CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Small and Medium Scale Enterprises are sub-sectors of the industrial sector which play crucialroles 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 intensiveand large scale industrial projects which was based on the philosophy of import development toSmall and Medium Scale Enterprises which have better prospects for developing domesticeconomy, thereby generating the required goods and services that will propel the economy ofNigeria towards development. It is base on this premise that Ojo (2009), argued that one ofthe responses to the challenges of development in developing countries particularly, in Nigeria,is the encouragement of entrepreneurial development scheme. Despite the abundant naturalresources, the country still finds it very difficult to discover her developmental bearing sinceindependence. Quality and adequate infrastructural provision has remained a night-mare, the realsector among others have witnessed downward performance while unemployment rate is on theincrease. Most of the poor and unemployed Nigerians in order to better their lots have resorted tothe establishment of their own businesses. Consequently,Entrepreneurship is fast becoming ahousehold name in Nigeria. This is as a result of the fact that the so called white collar jobs thatpeople clamour for are no longer there. Even, the touted sectors (Banks and companies) knownto be the largest employer of labour are on the down-turn following the consolidation crisis andfraudulent practices of the high and mighty in the banking sector. The companies of course arefolding up as a result of erratic power supply, insecurity and persistent increase in interest ratewhich has lead to high cost of production and undermines profit making potentials of companiesoperating in Nigeria (Hassan, 2003).
Since the office jobs that people desire are no longer there for the teeming population, and thefew ones that succeeded in getting the jobs are thrown out as a result of the factors identifiedabove, 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 areality as a means of ensuring self independent, employment creation, import substitution,effective and efficient utilization of local raw materials and contribution to the economicdevelopment 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 andfinancial institutions. Over the years a number of policies have been formulated by thegovernment with a view to developing Small and Medium Scale Enterprises. The Nigeriangovernment 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 Nigeria.
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 poorpeople 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:
1.4 RESEARCH QUESTIONS
1.5 HYPOTHESIS
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:
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.
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