The Role Of Microfinance Bank In The Development Of Small Scale Enterprise

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The Role Of Microfinance Bank In The Development Of Small Scale Enterprise


Abstract


This study examines the role of Microfinance bank in the development of small scale enterprise using Afemai Microfinance Bank as a Case Study. The main objective of this study is to ascertain if microfinance bank provide for the needs of the people and also to examine if microfinance bank help in the provision of soft loan to assist the small scale investors. The small scale entrepreneurs in rural areas lack the necessary financial services, especially credit from the commercial banks. It was discovered from the study that microfinance bank assists in the development of small scale. The study concluded that the proportion of overdraft granted over the period is much higher than that of loans granted. This result from the fact that granting of overdraft facilities is more profitable to the bank. The study however recommends amongst others that the bank should avoid making strengthful demand on perspective borrowers in terms of types and numbers of form to be completed, high collateral securities and other protocols, as these hider economic developments.


Chapter One


Introduction

1.1 Background to the Study

The ideal of micro-finance banking become necessary due to the inability of the conventional banking schemes to mobilize the dormant funds in rural area and channel them into needy factor. Besides, small business and the rural farmers needed to inculcate banking culture. Their idle funds needed to be mobilized for onward lending to the productive sector hence the need for microfinance banks arose.

Much effort have been made in the past by successive government to involve rural dwellers in Nigeria in modern banking practice the extend credit to them in terms that are easily attainable earlier on, in obedience to the Central Bank directive the commercial banks opened braches in many communities.

In spite of opening of such branches, it was not possible to make banking attractive to Rural dwellers. This was because banking operations even in the rural braches have continued to be complex, cumbersome and too complicated for the level of education and enlightenment at the rural people participation therefore, was not just possible.

In Nigeria, according to Ezike (2001), the main objective of rural banking is to effectively mobilize saving in the rural area and bring credit close and within the reach of the long-credit starved farmer.

However, like the previous schemes, aimed at small business in the rural/urban area, the rural banking scheme has failed to accomplish its set objectives of providing for the rural people in particular. Against the background, this study is designed to x – ray the role of microfinance banking (Afemai Microfinance Bank) in the socio-economic development of Nigeria with a focus on Small Scale Enterprises in Edo State.


1.2 Statement of Problem

The banking industry is quite a risky business and a lot of fears are being exercised in establishing bank branches in rural areas because of inadequate security and fear incurring losses in the course of their operations.

There is a problem associated with the non-provision of loans to small scale businessmen/women. The problem of rural-urban drift lack of employment opportunities, inaccessibility of infrastructure, road, electricity, potable water, telephone services, among other which for a long time have been denied the rural communication.


1.3 Objective of the Study

The following are the main objectives of this study;

  1. To ascertain if microfinance bank provide for the needs of the people.
  2. To ascertain if microfinance bank assist in the development of small scale.
  3. To determine if microfinance bank is a base for development of the rural infrastructure?
  4. To examine if microfinance bank help in the provision of soft loan to assist the small scale investors.

1.4 Research Hypotheses

Hypothesis One
  • Ho: Microfinance bank does not assist in the development of small scale.
  • HI: Microfinance bank assists in the development of small scale.
Hypothesis Two
  • Ho: Microfinance bank is not a base for development of the rural infrastructure.
  • HI: Microfinance bank is a base for the development of the rural infrastructure.

1.5 Significance of the Study

Microfinance banking service has become relevant instruments for the socio-economic development of our rural areas. Rural Micro-finance banks occupy a pride of place like the economic activities of the rural people.
Significantly, this study will contribute to the existing literature for information and reference


1.6 Scope and Limitation of the Study

This study is primarily concerned with the role of microfinance bank in the development of small scale enterprise.

This project work covers Afemai Microfinance Bank as a Case Study. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following.

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.


1.7 Definition of Terms

Micro Finance Bank:

Bank is seen as self-sustaining finance institution, owned and managed by a community for the purpose providing credit banking and other financial services to its member largely on the basis of self-recognition and credit works.

Deposit:

Money kept in a bank not to be withdrawn without notices on which interest is payable.

Credit:

A payment made to somebody on trust on the ground that such money will be repaid as at when due.

Interest Rate:

This can be defined as the rate at which the commercial banks lend money to the public.

Savings:

An amount or a sum of money deposited in the bank on which interest is payable which also can be written by depositor at will.

CBN:

Central banks of Nigeria


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to have a critical analysis of the role of microfinance bank in the development of small scale enterprise.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of small scale business financing.


5.2 Summary

This study aimed at having a critical analysis of the role of microfinance bank in the development of small scale enterprise. Four objectives were raised. These objectives include: To ascertain if microfinance bank provide for the needs of the people, to ascertain if microfinance bank assist in the development of small scale, to determine if microfinance bank is a base for development of the rural infrastructure, to examine if microfinance bank help in the provision of soft loan to assist the small scale investors.


5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
Entrepreneurs in the small and medium sector of the economy in Nigeria require access to finance for their businesses to grow. Although, the SME sector contributes significantly to the national economy, the sector has so far not been given due recognition commensurate with level of the contribution. Although financial issues are important to all firms, results from this study show that both financial and non-financial services obtained from MFBs have highly benefited SMEs. Therefore MFBs contributes significantly to an enhanced entrepreneurial environment by making the business environment more conducive and narrows the resource gap for small businesses. Based on findings from this study, the use of MFBs has potentials for enhancing the performance of small businesses in two ways- regular participation in micro financing and offering of non – financial services.


5.4 Recommendation

Having successfully completed the study, the following recommendations were put forward by the researcher:
SME operators should utilize the benefits of MFBs to promoting their business outfits so that the economy as a whole is improved in performance

Government should regulate and monitor the activities of MFBs to redress the identified weaknesses.
Government and MFBs themselves should enhance the out-reach of microfinance through creating awareness of the activities and operations to SMEs especially those in rural and semi-urban areas that are yet to appreciate the benefits of the scheme.

Government should also ensure active operation of the SME Credit Guarantee Scheme to improve credit providers’ exposure to longer term debt issued by small firm managers, in such areas as business plan development, feasibility studies, project monitoring and analysis, book keeping and accounting, performance evaluation etc. this could be organized before entry into business or early in the business when it is having access to equity finance. This is essential in order to facilitate the qualification of the business for credits to leverage its equity capital as going-on concern.

Government should provide a congenial environment for the operation of venture capital and business angels financing (business entrepreneurial monitoring) so as to enable them to provide risky start-up capital for small business.


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