The Impact Of Microfinance Bank On The Performance Of Small Scale Businesses

Project and Seminar Topics with material for Banking and Finance

The Impact Of Microfinance Bank On The Performance Of Small Scale Businesses


Abstract


The critical causes on why financing small and medium scale industries by microfinance banks in Nigeria have not been very effective were evaluated. Not only are the SMEs starved with financial back-up, they are also faced with other external problems such as high interest rates, inconsistency in government industrial policies, lack of infrastructural facilities and internally; poor management practices, high rate of business failure, poor accounting standards, shortage of skilled manpower and financial indiscipline. In view of these numerous problems, this research work was conducted so as to come out with solutions as this will pave way for banks to have more confidence in financing these SMEs efficiently and effectively as against hitherto , their stringent lending policies and the risk averse behavior of funding. This has become necessary as it is a well known fact that the survival, growth and development of SMEs of any country depend largely on funding with other factors put in place.


Chapter One


1.0 Introduction

Objectives of the Study

The general objective of this study is to examine the impact of micro-finance bank on the performance of small scale businesses in Delta State.

The study will be on the performance of small scale industry business in Delta State the specific objectives not necessarily in order of priority are:-

To see how micro finance bank will be the best to encourage banking habit among rural dwellers.

The study also aims at improving the economic status of the small scale producer in the rural areas by giving them more capital.

Also the purpose of this study is to find out how best micro finance bank credit can be used to promote community, performance and the attitude of community or rural dwellers toward the exercise.

To investigate the impact of micro finance bank in community performance.


Research Questions

A major challenge facing many developing countries especially in Africa, is devising appropriate performance strategies that will capture the financial services required by farmers and small and medium entrepreneurs whose countries constitute about 70% of the population.

Therefore, the researcher wishes to formulate the following questions to guard him.

  1. What impact has micro-finance banks made in the performance of cottage industries in Delta State?
  2. What impact has micro –finance banks made in the performance Agric product in Delta State?
  3. What impact has micro-finance banks made in the performance of trading in Delta State?

Research Hypothesis

The following hypothesis which are stated in the null and alternative form are to be given a validity test in this research work.

  1. Ho: Microfinance banks have not made meaningful impact in the performance of cottage industries in Delta State.
    Hi: Microfinance banks have made meaningful impact in the performance of cottage industries in Delta State.
  2. Ho: Microfinance banks have not made meaningful impact in the performance of agric product in Delta State.
    Hi: Microfinance banks have made meaningful impact in the performance of agric product in Delta State.
  3. Ho: Micro-finance banks has not made in the meaningful impact in the performance of trading Delta State?
    Hi: Micro-finance banks have made in the meaningful impact in the performance of trading Delta State?

Scope of Study

The scope of the study shall cover the impact of micro finance banks on small scale business in Delta State metropolis between 2005-2012. The researcher is interested in what micro finance banks have done in the area of cottage industries, agric product and trading in Delta State. However, owing to shortage of literature and financial data, raw data shall be generated from selected small scale business operators in the area of Delta State.


Significance of the Study

The significance of this research work cannot be over emphasized as the following are made known.

  1. The impact of microfinance bank in small scale business.
  2. The overview of microfinance bank.
  3. To bring to the knowledge of poor, economically weak and the general public the need for micro credit.
  4. It will also be of much importance to researchers who may wish to carryout on related topics.

Chapter Five


Conclusion and Recommendations

5.1 Conclusion

From the analysis of the results in chapter four, one can deduce that the accessibility to credit market for small and medium scale businesses in Nigeria is extremely difficult due to the fact that the macroeconomic instability and uncertainty in the business environment has forced banks to lend short to SMEs. Also such facilities i.e. overdrafts and short term loans are made available at a very high interest rate of over 26 percent and they are heavily collaterised. In a situation in which SMEs are mainly dependent on bank loans, this situation could be very disastrous. The implication is that many SMEs do not have access to bank loans with grave implications for their growth and development. Also the inconsistency in government industrial policies for example the inability of the government to execute budgets on time is a major restriction on the ability of manufacturing firms to factor tariff measures into their trade decisions. The lack of infrastructural facilities is also part of external problems that affect the growth of small and medium scale industries. Here, many banks blame their inability to fund SMEs on the poor economic climate prevalent in the country, citing for instance the low performance of public utilities as one of the factors threatening fund managers.

Apart from the external problems that harm the growth of SMEs, there are also serious internal problems that greatly constrain their growth and serve as a deterrent for banks to lend. These problems include among others poor management practices, high rate of business failure, poor accounting standards, shortage of skilled manpower and financial indiscipline.

On the basis of these problems, some recommendations are made below which , if implemented will improve the dwindling state of our economy in general and the small and medium scale industries in particular.


5.2 Recommendations

There is no way Nigeria can achieve sustainable funding of small and medium scale enterprises by microfinance banks and other agencies such as NERFUND, NIDB etc established for the funding purposes until both the external and internal problems of SMEs are solved. Banks react to the stimulus of the macroeconomic environment and as long as the environment remains unconducive, banks will continue to exhibit risk-averse behavior irrespective of the programs put in place to address this problem including the SMIEIS program that was already highlighted.
The following recommendations in my opinion will help improve the growth and development of the SMEs:

  1. The government should cut down the interest rate since interest rates are not favorable to investors in the sense that the cost of funds could undermine profits and cause a loss of the investment. Interest rates in Nigeria officially are as high as 23.6% and this has a negative impact on the ability of small and medium scale industries to obtain credit from the banks.
  2. The government should be consistent in its industrial policies so as to enable manufacturing firms to factor tariff measures into their trade decisions.
  3. The government should provide adequate infrastructural facilities like electricity, roads and water supply for the SMEs as this will reduce the high cost of doing business. This will encourage banks to fund the SMEs as their investment will be recouped.
  4. The government should regard SMEs should regard SMEs as the ‘eggs’ that hatch big businesses. Apart from the adequate incentives in (3) above, the government should support SMEs by bulk purchasing their products and retailing them both for the domestic market and for exports.
  5. To facilitate their access to bank credits, the government should be issuing LPOs to the SMEs and payment should be made promptly to the SMEs as this will encourage their growth and the banks can also accept such contract papers as collateral.
  6. On the issue of the internal problems of the SMEs like poor management practices, high rate of business failure, poor account standards, shortage of skilled manpower and financial indiscipline, the government should set up small business management assistance agencies manned by highly skilled and dedicated workers with the view of tackling these problems. The agencies should compliment the provision of credit by insuring its efficient use through training and counseling of the small and medium scale entrepreneurs.

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