ACCESSIBILITY OF CREDIT FACILITIES AMONG SMALL MEDIUM ENTERPRISES (SMEs): A STUDY OF SME’s IN KADUNA NORTH LGA OF KADUNA STATE

ACCESSIBILITY OF CREDIT FACILITIES AMONG SMALL MEDIUM ENTERPRISES (SMEs): A STUDY OF SME’s IN KADUNA NORTH LGA OF KADUNA STATE

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TABLE OF CONTENTS

Title Page ..............................................................................................................................   i

Declaration............................................................................................................................    ii

Approval page.......................................................................................................................    iii

Dedication.............................................................................................................................    iv

Acknowledgement...............................................................................................................     v

Table of Content..................................................................................................................      vi

Abstract................................................................................................................................    viii

CHAPTER ONE: INTRODUCTION

1.1          Background of the Study              ........………………………………………………..       1

1.2          Statement of the Problem           ……………………………………………………..           3

1.3          Objectives of the Study                ……………………………………………………             5

1.4          Research Questions                        …………………………………………………….            5

1.5          Hypothesis of the Study               .................................................................................    5

1.6          Significance of the Study              …………………………………………………….            6

1.7          Scope of the Study                          …………………………………………………….            6

1.8          Organization of the Study            ……………………………………………… …….           7

CHAPTER TWO: LITERATURE REVIEW

2.1          Introduction       …………………………………………………………………….        8

2.2          Small and Medium Enterprises  ...........…………………...…………………               8

2.3          Concept of Microfinance Institutions      ......................................................................   19

2.4          Credit Facilities of Small and Micro Enterprises in Nigeria               ..................................   23

2.5          Empirical Review                             ……………………………………………………             26

2.6          Theoretical Framework                 ……………………………………………..............     30

2.7          Summary of Chapter      ..............................................................................................   31

CHAPTER THREE: RESEARCH METHODOLOGY

3.1          Introduction       ……………………………………………………………………..       32

3.2          Research Design               …………………………………………………………….. 32

3.3          Source of Data                  ..............................................................................................   32

3.4          Population and Sample Size of the Study              …………………………………… 33

3.5          Instrument of Data Collection                    …………………………………………           33

3.6          Techniques of Data Analysis                        …...…………………………………………   33

3.7          Variable Measurement and Model Specification               ..............................................   34

3.8          Justification for the Method and Techniques Adopted..........………………………        35

3.9          Summary of the Chapter              ................................................................................... 36

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1          Introduction                       ……………………………………………………………   37

4.2          Data Presentation and Analysis …………………………………………….      37

4.3          Test of Hypotheses         ..............................................................................................   38

4.4          Summary of Findings      ………............……………………………………………             40

CHAPTER FIVE: SUMMARY, CONCLUSION, RECOMMENDATIONS

5.1          Summary             …………………………………………………………………….        41

5.2          Conclusion          …………………………………………………………………….        42

5.3          Recommendations          ……………………………………………………………...               44

5.4          Limitation of the Study …………………………………………………………….   44

References                         ........................................................................................................... 46

Appendix                            ..........................................................................................................   49

ABSTRACT

This research on “Accessibility of Credit Facilities among Small and Medium Enterprises (SMEs): A Study of SMEs in Kaduna North LGA of Kaduna State” has its objective as to investigate the impact of credit facilities of Microfinance Banks to the growth of Small and Medium Enterprises in Kaduna North LGA between 2005 and 2015. The study adopts financial growth theory on SMEs growth and development and microfinance banks which points out that an increase in financial (credit facilities) for the SMEs will lead to increasing growth and development for the SMEs. The research used survey method using structured questionnaires which were administered to SMEs in Kaduna North Local Government Area of Kaduna State. The data obtained were presented and analysed using both descriptive (tables) and inferential (regression) tools of statistics. The regression analysis shows that the interest rate of micro finance banks to small and medium enterprises in Kaduna North has a negatively and significantly affected the profitability of SMEs and that collateral requirement of micro finance banks from small and medium enterprises in Kaduna North has negatively and significantly affected the capital formation of SMEs. It is concluded that the access to funds by small and medium enterprises has improved which has led to its increase in its employment generation and annual sales growth. The research therefore recommended that the MFBs should ensure there is decrease in the interest rate given to the SMEs and there is a decrease in the collateral requirement given to the SMEs.

 


 

 CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Nigeria is among the few countries of the world characterized by contradictory socioeconomic and development scenarios (Nwokocha, 2007). Despite her enviable human and material resources, the country and its peoples are still classified among the very poor with no fewer than 54% of Nigerians living below poverty level (Human Development Index, 2010). It is described as a country with a complex socio-political history that has for most part, impacted adversely on the population through worsening income distribution and increased poverty (Salamatu, 2008). Consequently, the number of rural inhabitants that migrate to cities with high hopes of overcoming powerlessness consistent with rural life is unprecedented.

The resulting population densities in these destinations and the corresponding disadvantages require effective regulations that will engage the push factors on one hand, and how immigrants could adjust to destination cities without infringing on existing social equilibrium on the other (Ezebunwa, 2009). Majority of the people living in rural communities are categorically the small farmers, tenants, micro entrepreneurs, and the landless poor. However, it is obvious from the trends between 1980 till date that poverty is becoming an increasing problem in Nigeria (Fidelis, 2009).

Meeting basic amenities and cash requirement for family maintenance is the main challenge for the micro entrepreneurs and farming communities of which account for about 58 percent of the informal sector of the economy (Klaus, 2010).

Survival strategy is the main philosophy of the entrepreneur from generation after generation. Nowadays, poverty is considered as the main unbalancing element of the human being and nature. It is therefore truly said, ‘Poverty anywhere is a threat to everywhere.” It is a global phenomenon with all the evils, which are dissatisfaction, desperation, anger, anxiety, diseases and hunger, the consequences of poverty (Shanti, 2008).

Microfinance has evolved as an economic development approach intended to benefit low

income men and women, thus regarded as an effective tool for economic development (Ojo, 2009). An effective economic development programme is one in which the poor are the agents of change. The poor do not need aid, they need opportunity (Tessi, 2005) thus promoting economic growth, reduce poverty, support human development and improve the status of urban-rural communities. For the past 20 years, the government, international agencies and social organizations have been focusing on rural and women’s development Programmes (Rieneke, 2010) one of the priorities of the Millennium Development Goals is poverty alleviation and economic development, women’s empowerment and gender mainstreaming.

According to Kevin (2009) most of the poor people have little financial opportunity thus micro-finance could help poor people who have no collateral, but the willingness to work and to do some business activities from which they will acquire employment as well as income. Most Nigerian micro entrepreneurs are economically isolated, which means that their market is often local, small and does not offer any demand growth prospects. Commercial banks and other financial institutions normally do not like to go in that area because of the geographical constraints, underdeveloped infrastructure and other physical constraints. However, on the other hand, there is a substantial demand of micro credit. In this scenario, microfinance banks could obviously play an important role to mobilize local savings, extend credit as well as channelize borrowed fund/grant to the local rural people (Kangero, 2002).

The demand for micro financial institutions and their contributions in Kaduna State is high because the state has a considerable number of SMEs which have the potentials of contributing to the economic growth of the state. According to Small and Medium Enterprises Development Angency of Nigeria (2013) Kaduna State has a total of 2882 SMEs, which can contribute significantly to the economic growth of the state.

1.2       Statement of the Problem

Lack of access to income opportunities or skill-based training opportunities kept many people in Nigeria shackled to poverty. Unemployment is high, forcing many people to immigrate to other countries. Unless the poor people are brought into the mainstream for economic and social change, we will fail to bring change development (Akpan & Nneji, 2015).

They (poor) need to be organized for the decision of their choices and voices. Prevalence of poverty is quite high among urban-rural population. There is need for economic development program to be target-focused so as to reach a majority of the poor population in Nigeria who suffer disproportionately from poverty. Among the poor, women are considered the most disadvantaged due to their limited access to economic opportunities and basic social services and the excessive burden of household chores on them (Gaudel, 2004).

Capital accumulation in modern world requires financial intermediation because economic and social issues are closely intertwined, one reinforcing the other (Kuzilwa, 2003).  People’s access to credit is limited because both formal and informal credit institutions are Inclined towards funding property owners (Shanti, 2008). All formal credit institutions seek tangible collateral for their loan and majority of the poor are disadvantaged from these credit since they have no access or limited collaterals. The money lenders are also interested in earning high interest or acquiring the debtor’s property rather than financing people in need (Siebel, 2003). In the case of some women, their access to institutional credit is further restricted by their confinement to household activities and lower level of awareness and educational attainment (World Bank, 2002).

On balance, however, a school of thought argues that there is evidence that microfinance,

does have a positive economic impact on economic development in terms of income growth and reduced vulnerability, although the effects are often small (Kevin, 2009) and all clients do not benefit equally. While the other school of thought states that microfinance banks have been shown to be interested in their own financial survival than embarking on poverty alleviation or economic development exercise (Aryeetey et al, 2006). The World Bank recently confirmed that poverty is increasing in Nigeria and capital is one of its highest rank constraints (Human Development Index Report, 2010-2011) in economic development.

Nigeria since her independence, various credit schemes have been put in place to alleviate poverty to bring about desired economic growth and development but they have failed to achieve these targets (Fidelis, 2009). In December 2005, the Central Bank of Nigeria (CBN) introduced a Microfinance Policy Framework to enhance the access of micro- entrepreneurs  and low income households to financial services required to expand and modernize their operations in order to contribute to rapid economic growth and development.

Although many financial institutions have been vigorously marketing their credit facilities, few SME’s have been accessing them. Therefore there is a reason for the poor accessibility for these facilities. In view of these there is a need for a study to establish the factors that affect the small scale traders in acquiring the credit facilities.

1.3       Objectives of the Study

The general objective of this study is to investigate the impact of credit facilities of Microfinance Banks to the growth of Small and Medium Enterprises in Kaduna North.  The specific objectives of this research work are as follows:

        i.            To findout the effect of interest rate of Microfinance Banks on the level of profitability of SMEs in Kaduna North.

      ii.            To determine the effect of collateral requirement on the capital formation of SMEs in Kaduna North.

1.4       Research Questions

            In order to achieve the objectives the following research questions:

        i.            What is the effect of interest rate of microfinance banks on the level of profitability of SMEs in Kaduna North?

      ii.            What is the effect of collateral requirement on the capital formation of SMEs in Kaduna North?

1.5       Hypotheses of the Study

            The statement of the hypotheses of the study are stated in the null forms below:

H01:      There is no significant relationship between interest rate of microfinance banks and the level of profitability of SMEs in Kaduna North.

H02:      There is no significant relationship between collateral requirement and capital formation of of SMEs in Kaduna North.

1.6       Significance of the Study

Kaduna State predominantly agro based economy, micro-credit is largely applied to agricultural and allied activities and livestock development. The marginal farmers and micro enterprise are designed to benefit greatly from the micro-finance programs. This study focus on the microfinance experimental groups (user) in Kaduna North LGA and try to find out how they are getting benefit from the programme. The data collected in turn will provide the information on the effect of credit facilities if they (poor) are provided equal opportunity.

This study would help policy makers and the regulatory body examine whether or not there is need for modification in its policy framework and to what extent. It would also provide data to all other institutions and individuals who intend to work within the growth of SMEs in relation to credit facilities.. The study will provide recommendations to the International Agencies, NGO’s, Government and Human right activist and SMEDAN on the necessary steps to take to ensure easy accessibility of credit facilities of the SMEs from the financial institutions especially the MFBs.

1.7       Scope of the Study

The study area of this research work is Kaduna North Local Government Area in Kaduna State. This is because Kaduna North is one of the LGA with the highest number of SMEs in the state Microfinance Banks its state. The credit facilities from the Microfinance Banks (MFBs) in Kaduna State for the SMEs is the scope of the study This is because MFB is a financial institution established purposely for the provision of financial services for SMEs. The period of the study is from 2005 – 2015, this because 2005 marks the beginning of the small and medium industries equity investment scheme breakthrough in Nigeria.

Credit services considered by the study are the interest rate on the credit facilities and the collateral condition request by the SMEs. This choice of the two is because the interest rate and collateral requirement have been considered as the main stumbling block to credit accessibility of the SMEs.

1.8       Organization of the Study

This study consist of five chapters, the first chapter deals with the general introduction, statement of problems, research questions, objectives of the study, hypotheses and significance of study.

The second chapter focus on the conceptual framework, theoretical framework, Empirical Literature, Microfinance role in economic development, Microfinance policy and development framework and transmission mechanism.

Chapter three discussed the study area, source and nature of data, data collection technique, model specification and method data analysis and justification.

In Chapter four the result of the study findings is presented and analyzed. The final chapter discussed the finding, recommendation and conclusion of the research.


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