CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Robust economic growth and development cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production especially credit.
The latent capacity of the poor for entrepreneurship would be significantly enhanced through them engaged in economic activities and be more self-reliant. Increased employment opportunities enhances household income and creative wealth. According to CBN, currently the formal financial system provides services to about 35 percent of the economically active population of financial service while the remaining 65 percent has difficult access to financial services.
(Microfinance policy, regulatory and supervisory framework of Nigeria CBN 2014.2).
This means that these 65 percent of the65 percent of the active population is at the mercy of the formal financial sector.
These informal financial sectors, over the years, were not able to address the issue of lack of microcredit to the poor and low income earners. Hence, the government saw the need for the establishment of microfinance institutions. It replaced the former community banks which had over the years performed sub-optimally.
The concept of microfinance institution is not a new phenomenon in the Nigerian financial system. Its intent is an attempt to reach the poor masses and small entrepreneurs who have not been able to cope with modern banking system with its attendant complex and sophisticated operations. (Regulatory and supervisory framework for micro finance banks in Nigeria CBN 2014). From the above, the establishment of micro finance bank should supposedly increase the development of small and medium scale enterprise to ensure economic empowerment of the poor, employment generation and poverty reduction. The establishment is also geared towards stimulating and developing grass root banking in order to enhance rural industrialization through provision of credit facilities and investment incentives for eve development in the nation.
In 2012, the baseline economic survey of small and medium scale enterprises conducted, indicated that the 6,498 industries survey employ a little over one million workers. Considering the fact that about 18.5 million (then) Nigerians were unemployed. But as alluded above, the emergence of microfinance bank is to envisaged to help in the development of these small and medium scale enterprises through provisions of micro credits.
1.2 STATEMENT OF THE PROBLEMS
The absence of policy in microfinance banks in Nigeria.
The challenges of shortage of loan able funds by banks.
The issue of inadequate measures of micro finance banks in Nigeria.
The challenges facing the high interest rate on loans to small and medium scale enterprises in Nigeria.
The issue of poor access of small and medium scale enterprises to microfinance banks.
1.3 THE PURPOSE OF THE STUDY
In studying the microfinance banks and funding of SMES the objectives are as follows;
- To review the absence of policy in microfinance banks in Nigeria.
- To highlight the challenges of shortage of loan able funds by banks.
iii. To have a proper understanding of inadequate measures of microfinance banks in Nigeria.
- To review the challenges facing high interest rate on loans to SMEs.
- To review the issue of poor access of SMEs to microfinance banks.
1.4 RESEARCH QUESTIONS
- What are the policies necessary in microfinance banks in Nigeria?
- Are there any challenges facing the shortage of loan able funds by banks?
iii. Are there any challenges facing the inadequate measures of microfinance banks?
- What are the challenges facing high interest rate on loans to SMEs.
- Are there any challenges facing the poor access to SMEs to microfinance banks?
1.5 SIGNIFICANCE OF THE STUDY
This study will be of great significance to the individuals (the entrepreneurs), the regulatory bodies, students and lectures, the business organizations as well as the microfinance banks.
To the regulatory bodies especially the central Bank of Nigeria (CBN), this work will help them to formulate the policies that will guide the microfinance institutions especially the microfinance banks.
Also, to the individuals (i.e. potential entrepreneurs) who are so ambitious to establish business but were paralyzed due to lack of accessibility of funds, and those existing ones that wants to boost their businesses will find this work so valuable.
Furthermore, to the educational institutions this work will be benefitting in the field of their study.
Microfinance banks will also find this work valuable in helping them to know the roles they must play in the funding of small and medium scale enterprises.
1.6 SCOPE OF THE STUDY AND DELIMITATION
Though there are many informal microfinance institutions that extends micro credit facilities in the country, the researcher chose to limit the scope of this study on MICROFINANCE BANKS. This is due to the fact that among these informal microfinance institutions it is only microfinance banks that are more streamlined for the achievement of the objective of this study, the funding of small and medium scale enterprises.
However, this work does not consider the accounting procedures and implications of the microfinance banks as regards to funding of SMEs.
1.7 PLAN OF THE WORK
This project work is divided or contains five (5) chapters.
The chapter one provides the introduction and background of the subject matter justifying the need for this study.
While chapter two presents the related literature review concerning Microfinance Banks and funding of small and medium scale enterprises in Nigeria.
Chapter three states the research methodology.
Also chapter four, focuses on Data presentation and analysis.
Lastly, in chapter five it reflects on the summary, conclusion and recommendations based on the findings of the study.
1.8 PROFILES OF THE ORGANIZATION
The concept of microfinance is not new savings and credit groups that have operated for countries includes the “susus” of Ghana, Chitfunds” in India, Toutines” in West Africa, “Isusu in Nigeria as well as numerous clubs and burial societies found all over the world.
In the 1800s, various types of larger and more formal savings and credits institutions began to emerge in Europe, organized primarily among the rural and urban poor.
From 1870, the unions expanded rapidly over a large sector of the rhine province and other regions of the German.
In the early 1900s, various adaptations of these models began to appear in parts of rural Latin America (from the archives – posted on 14-4-2006).
In 1990, it was made formal by introducing it as a community bank. However, the community banks and other past initiatives failed because of lack of funds and other reasons.
To address the situation and provide sustainable financial services to micro-entrepreneurs, the microfinance policy, regulatory and supervisory framework was launched on December 15 2005 and this policy led to the establishment of micro finance Banks to provide financial service to the poor and low income groups.
1.9 DEFINITION OF TERMS
Micro finance: Is a type of finance which requires very small and uncollateralized loans or other financial services for low income clients.
Micro finance bank: Any company licensed by the central Bank of Nigeria (CBN) to carry out the business of providing micro finance banking service.
Liquidity: It means the ease with which an asset (something of value) can be converted to cash with minimum delay.
Banking habit: This refers to the people’s habit in using banking facilities such as savings borrowing etc.
Small and medium scale enterprises: They are business activities or organization that are not large in size and limited to what it does (Dictionary of Economics and commerce).
Entrepreneur: A person who establishes enterprises (small or big) not only for social and developmental gains. (Ezeifedigbo E.E).
Collateral: Any property or item of value that you promise to give someone if you cannot pay back the money lent to you.
Funding: To make money available for a particular purpose.
Banking: This involves the business of receiving from the public, on current account, money which is to be repayable on demand by cheques and making advances to customers (Patton Commission).
MFBs: Microfinance Banks
SMEs: Small and medium scale entrepreneurs.
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