The role of Microfinance Banks In Financing Small Scale Businesses In Ogun State

TABLE OF CONTENTS

Title page       –           –           –           –           –           –           –          –           –           –           i

Declaration                –           –           –           –           –           –           –           –           –           ii

Certification   –           –           –           –           –           –          –           –          –           –           iii

Dedication                  –           –           –           –           –           –           –           –           –           iv

Acknowledgement     –           –           –           –           –           –          –           –           –           v

Table of content        –           –           –           –           –           –          –          –           –           vii

List of tables  –           –           –           –           –           –           –           –           –           –           x

Abstract         –           –           –           –           –           –           –           –          –           –           xi

 

CHAPTER ONE: INTRODUCTION

1.1. Background to the study –           –           –           –          –          –           –           –           1

1.2. Statement of problem   –  –           –           –           –          –          –           –           –           3

1.3. Objectives of the study    –           –           –           –           –          –           –           –           4

1.4. Research questions           –           –           –           –           –            –          –           –           4

1.5. Research hypothesis         –           –           –           –           –           –           –           –           4

1.6. Significance of the study –           –           –           –           –          –           –           –           5

1.7. Scope of the study           –           –           –           –           –           –           –           –           6

1.8. Operational definition of terms   –           –           –           –            –          –           –           6

1.9. Organization of the Study           –           –           –           –           –           –           –           7

 

CHAPTER TWO: LITERATURE REVIEW

2.1.   Introduction                   –           –           –           –           –           –           –           –           9

2.2.   Conceptual Literature                –           –           –           –           —                      –           9

2.2.1. Microfinance                 –           –           –           –           –           –           –           –           9

2.2.2. Small business enterprise          –           –           –           –           –           –           –           10

2.2.3.   Problems of small business enterprises           –           –           –           –           –           11

2.2.4.   Structure and Characteristics of the Nigerian SMEs  –           –           –           –           13

2.2.5.  Challenges of Micro-financing in Nigeria        –           –           –           –           –           14

2.5.    Reviews of Empirical Studies   –           –           –           –           –           –           –           15

2.6.   Theoretical Review        –           –           –           –           –           –           –           –           21

22.4.1. Theory of the Firm                  –           –           –           –           –           –           –           21

2.4.2 Three Sigma’s Theory of the Business Model                           –           –           –           22

2.4.3. Contingency Management Theory        –           –           –           –           –           –           24

2.5. Theoretical Framework                –           –           –           –           –           –           –           26

 

CHAPTER THREE: RESEARCH METHODOLOGY

3.1.   Introduction –     –           –           –           –           –           –           –           –           –           28

3.2.   Research Design –          –           –           –           –           –           –           –           –           28

3.3.   Population of the Study –           –           –           –           –           –           –           –           29

3.4.   Sampling Size    –           –           –           –           –           –           –           –           –           29

3.5.   Sampling Technique       –           –           –           –           –           –           –           –           29

3.6.   Instrument for Data Collection  –           –           –           –           –           –           –           31

3.7.   Method of Data Collection        –           –           –           –           –           –           –           32

3.8.   Validity/Reliability of Instrument         –           –           –           –           –           –           32

3.8.1. Reliability test   –           –           –           –           –           –           –           –           –           33

3.9.    Method of Data Analysis         –           –           –           –           –           –           –           35

 

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1.   Introduction       –           –           –           –           –           –           –           –           –           36

4.2.   Data Presentation/Analysis        –           –           –           –           –           –           –           36

4.3. Testing of hypothesis       –           –           –           –           –           –           –           –           44

4.3.   Discussion of Findings  –           –           –           –           –           –           –           –           49

 

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1.   Introduction       –           –           –           –           –           –           –           –           –           52

5.2.   Summary            –           –           –           –           –           –           –           –           –           52

5.3.   Conclusion         –           –           –           –           –           –           –           –           –           53

5.4.   Recommendations         –           –           –           –           –           –           –           –           54

5.5.   Limitations to the Study                        –           –           –           –           –           –           –           55

5.6.   Suggestions for Further Studies                        –           –           –           –           –           –           55

 

REFERENCES        –           –           –           –           –           –           –           –           –           56

 

APPENDIX   –          –           –           –           –           –           –           –           –           –           64

 

 

 

 

LIST OF TABLES

Table 1 Sex of Respondents   –           –           –           –           –           –           –           –           36

Table 2: Category of Business of Respondents          –           –           –           –           –           37

Table 3 Age distribution of Respondents       –           –           –           –           –           –           37

Table 4 Marital status of respondents             –           –           –           –           –           –           38

Table 5: Business experience of Respondents            –           –           –           –           –           39

Table 6: Respondents views on whether it is difficult to access loan from microfinance

banks           –           –           –           –           –           –           –           –           –           39

Table 7: Respondents views on chance of successful acquisition of loan from microfinance

banks            –           –           –           –           –           –           –           –           –           40

Table 8: Respondents views on whether Citizens of Nigeria are adequately motivated

to participate in loan acquisition activities   –           –           –           –           –           41

Table 9: Respondents views on factors affecting the development of small businesses and

their ability to repay loans    –           –           –           –           –           –           –           41

Table 10: Respondents views on whether microfinance banks monitors the use of loan

facilities       –           –           –           –           –           —          –           –           –           42

Table 11: Respondents views on whether microfinance bank help in the expansion capacity

of small business in Ogun state      –           –           –           –           –           –           43

Table 12: Test of Hypothesis I            –           –           –           –           –           –           –           45

 

Table 13: Test of Hypothesis II          –           –           –           –           –           –           –           48

ABSTRACT

This research work empirically explored the role of microfinance banks in financing small business in Ogun state. The purpose of which is to investigate the impact of microfinance banks on small business as well proffer solution to problems posed by microfinancing. The objectives of this study were to examine the impact of micro-credit from microfinance bank on the performance of small business in Ogun state and to appraise the success of microfinance bank in playing its role of pulling resources for utilization by small businesses in Ogun state. The scope of the study is ogun state in 2019 making use of business owners, contingency management theory was used as a framework. The research design used for this study is survey, the population targeted for this study consists of all business owners.  400 business owners were used as sample size and cluster sampling technique was applied. Instrument used for this study is the questionnaire. Data collected were collected from primary sources. From the analysis of the data, the findings shows that micro-credit from microfinance affect the performance of small business in Ogun state, microfinance bank plays its role of pulling resources for utilization by small businesses in Ogun state. Following the findings, it was recommended that micro-credit from microfinance should be granted to small scale business at low interest rate and longer repayment period, microfinance bank plays its role of pulling resources for utilization by small businesses in Ogun state there the existence of microfinance banks by government should be encouraged. The study concludes that microfinance has strong impact on small business enterprise’s survival.

Keywords: small business enterprise, microfinance banks, business performance, ogun state.

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

 

1.1. Background to the Study

Small business enterprise are no doubt the engine room for economic growth, poverty alleviation, job creation and means of crime reduction. They constitute a large proportion of businesses worldwide and play significant role in any economy. Small business enterprises go through series of obstacles among which are financing that inhibit their long-term survival. Researchers have shown that the rate of failure of small-scale business in developing countries is higher than in developed world (Marlow, 2009).

For a business to realise its objectives, it depends greatly on the ability of the enterprise to accomplish its key performance indicator in a sustainable manner (Simerly and Mingfanf, 2000; Wan and Yiu, 2009). Micro financing involves the delivery of financial services to poor and low income households, with limited access to formal financial institutions (Conroy, 2003). Microfinance banks are created in Nigeria to enhance access to loans and savings services for the underprivileged so as to eradicate poverty and ensure even economic development (Shreiner, 2001).

Government in Nigeria has in the past initiated series of programmes and policies targeted at the small business in order to enhance the flow of financial resources to small business enterprises (Oni and Daniya, 2012). The Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) was established in 2003, National Credit Guarantee Scheme was also established in 2003. The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was launched to address the problem of lack of access to credit by small business operators. Although several programmes and policies have been implemented in Nigeria; poverty, unemployment, stunted economic growth are still prevalent in the country (Lawson 2007; Owenubiugie and Igbinedion, 2015; Obadeyi, 2015).

In spite of the major role, significance and contribution of small business enterprises to the nation’s economy, small business enterprises are still battling with many problems. They are faced with significant challenges that compromises their ability to function and to contribute optimally to the economy. Operations of small business enterprises are still bedevilled by a number of problems such as difficulty in accessing credit, short loan repayment period, unwillingness of microfinance banks in financing small business and high interest rates among others.

In Nigeria, small business enterprise constitute about 90% of the industrial sector, they also account for 70% of national industrial employment and 10% of manufacturing output (Ajayi, 2002). Anwatu (2006) opined that 75% of the private sector in Nigeria is dominated by small scale enterprises. Developing the private sector is an engine of growth and creation of wealth and employment in Nigeria.

The performance of small business enterprise in Nigeria falls below expectation (Basil, 2005 and Abiodun, 2011). Thus this study assess the role of microfinance banks in financing small scale business in Ogun state.

 

1.2. Statement of the Research Problem

The survival of small business enterprise is considered crucial in any economy in solving the problem of poverty, unemployment, crime and ensuring economic growth. There is inadequacy in the performance of small business enterprise in performing its role of economic growth, employment creation, poverty alleviation, thus there exist difficulty of small businesses achieving its desired goals.

Most business enterprise fail to consider proper financing that affect their chances of long-term survival as a result experience a progressive decline in its ability. Shortage of finance is one of the major problems facing small business enterprise. A situation whereby funds/credit are readily available, there exist the problem of high interest rate, short repayment period. Also, most microfinance banks are unwilling to lend to small business enterprise. All these among others are situated in Nigeria and thus affect the performance of small business enterprises.

It is disheartening to note that government of Nigeria over the years have not been able to adequately help the poor grow small business. In Ogun state, the ability of small business enterprises to achieve and sustain competitive advantage lies within the availability of suitable strategies that would preserve its operations. It is against this backdrop that the researcher considered the role of microfinance banks in financing small business in Ogun state.

 

1.3. Objectives of the study

The aim of this study was the assessment of the role of microfinance banks in financing small business in Ogun state. The specific objectives are to:

1. examine the impact of micro-credit from microfinance bank on the performance of small business in Ogun state.
2. appraise the success of microfinance bank in playing its role of pulling resources for utilization by small businesses in Ogun state.

 

1.4. Research Questions

This study will be guided by the following research questions:

1. What is the impact of micro-credit from microfinance bank on the performance of small business in Ogun state?
2. To what extent does microfinance bank play its role of pulling resources for utilization by small businesses in Ogun state?

 

1.5 Research Hypotheses

The study is guided by the following hypotheses:

1. H₀: micro-credit from microfinance do not affect the performance of

small business in Ogun state.

2. H₀: microfinance bank have failed in playing its role of pulling resources

for utilization by small businesses in Ogun state.

 

1.6. Significance of the Study

The critical nature of small business to the success or growth of any country is given. This is because availability of finance affect the ability of small business achieving its desired goals. As lack of finance affect the level of productivity thereby preventing the attainment of such significant goals small business play in an economy.

Empirically, this study is carried out to assess the role of microfinance banks in financing small scale business in Ogun state so as to ameliorate the problem of low productivity faced by small businesses.

This study will be important to small business as it will help guide it on how it should operate. It will teach it the importance of microfinance and the necessary guide of attaining finance for business. It will also help owners of small businesses get maximum value from the business.

This study will be of utmost importance to investors, government and the researchers because it will provide policy recommendations to the various Nigeria stakeholders taking adequate measures in small scale enterprise for rapid capacity investment.  It is hoped that the exploration of small business in Ogun state will provide a broad view of the operations of small businesses to investors and government. It will contribute to existing literature on the subject matter by investigating empirically the role microfinance banks play in small business enterprises of the country. This study will be of benefit to;

The Academia: members of the academia will find the study relevant as it will also form basis for further research and a reference tool for academic works.

Government: this study will reveal to the government happenings in small-scale business enterprises as well as microfinance banks. Formulation and implementation of policies based on this findings would ensure development in the area.

Investors: this study shall also be valuable to the investors especially those who may have research interest as it shall guide their private investment decisions.

 

1.7. Scope of the Study

This study is intended to assess the role of microfinance banks in financing small scale businesses in Ogun state in 2019 using owners of small businesses in Ogun state.

 

1.8. Operational Definition of Terms

The following terms have been defined operationally.

• Small business enterprise: small business enterprise is an enterprise marked by limited number of employees and a limited flow of finances and materials.
• Business performance: efficiency and effectiveness of an organization reflected in the business objectives set by management.
• Microfinance: microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services.

 

1.9. Organization of the Study

This study is divided into five chapters. Chapter one is introduction which consists of the background to the study, statement of problem, research questions, research  hypotheses,  objectives  of  the study, the  significance  of  the  study,   the scope  and  limitations  of  the  study  and  finally the  organization of the study. Chapter two deals with the literature review which consists of the conceptual literature, theoretical literature, empirical literature, theoretical framework. Chapter three gives the research methodology including research design, population of study, sample size, sampling technique, method of data collection, instrument of data analysis, method of data analysis, validity/reliability of instrument.  Chapter four is presentation and analysis of data, discussion of findings. Chapter five gives the summary, conclusion and recommendations.

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