagos state.
1.7 Limitation of the Study
The following are some of the challenges encountered in this study. They include;
- Cost of funding [i.e. financial entrant] Due to increasing cost of browsing and printing procurement of journals, textbooks, newspaper and magazine of relevance’s transport cost.
- Inaccessibility of some element of study or non availability of some record which are treated most time with high security.
- Time constraint due to working hour alongside research work.
- The superficial nature of the study
1.8 Definition of Term
The following term were clearly defined in order to avoid antiquity and shed more light on the research work. Some of which are;
- Micro financial refers to the activity of provision of financial service to client in very small amount to the micro enterprises.
- Enterprises: Planned activities of individuals or group of people with the aim of producing and selling for profit making.
- Small and medium enterprises: a business that in independently owned and operated by its owners with limited capital base.
- Development: refer in a process of growing or developing.
- Gross Domestic Product (GDP): The goods and services produced by the national resident which has monetary value.
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