THE CONTRIBUTION OF INFORMAL FINANCIAL INSTITUTIONS TO THE GROWTH OF SMALL SCALE ENTERPRISE

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 Abstract

This study is on the contribution of informal financial institutions to the growth of small scale enterprise. The total population for the study is 200 members of cooperative society in Takum local government area of Taraba state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made coordinators, cashiers, old members and new members were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 CHAPTER ONE

INTRODUCTION

• Background of the study

The economies of third world countries such as Nigeria operate with dual financial institutions. On one hand are group which function through direct governmental control known as Formal Financial Institutions such as Commercial Banks, Insurance Companies and Mortgage Banks. And on the other hand are those financial institutions which are not directly controlled by government, called Informal Financial Institutions such as money lenders, cooperative societies, thrift and loan societies, local bankers, cooperatives etc. It should however be noted that statutory dominance of formal financial sector since independence is hinged on the thinking that the sector would stimulate the growth of the economy and ensure the upliftment of the socio-economic lives of the people. It has been contended that the Formal financial sector will promote savings and investment, improve opportunities for credit, and engender reduce poverty. But it has been observed that Formal financial institutions have seriously come short of the expectations as they have made things harder for Nigerians through stringent conditionalities for credit, poor customer services and high interest rates (Frank, 1998). Even the micro finance institutions that was created for the purpose of developing the small and medium scale enterprises has not been able to realize any of the objectives for which it was created, thereby leaving the small and medium scale enterprises to be sourcing for their respective means. The introduction of the informal financial institutions by individuals and groups is to cushion the effects of the Formal financial institutions on the socio-economic wellbeing of the people. This practically done by borrowing loans to small and medium scale enterprises and individual for the purpose of expanding their respective businesses. It has been acknowledged all over the world that small and medium scale enterprises are the powerful tool any country can use to stimulate fast and sustainable socio-economic growth. The informal financial institutions are creation of the indigenous people with aim of making credit/loan facilities more accessible to the people and SMEs so as help solve their socio-economic and financial problems (Gulong, 2012). Although not directly under the control government and its authorities, Informal Financial Institutions have pierced through government institutions and organizations, and variety of formal and informal organizations. In almost all organizations, there seems to be existence of Informal Financial institutions established for specific or general purposes which allow people to contribute funds periodically which are given to members as loans or credit. A typical example is the cooperative societies formed by various staffs of government establishments and institutions. Small scale enterprises prefer to operate with these institutions as their conditions for credit are soft, coupled with faster administration of loans with low interest rate compared to Formal Financial Institutions. Takum Local government area of Taraba State is semi-urban area which is composed of varying population in terms of occupations as it is composed of government workers, farmers, traders and business men/women, private sector workers and transporters. However, the area does have formal banking system, but most people depend on informal financial institutions existing in the area for their financial transactions such as savings and loans. This study is therefore aimed at determining the contribution of informal financial institutions on the growth of small scale enterprises in Takum Local government area of Taraba State.

 1.2 STATEMENT OF THE PROBLEM

The contribution of informal financial institutions has been explained by variously by researchers and thinkers. According to Aryeetey (1995) Informal Financial Institutions could be conceptualized as those institutions that embrace all financial transactions that takes place beyond the functional scope of various countries and other financial sector regulation. These institutions are not controlled directly through major monetary and financial policy instruments but are created by individuals and groups with no legal status. Studies on the impact of informal financial institutions on business development have been conducted by researchers and they found positive effects of informal financial institutions such as micro-credit programmes on the growth of business and the welfare of the people. The study showed that the programme reduced poverty through micro-finance and thrift societies. It also increased women empowerment, improved savings and purchase of agricultural inputs and ensured easy access to loans with considerably lower interest rates.

1.3 OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the contribution of the informal financial institutions to the growth of small scale enterprises in Nigeria.
2. To examine the role of informal financial institution in providing more credit facilities to small scale enterprises in Nigeria.
3. To examine the role of informal financial institution in boosting economic growth in Nigeria.

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀: there is no contribution of the informal financial institutions to the growth of small scale enterprises in Nigeria

.H₁: there is contribution of the informal financial institutions to the growth of small scale enterprises in Nigeria

H₀²: there is no role of informal financial institution in providing more credit facilities to small scale enterprises in Nigeria.

H₂: there is role of informal financial institution in providing more credit facilities to small scale enterprises in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. The results of this study will educate the general public especially managers of small scale businesses on the relationship between informal financial institutions and the growth of small scale enterprises.
2. This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.6 SCOPE AND LIMITATION OF THE STUDY

This study will cover the relationship between informal financial institutions and the growth of small scale enterprises. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. 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.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

 1.7 DEFINITION

CONTRIBUTION: Contribution refers to the act of contributing or the thing contributed (such as personal time, money, ideas, private property or assistance). Contribution may refer to: Fundraising. Donation. Sharing.

INFORMAL FINANCIAL INSTITUTION: Informal finance is a broad concept that encompasses the wide range of financial activities and services that take place beyond the scope of a country’s formalized financial institutions and lie outside financial sector regulations.

SMALL SCALE ENTERPRISE: Small and medium-sized enterprises or small and medium-sized businesses are businesses whose personnel numbers fall below certain limits

1.8 ORGANIZATION OF THE STUDY

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

Chapter one is concern 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

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