THE ROLE OF MICROFINANCE INSTITUTION FOR THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISE

ABSTRACT

This study is on the role of micro finance institution for the development of small and medium enterprise. The total population for the study is 200 staff of selected SMEs in Lagos. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up managers, secretaries, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 CHAPTER ONE

INTRODUCTION

• Background of the study

Like other countries of the world, SMEs in Nigeria have the tendency to serve as sources of livelihood to the poor, create employment opportunities, generate income and contribute to economic growth.

Microfinance is a source of financial services for entrepreneurs and small businesses that do not have easy access to banking and related services. The main objective of microfinance is to assist the poor to overcome the poverty and thus help in economic development. Microfinance is not only giving micro credit but it includes wide range of services like insurance, savings, remittance and also non-financial services like training, counselling etc. Micro-Enterprises sector has been recognized as an important pillar of economic growth all over the world. The sector is characterized by low investment requirement and operational flexibility. Micro-Enterprises play a very important role in the development of country because of its innovative entrepreneurial spirit. In many developing economies including India, Small and medium enterprises (SMEs) plays a crucial role in employment creation and income generation. What are the key factors influencing Micro-Enterprise to become small than medium enterprise and hence large enterprises? It is Microfinance. Microfinance is an important tool to promote business development. Researches shows that in Bangladesh more than 15 million families are benefited from small loans and other financial products such as micro-savings and micro-insurance and about 40% of the overall reduction of rural poverty in recent years has been due to microfinance provided to Micro-Enterprises.

Small and Medium Enterprises (SMEs), and financial institutions are very critical to the development of an economy. SMEs provide the vast majority of employment in developing countries and are keystones in the productive structures of emerging economies, such as; improvement of local technology, output diversification, development of indigenous entrepreneurship & forward integration with large scale industries. Similarly in addition to providing substantial employment financial institutions play very prominent roles in firm’s growth and industry productivity and economic growth. They conduct financing the small scale sector, development and support service in the form of loans & grants to different agencies, availability of financial services to households &individuals, insurance and financial services, managing risks by a diversity of financial instruments. Furthermore, financial institutions create financial assets for their customers and sell those assets to other market participants for a definite emolument. In addition to all these functions, financial institutions are also involved in providing investment advice to market participants and managing the portfolios of market participants. Financial institutions play an extremely important role in economic development. Financial institutions cater to important needs of society such as taking care of small savings at reasonable rates. Everyday working men and women have the option of putting their savings into a number of alternatives such as Government small saving schemes, deposits into a saving account provided by their bank, recurring, deposits, time deposits and also the alternative option of investing in mutual funds or stocks.