ABSTRACT

This study discusses the impact of Microfinance Institution (Microfinance bank) on the growth of Small and Medium Scale Enterprises (Small and medium scale business) in the Owerri Urban. The study examined the detailed profile of Small and medium scale business in the Owerri Urban of Nigeria, the contribution of Microfinance bank to entrepreneurial growth, the challenges encountered by Small and medium scale business in accessing credit and the rate of credit utilization by Small and medium scale business. An analysis of the profile of Small and medium scale business shows that most Small and medium scale business area their Micro stages since they employ less than six people and these ctoris considerably dominated by the commerce sub-sector. There search also indicates that Microfinance bank have had a positive effect on the growth of Small and medium scale business. Some of the critical contributions of Microfinance bank include; greater access to credit, savings enhancement and provision ofbusiness, financial and managerial training. Irrespective of the contributions of Microfinance bank to the development of Small and medium scale business, there are challenges that affect the operations of both Small and medium scale business and Microfinance bank. The major challenge faced by Small and medium scale business is the cumber some process associated with

Accessingcreditofwhichcollateralsecurityandhighinterest orsetback.On the other hand, Microfinance bank face some challenges relating to credit misappropriation and non- disclosure of the relevant facts of the business operations of Small and medium scale business. The final analysis of their search clearly reveals that Microfinance bank have a positive effect on the growth of Small and medium scale business. In order to enhance a sustained and accelerated growth in the operations of Small and medium scale business, credits should be client- oriented and not product-oriented. Proper and extensive monitoring activities should be provided for clients who are granted loans.

CHAPTER ONE INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria is said to have a relatively long history of government initiatives to promote and finance, small and medium enterprises (Small and medium scale business). The contributions these Small and medium scale business make to the

Nigeria are substantial because so many people are employed by these enterprises. This is so because it is accepted worldwide that the development and growth of Small and medium scale business can play an important role in turning the growing unemployment situation around. In the light of foregoing, policies and programmes that would support the development of Small and medium scale business are formulated and implemented to better the lives of the citizenry. According to Mbuta and Nkandela (1998), the importance of Small and medium scale business in contributing to job creation and output growth is now widely accepted in both developed and developing countries. Of particular interest is the process of expansion of these enterprises from micro or small into medium size, as it is when they become medium-sized that growth- oriented Small and medium scale business make their most tangible contribution to economic growth and job creation. Dynamic medium-sized enterprises provide a competitive edge in two ways - as leading subcontractors and as venture firms in their own right. (Cited in the research work of Owusu, 2011)

Also as cited in the research work of Owusu, 2011 Abugre (1994) micro and small enterprises are those enterprises employing 29 or fewer workers. Microenterprises are those that employ between 1 to 5 people with fixed assets not exceeding 10,000 US Dollars excluding vehicles, land and buildings. Small enterprises employ between 6 and 29 or have fixed assets not exceeding 100,000 US Dollars excluding land and building. It must be emphasized that lack of finance remains the major constraint to small and medium enterprises in the country.

It is believed that Nigeria began officially promoting the activities of small and medium businesses in 1969 with the establishment of the credit guarantee scheme by the Bank of Nigeria to assist entrepreneurs in obtaining bank credit. This was followed in 1970 by the creation of the Nigeria business promoting programme. The objective of these initiatives was to promote financial and technical assistance to newly established and existing micro, small and medium scale businesses, but their impact was limited. The schemes benefited mostly politically connected Nigeriaian managers of foreign owned manufacturing companies (Abugre, 1994).

In fact, the need for sustainable sources of funding for Small and medium scale business had necessitated the emergence of financial non-governmental organisations on the economic and business scene of the country. According to Opare-Djan (2002), the role Kraban Foundations has played in the microfinance business is substantial. One can also cite the case of Kiva, Sinapi Aba among others in NGOs implementation of micro financing activities.

1.2 STATEMENT OF THE PROBLEM

In the 2009 Bank of Nigeria report on the major operations of Banks and other financial institutions in Nigeria, it was established that most formal banking institutions do not cultivate the habit of doing business with individuals and small business customers, since they consider them to be high risk clients. Small and medium scale business are considered as high risk businesses because they lack the necessary collateral to serve as security for loans and it is costly. This is because applicants from the informal sector tend to apply for small loans which require the same administrative procedure and oversight that are required for the relatively larger loan request made by medium or large scale firms. Hence, the co-operate culture of banks and financial institutions are far removed from the informal world of the micro-entrepreneur.

1.3 OBJECTIVES OF THE STUDY

The general objective of this study is to find out the impact of micro credit on Small and medium scale business performance. Specifically the study aims at:

1. To find out the volume of loans granted by Microfinance bank to Small and medium scale business
2. To find out the challenges Small and medium scale business face when assessing micro-credit
3. To compare the rate at which Small and medium scale business borrow from Microfinance bank as against other sources of capital

1.4 RESEARCH QUESTIONS

1. What is the impact of micro credit on Small and medium scale business performance
2. What is the volume of loans granted by Microfinance bank to Small and medium scale business
3. What are the challenges Small and medium scale business face when assessing micro-credit
4. What is the rate at which Small and medium scale business borrow from Microfinance bank as against other sources of capital

1.5    SIGNIFICANCE OF THE STUDY

The outcome of this research, which seeks to investigate the impact of microfinance on Small and medium scale business in Owerri, will serve as a guide to policy formulation and decision making input over the years. Also the findings of this study would be used as an additional guide by economic policy makers into Small and medium scale business in Nigeria. Also the results of the study can be adopted and used as a guide to take more pragmatic decisions. The study will also make known the activities of the two microfinance institutions under study, which will highlight their activities in the broader perspective in terms of granting loans and credit to the various Small and medium scale business. The study will also serve as literature which will contribute and add up to the existing knowledge of the proposed topic.

1.6    SCOPE OF THE STUDY

The study will focus on the city of Owerri which has an appreciable level of development with an equally appreciable influx of both Small and medium scale business and Microfinance bank. The phenomenon has in effect resulted in making the city quite vibrant for business and hence a precise location for this research works. Specifically, the study focused on Deson microfinance and GIFS microfinance institutions in the Owerri Urban as well as the various individuals and groups within the SME sector who form the client base of these two Microfinance bank.

1.7    LIMITATION OF THE STUDY

The possible limitation of the project is attributed to the lack of time as well as insufficient funds. The study would have been quite broad and representative if it had covered all microfinance institutions nationwide. However, the research is limited to only two microfinance Institutions in Owerri.

1.8 ORGANIZATION OF THE STUDY

The entire project is organized in five chapters. The introductory part is chapter one. It deals with background information on the topic, the problem statement, research objectives, and significance of the study, research questions, limitations and delimitations. Chapter two comprises review of the relevant literature of the study. Some of the notable areas reviewed included: Concepts of micro, small and medium scale enterprises, sources of finance of Small and medium scale business, activities of financial non-governmental organizations and challenges facing the microfinance sector.

Chapter three consists of the methodology, the instrument used for the study, population, sample, and sampling techniques. Chapter four presents the results of the study through an analysis of the data from the field survey and finally the summary, conclusions and the recommendations are presented in chapter five.