THE IMPACT OF MICROFINANCE BANK IN GROWTH OF SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA

ABSTRACT

This study discusses the impact of Microfinance Institution (Microfinance bank) on the growth of Small and Medium Scale Enterprises (Small and medium scale business) in the Owerri Urban. The study examined the detailed profile of Small and medium scale business in the Owerri Urban of Nigeria, the contribution of Microfinance bank to entrepreneurial growth, the challenges encountered by Small and medium scale business in accessing credit and the rate of credit utilization by Small and medium scale business. An analysis of the profile of Small and medium scale business shows that most Small and medium scale business area their Micro stages since they employ less than six people and these ctoris considerably dominated by the commerce sub-sector. There search also indicates that Microfinance bank have had a positive effect on the growth of Small and medium scale business. Some of the critical contributions of Microfinance bank include; greater access to credit, savings enhancement and provision of business, financial and managerial training. Irrespective of the contributions of Microfinance bank to the development of Small and medium scale business, there are challenges that affect the operations of both Small and medium scale business and Microfinance bank. The major challenge faced by Small and medium scale business is the cumber some process associated with

Accessing credit of which collateral security and high interest or setback. On the other hand, Microfinance bank face some challenges relating to credit misappropriation and non- disclosure of the relevant facts of the business operations of Small and medium scale business. The final analysis of their search clearly reveals that Microfinance bank have a positive effect on the growth of Small and medium scale business. In order to enhance a sustained and accelerated growth in the operations of Small and medium scale business, credits should be client- oriented and not product-oriented. Proper and extensive monitoring activities should be provided for clients who are granted loans.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria is said to have a relatively long history of government initiatives to promote and finance, small and medium enterprises (Small and medium scale business). The contributions these Small and medium scale business make to the economic development and growth of Nigeria are substantial because so many people are employed by these enterprises. This is so because it is accepted worldwide that the development and growth of Small and medium scale business can play an important role in turning the growing unemployment situation around. In the light of foregoing, policies and programmes that would support the development of Small and medium scale business are formulated and implemented to better the lives of the citizenry. According to Mbuta and Nkandela (1998), the importance of Small and medium scale business in contributing to job creation and output growth is now widely accepted in both developed and developing countries. Of particular interest is the process of expansion of these enterprises from micro or small into medium size, as it is when they become medium-sized that growth- oriented Small and medium scale business make their most tangible contribution to economic growth and job creation. Dynamic medium-sized enterprises provide a competitive edge in two ways – as leading subcontractors and as venture firms in their own right. (Cited in the research work of Owusu, 2011)

Also as cited in the research work of Owusu, 2011 Abugre (1994) micro and small enterprises are those enterprises employing 29 or fewer workers. Microenterprises are those that employ between 1 to 5 people with fixed assets not exceeding 10,000 US Dollars excluding vehicles, land and buildings. Small enterprises employ between 6 and 29 or have fixed assets not exceeding 100,000 US Dollars excluding land and building. It must be emphasized that lack of finance remains the major constraint to small and medium enterprises in the country.

It is believed that Nigeria began officially promoting the activities of small and medium businesses in 1969 with the establishment of the credit guarantee scheme by the Bank of Nigeria to assist entrepreneurs in obtaining bank credit. This was followed in 1970 by the creation of the Nigeria business promoting programme. The objective of these initiatives was to promote financial and technical assistance to newly established and existing micro, small and medium scale businesses, but their impact was limited. The schemes benefited mostly politically connected Nigeriaian managers of foreign owned manufacturing companies (Abugre, 1994).