ABSTRACT
This study is basically concerned with the analysis of the prospects of small and medium scale enterprises under the microfinance regime of the present government. The attempts made by various personalities and institutions towards explaining the concept was given proper attention. Moving ahead, the researcher in his efforts aimed at carrying out a paper research made use of various methods/instruments of data sourcing and analysis, that comprised of primary and secondary sources of data which included face to face discussions, oral interviews, questionnaires and the use of relevant textbooks, magazines, journals, libraries, internet, e.t.c. The research was conducted with a known total population of two thousand eight hundred persons and a determined sample size of three hundred and fifty relevant persons. Equally, some research questions were put forward to direct investigation in conducting the research, while tables together with percentages were employed to provide comprehensive data analysis and presentation. The findings from the study revealed among other things, that the activities of MFIs has a tremendous role to play in revamping SMEs in the country.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigeria economy appears to have been reaping the advantages obtainable from Small Scale Enterprises. These include stimulation of indigenous entrepreneurship, transformation of traditional industry, e.tc. The experiences in many parts of the world point to the direction that Small Scale Enterprises can make positive impact on the economies of many nations both developed and developing.
It is for this reason that the government of Nigeria (Federal and State) started showing interest in Small Scale Industries (SSIs) from the 70s to date some of the positive actions taken by government in this regard include providing funds for some form of research into these industries, creating SSI divisions or departments as well as small scale credit schemes in the various states and at the federal level.
The implementation of the programmes that have been outlined for the development of the Small Scale Industries in the past have often been hampered by the lack of information
concerning the industries, most especially with the constraints to their development, what and what motivates them, their economic contributions and so on. Hence, the need for adequate research into them to provide the basic data for planning effectively for them. Detailed and extensive nationwide research on these industries in Nigeria have generally been lacking until the pioneering work of the Industrial Research Unit of the University of Ife, now Obafemi Awolowo University Ife in the early
1970s.
The first in the series of surveys carried out by the Ife unit on SSIs, covered the then Western States, Kwara State and former mid western state. A survey of SSIs in the former north eastern states was also carried out by the unit. The University of Zaria now Ahmadu Bello University Zaria, also carried out similar studies in the remaining states of the country at that time.
The objectives of those studies were similar and were meant to study and analyze the structures of the SSIs, the pattern of ownership management and control in the SSIs as well as the size of employment, marketing procedures, level of education and
training in the industries, the studies also sought to examine the extension services available to the industries and the impact of public policies on their general performance.
Also, after 1970s, the number of Microfinance Institutions (MFIs) around the world proliferated at a fast pace. In view of the dismal performance of the conventional finance sectors, policy makers, practioners and international organizations advocated micro financing as the tool for poverty reduction. Today, there are more than 7000 micro lending organizations providing loans to more than 25 million poor individuals across the world, the vast majority of who are women. The United Nations Capital Development Fund declared 2005 as the year of micro credit. The success of Grameen bank model in Bangladesh, which offered loans to poor people through group collateral, was emulated in many countries worldwide.
The Nigerian Microfinance Industry has come a long way; it boasts of the entire four well – known models in the industry. A CBN study identified, as at 2001, 160 registered MFIs in Nigeria with aggregate savings worth N99.4 million and outstanding credit of N649.6 million, indicating huge business transactions in
the sector, Anyanwu (2004:8). 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
A research conducted by UNDP in collaboration with Nigerian Government on: Development of a sustainable pro-poor financial sector phase II, indicated that with a population of about 140 million and GDP/capital of $641 (2006), two–thirds of Nigeria’s people are poor. Nigeria has the third highest number of poor people in the world. Most of these poor people are dependent on micro and small – scale farm as well as off – farm enterprises for their livelihood. As such, their entrepreneurial contributions are strategic to the Nigerian economic development and their growth has great potential to contribution to income generation and poverty alleviation.
One of the challenges microfinance currently faces in Nigeria is for the MFIs to reach a greater number of the poor. The CBN survey indicated that their client base was about 600,000 in
2001, and there were indications that they may not be above 3.5 million in 2007. The existing microfinance in Nigeria serves less
than 1 million people out of 60 million potential people that need the service, CBN (2005:6). 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.
Another challenge is that most of micro finance funding goes to the commercial sector to the detriment of the more vital economic activities, especially agricultural and manufacturing whose sectors provide the foundation for sustainable growth and development. Currently, only about 16.1 and 5.5 per cent of total MFI funding went to these sectors, respectively, while the bulk
78.4 per cent, funded commerce.
1.2 STATEMENT OF PROBLEM.
Despite the fact that there is an increase in the number of small and medium scale enterprises in Nigeria, the country still witnesses under-industrialization. Unemployment has become a common phenomenon, with the institutions of higher learning producing fresh graduates each academic year without appropriate job opportunities for a lot of them.
Also, capital is a major factor of consideration as regards small and medium scale enterprises establishment. Shortage of capital has induced many enterprises to delay their projects. Commercial banks traditionally lend to medium and large enterprises which are judged to be creditworthy. They avoid doing business with the poor and their micro enterprises because the associated cost and risks are considered to be relatively high. Microfinance Institutions (MFIs) have therefore become the main source of funding micro enterprises in Africa and in other developing regions.
Government on the other hand had been accused severally of not doing enough towards funding small and medium scale enterprises. This is where the problem of this study lies. It constituted an inquiry into ascertaining the prospects of small and medium scale enterprises more especially as it relates to their financing through microfinance institutions in this present political dispensation.
1.3 OBJECTIVES OF THE STUDY
The objectives which this study seeks to achieve include:
i. To provide an analysis of microfinance institution with emphasis on its evolution, characteristics, challenges and potentials.
ii. To review various ways through which government had been of assistance to small scale enterprises in terms of financing, in the past.
iii. To ascertain what constitutes small scale enterprises prospects in this present regime.
1.4 RESEARCH QUESTIONS
To direct investigation, the following research questions were put forward.
i. How can microfinance institutions be analyzed?
ii. Through what ways/means had government been of assistance to small scale enterprises especially financially in the past?
iii. What constitutes the prospects of small scale enterprises in this present regime?
1.5 SIGNIFICANCE OF THE STUDY
The role of small and medium scale enterprises (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. The impact of SMEs is felt in the following ways: Greater utilization of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries provision of regional balance by spreading investments more evenly, provision of avenue for self employment and provision of opportunity for training managers and semi – skilled workers Chibundu (2006:1).
In response to the call by member states for UNESCO to contribute to the Millennium Development Goals, especially Goal1: that of halving extreme poverty by 2015, the organization launched projects pertaining to the cross – cutting theme “the eradication of poverty, especially extreme poverty” in 2002.
Within the framework of this initiative, UNESCO supported more than 40 projects to address the poverty issue from a multisectoral point of view, in order to address freedom from poverty as a human right and to develop policy – oriented activities. In the implementation of these projects the organization brought together in – house experts in Education, Culture, Natural Science, Social Science, and Communication.
One of the projects was on the transformation of the activities of the clients of Micro Finance Institutions (MFIs) from subsistence level to micro enterprises. This particular project commenced in 2004 and ended in 2006. The Objective of the project was to facilitate the introduction of appropriate technologies into income generating activities, financed by MFIs. The specific objectives of the project were:
To identify and compile information on best practice and policies for the growth and transformation of activities of clients of MFIs.
To disseminate and share information and experience on best practice among agencies involved in the administration of micro finance schemes.
To encourage micro – finance schemes in several African countries to adopt some of the policies and best practices identified in the project. The project was a combination of research/study and advocacy at the national level.
However, it is unfortunate that in Nigeria, the full potential of SMEs is not being fully realized. This is partly related to harsh operating environment. But the major reasons inhibiting the growth and competitiveness of Nigeria SMEs according to extensive studies in NISER is managerial incompetence. Also part of the reasons for not financing some SME projects by commercial banks is because of high risk and failure rate associated with low managerial know – how. Thus prompting the embarking upon of microfinance programmes for the provision of loans, savings and other financial services to low – income and poor people for use in small businesses.
It is in this regard that a study such as this targeted at the concept of SMEs and the evolving phenomenon of MFIs should be seen as very significant.
1.6 SCOPE OF THE STUDY
The scope of the study encompasses the analysis concerning the relevance of small and medium scale enterprises towards the growth and development of a nation’s economy, together with its potentials and challenges.
Also it encroaches on the phenomenon of microfinancing and micro finance institutions (MFIs), more especially as it affects small and medium scale enterprises financing, with special emphasis on the present regime.
1.7 LIMITATION OF THE STUDY
The limitations of the study exists in such areas as the time period involved for the execution/ implementation of the research, difficulties encountered in obtaining most of the necessary data/information needed for the study as well as transportation and some other logistic problems.
1.8 DEFINITION OF TERMS
I. ADMINISTRATION: The executive part of government; the persons collectively who are instructed with the execution of laws and the superintendence of public affairs; in other words, a method of tending to or managing the affairs of some group of people.
II. ENTERPRISE: A purposeful or industrious undertaking, especially one that requires effort or boldness, as well as willingness or ability to undertake new ventures, initiatives, e.t.c.
III. MICROFINANCE: Refers to the provision of financial services to poor or low income clients, including consumers and the self-employed. In other words, it is banking the unbankables, bringing credit, savings and other essential financial services within the reach of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral.
IV. MICROFINANCE INSTITUTION: An organization that provides financial services to the poor. This very broad definition includes a wide range of providers that vary in
their legal structure, mission and methodology. However, all share the common characteristic of providing financial services to clients who are poorer and more vulnerable than traditional bank clients.
V. PROGRAMME: Plan of procedure towards actualizing a particular objective.
VI. PROSPECT: The possibility of future success, in other words, something expected, hoped for, looked forward to; chance of advancement and also exploration in search of something.
This material content is developed to serve as a GUIDE for students to conduct academic research
PROSPECTS OF SMALL AND MEDIUM SCALE ENTERPRISES UNDER THE MICROFINANCE PROGRAMME OF THE PRESENT ADMINISTRATION
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