PROJECT PROPOSAL
1.1 Background to the Study
In Nigeria, credit has been recognized as an
essential tool for promoting small and Micro Enterprises (SMEs). About 70
percent of the population is engaged in the informal sector or in agricultural
production. The Federal and State governments have recognized that for
sustainable growth and development, the financial empowerment of the people is
vital. If this growth strategy is adopted and the latent entrepreneurial
capabilities of this large segment of the people is sufficiently stimulated and
sustained, then positive multipliers will be felt throughout the economy. To
give effect to these aspirations various policies have been instituted over
time by the Federal Government to improve rural and urban enterprise production
capabilities (Olaitan 2006)
Small Business Enterprise (SBE)
transformation is all about seeking to bring about improvement in the living
condition of the farmer, the artisan, the tenant and the landless within the
simple and rustic economies of the country-sides and urban slums. The basis for
employment generation and entrepreneurship development in the country,
therefore, is to enhance the improvement of the living condition of the people
(Mustapha, 2009).
The Micro business entrepreneurs lack the
necessary financial services, especially credit from the commercial banks; this
is because they are considered not credit worthy. Consequently they depended on
families, friends and other informal sources of funds to finance their
businesses.
Successive governments have come up with
special programs, whose principal targets are the overall empowerment of low
income earners in urban centers. These programmes range from Agricultural
Development Projects (ADPs), the establishment of Agricultural Credit Banks to
Better Life Programme for Rural Women and the like. Unfortunately most of the
programmes failed to achieve the desired result. That led to the emergence of
microfinance banks which aimed at extending credits to micro enterprises and
encouraging entrepreneurship.
The Nigerian microfinance industry has come a
long way; it boasts of all the four well-known models in the industry. A CBN
study identified, as of 2001, 160 registered MFIs in Nigeria with aggregate
savings wo rth N99.4 million and outstanding credit of N649.6 million,
indicating huge business transactions in the sector (Anyanwu, 2004).
Institutional structures for the provision of micro credit vary and may be any
of the following: government or public sector-oriented, NGO supported,
traditional or a mixture of two or more of these. Lagos state, with a
population of about 15 million (2006 census report) of which about two -thirds
of the residents are poor and struggling for survival in the face of high rate
of unemployment, the need for micro finance support cannot be over emphasis.
Most of these people in Lagos are dependent on micro and small-scale farming
and off-farm enterprises for their livelihood. As such, their entrepreneurial
contributions are strategic to the Nigerian economic development and growth has
great potential to contribute to income generation and poverty
alleviation.
In the light of the foregoing, this study is
conducted to examine the impact of microfinance banks on Micro Business
Enterprises (SBE) in Nigeria.
1.2 Statement of Problem
One of the challenges of micro financing in
Nigeria at present is how to the Micro Finance Institutions (MFI) can reach a
greater number of small scale business enterpreneurs. The CBN survey indicated
that their client base was about 600,000 in 2001, and there were indications
that they may not be above 1.5 million in 2003. The existing microfinance banks
in Nigeria serves less than 1 million people out of 40 million potential people
that need the service (CBN, 2005). Also, the aggregate micro credit
facilities in Nigeria, account for about 0.2 percent of GDP and less than one
percent of total credit to the economy. The effect of not appropriately
addressing this situation would further accentuate poverty and slow down growth
and development of SMEs in the country.
The Microfinance Banks replaced the ailing
Community Banks created by former military head of state General Ibrahim
Babangida but was soon caught in the throes of an inefficient Nigerian economic
system. This laudable concept has been hijacked by money bags; it has been
caught by bureaucracy of the Nigerian politics and economics. The concept of
micro financing is presently being misapplied. The CBN directs that every
microfinance bank should have a minimum reserve of not less than N20 million,
while at the same time directing that the NDIC insures each depositor for a
maximum N100,000.00 regardless of the amount of money invested.
These requirements takes the microfinance
industry out of the reach of the people it was intended to serve; the very
poor. While at the same time it discourages prospective investors because their
funds are not sufficiently secured. It is interesting to know that the CBN does
not regulate interest rates charged by microfinance banks; so with N20m tied up
in the CBN vaults as legal reserve ratio, high cost of incorporation of
business ventures; taxes, approvals, rents, salaries etc the operators hardly
have enough left to commence operations. Having failed to capture its target
market, Microfinance banks in the country are now trying to compete with full
fledged banks but are grossly lacking in the most important aspect of its
operations; that is raising funds from depositors and getting prospective clients
to shed their phobia for bank loans for fear of exorbitant interest rates
charged and hidden bank charges.
According to Akindutire,(2008) Operators of
microfinance banks believe it is a short cut to owning a bank without going
through the rigours of procuring a banking license or paying the over N250m CBN
deposit required to start a banking business. It is commonplace to find a
microfinance bank taking out expensive paid adverts and expensive corporate
imaging in the hope that it will open them up to the market.
On the contrary it extrapolated their
problems. For instance what would a microfinance bank be doing at Adeola Odeku
or Ikoyi? When the target market is at Okokomaiko, Mile 2, or all other places
where you can find an akara, plantain (boli) seller, recharge card seller,
okada rider e.t.c instead microfinance banks are competing for corporate
accounts they want to have salary accounts for government parastatal, or
finance petroleum marketing industries, consequently you will find them in
suits, chauffeur driven in state of the art cars.
Against the backdrop of the foregoing
problems, this study will examine the micro finance institutions and their
impact on small scale businesses in Nigeria.
1.3 Objectives of Study
The primary objective of this study shall be
to examine the impact of micro finance bank on the Growth and development of
Micro Business Enterprises in Nigeria and Lagos in particular. Other
salient objectives will include;
i.
To determine the relationship between Micro finance banks and Small Business
Entrepreneurs in Nigeria.
ii.
To examine the challenges of micro financing in Nigeria
iii.
To identify the impact of lack of financial support on small scale businesses
iv.
To suggest means by which micro finance institutions
can be more responsive to Small business
needs in Nigeria
1.4 Research Questions
The following research questions shall guide
the study;
i.
what is the relationship between micro finance Banks and small business
enterprises in Nigeria?
ii.
What are the challenges of Micro Finance in Nigeria?
iii.
What are the effects of lack of financial support on Small business?
iv.
How can micro Finance institutions be responsive to small business enterprises
demands?
1.5 Research Hypotheses
The following hypotheses will be tested in
the study;
Ho: There is no relationship between Micro
finance Banks
and Small Business
Enterprises in Nigeria
Hi: There is a relationship between Micro
finance Banks and
Small Business
Enterprises in Nigeria
Ho: Micro
finance banks do not encourage small business
owners
in Lagos
Hi; Micro finance banks do not encourage small
business
owners in Lagos
1.6 Significance of the Study
Robust economic growth cannot be achieved
without putting in place well focused programmes to reduce poverty through
empowering the people by increasing their access to factors of production,
especially credit. The latent capacity of the poor entrepreneurs would be
significantly enhanced through the provision of microfinance services to enable
them engage in economic activities and be more self-reliant; increase
employment opportunities, enhance household income, and create wealth.
However, the lack of required financial
support from the microfinance banks to Micro Business operators in Lagos state
has become a major concern in Nigeria. Hence, this study shall be relevant to
policy makers in the areas of finding out the impact of micro financing on the
small scale investors. Also, this study shall enhance further research in the
subject area.
1.7 Scope and Limitations of the Study
The scope of the study shall cover micro
finance banks and micro business entrepreneurs in Lagos state metropolis.
However, owing to shortage of literature and financial data, raw data shall be
generated from selected small business operators in Ojo local government area
of Lagos state.
1.8 Research Methodology
The study shall employ the survey research
method in the process of data collection. The method entails identifying
population of study and collection of data through questionnaire
administration.
Population
of Study
The population of study shall comprise of
Small Business Entrepreneurs in Ojo local government area of Lagos state. The
population size is at about 420 Micro and Small Businesses Entrepreneurs which
largely includes owners of supermarkets, electronic shops, pharmacies, Business
centers/ cyber cafes, restaurants, barbing and hair dressing salons, pure water
companies and paint companies in the metropolis.
Sample
Size
A sample size of 110 respondents was drawn
from the study population. The constitution of the sample was as follows;
Sampling
Technique
The study shall adopt the stratified random
sampling technique. The method entails grouping respondents into strata on the
bases of common characteristics which in this case is the industrial
affiliation. After the grouping, the simple random sampling technique is then
applied to select the required sample size
Data
Collection Instrument
Data collection will be done through the
questionnaire method. The questionnaire was structured into section A and B
with close ended questions. Section A shall generate information on
respondents’ bio-data while, section B, will elicits information on respondents
perception of the impact of Microfinance Banks on small business enterprises in
Lagos State.
The questionnaire is in a close ended format
which allowed the respondents to offer their views according to the Lickert
scale of responses as follows;
SA –
Strongly Agreed
A -
Agreed
U -
Undecided
D
-disagreed
SD –
Strongly Disagreed
Administration
of the Instrument
To foster quick response to the
questionnaire, the researcher will personally administered the questionnaires
to the respondents. The effort enable the researcher to clear some of the items
contain in the instrument with the respondents while, at the same time,
respondent attention were drawn to some items yet to be filled.
Method
of Data Analysis
All data collected shall be analyzed using
statistical tools such as frequency distribution table, percentages, and
chi-square analysis for testing the formulated hypotheses.
Chi-square formula;
Chi-square formula;
X2 = ∑(O-E)2
E
df (degree of freedom)= N-1
Where;
X2 = Chi-square calculated value.
O = Observed frequency
E = Expected
frequency which is derived by
While,
df
= Degree of freedom
N =
Number of Observation
∞ =
level of significant (5%)
1.9
Definition of Key Terms
Small Scale Business: A small business is a business that is privately
owned and operated, with a small number of employees and relatively low
volume of sales
Micro Finance:
Flexible structures and processes by which financial services are delivered to
micro entrepreneurs.
Micro Finance Banks (MFB):
Special banks dedicated to
Entrepreneur: The
proprietor or owner of a small business enterprise.
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