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1.1 Background to the Study
Studies on industrial development countries have shown that small and medium enterprises constitute a fundamental part of the industrial sector and play an active role and bring development to these countries. Over the year, the Nigeria economy has been dominated by large industries which are mostly multinational. This is obviously due to the government policies which encouraged and emphasized the development of these large industries at the expense of the small scale industries. Eventually, the Nigerian government recognized the development of small scale industries as an imperative prerequisite for sustaining a well balanced industrial sector. Faust (2000) submits that four basic interrelated inputs are required to give impetus to their development. They include:
i. Favorable government policies and incentives
ii. Technical assistance
iii. Managerial assistance
iv. Finance assistance
Due to the uncertainties, the lower rate of return, the expense of administration and the mediocre expense of previous government lending programs, Faust added, financial assistance for the small entrepreneur has been lacking from both government and commercial source.
Consequently this heralded the institution dedicated to assisting small enterprises, the poor and households who have access to financial services. Institutions offering microfinance institutions are designed financial institutions dedicated to assisting small enterprises, the poor and households who have no access to financial services. Institutions offering microfinance services are very diverse, including commercial banks, community banks and state owned development banks. The formal/traditional micro finance institution include: the Self help Groups (SHGS), or the rotating saving and Credit Associations (ROSCAs), and cooperative societies, while the formal/modern Microfinance institutions include universal banks, community Banks (Micro-MFIs), non-Government Organizations Microfinance Institutions (NGO-MFIs), public sector poverty alleviation agencies, special microfinance schemes and Donor Agencies (Iganiga, 2008). The central Bank of Nigeria survey (2001) indicated that the operations of formal microfinance institutions in Nigeria are relatively new, as most of them were registered after 1981. They operate in both urban to rural areas, the roles played by these institutions are diverse according to the scope of their operations which vary from social to economic roles, in other words, from financial intermediation to technical and managerial assistance.
According to Anyawu (2004), the bulk of credit beneficiaries were women, as most of the microfinance institutions began as NGO that had the promotion of female welfare as the basis for their establishment. Apart from the general belief that women are marginalized in terms of economic opportunities and should therefore have separate promotional agenda, the MFIs are of the view that women perform better than men in managing meager resources and promoting micro enterprises. Over the years, microfinance has emerged as an effective strategy for poverty reduction. Across developing countries, micro, small and medium enterprises are tuning to microfinance institutions (MFIS) for an array of financial services. Microfinance is acknowledged as one of the prime strategies to achieve the millennium development goals (Ehigiamusoe, 2005).
However, institutions and programs put input in place for this purpose, (micro financing) by government and individuals and group of individuals have at best recorded limited successes in securing wide access to sustainable micro credit as a critical instrument for growth and poverty reduction. It could be observed that most of the these policies and schemes relating to micro finance become moribund few years after initiation due to high operating cost, repayment process, weak access to refunding facilities, client apathy and drop out and internal control challenges among others (Iganiga, 2008) according to the Daily Trust news paper (2009), the micro finance policy of the federal government: is already bearing fruits in Akwa Ibom State as its recorded that 18 community banks already been converted to micro finance banks and as January 2009, of such have either been licensed or given approval in principled by the central Bank to operate. One can say that the micro finance institutions have been performing below capacity over the years but with the additional liquidity provided by the recent banks Iganiga (2008) added, it is expected that the micro finance policy objectives would be realized which will move the Nigerian economy .to the attainment of the millennium development goals. This study is aimed at examining the roles of microfinance institutions in financing small scale businesses in Uyo metropolis.
1.2 Statement of the Problem
A number of small scale businesses lack access to financial services from micro finance institutions, either for credit or savings, which further fuels the vicious cycle of poverty. Lack of access to micro finance institutions hinders small businesses to engage in new business ventures. Small scale business, industrialists have frequently faced discrimination from lending institutions since they are perceived to be less credit worthy. The challenge of microfinance institutions on the other hand, is how to efficiently improve lending practices and at the same time cover their operating cost so as to survive in the long run (Anyawu, 2004).
1.3 Objectives of the Study
The general objective is to examine the role of microfinance institutions in financing small scale businesses in Uyo metropolis. Apart from the general objective, the research work also aimed at the following objectives:
i. To find out extent to which micro finance institutions have supported the small scale business in Uyo metropolis?
ii. To find out the extent to which the small scale businesses benefited from the credit scheme designed for them by micro finance institutions.
iii. To find out if the small scale business are making good use of their advances.
iv. To find out if the loan given by microfinance institutions have improved the general performance of small scale business.
1.4 Research Questions
In other to fulfill the objectives of the study, the researcher attempt to answer the following questions.
i. To what extent have the micro finance institutions supported the operations of small scale business?
ii. To what extent have small scale businesses benefited from the credit scheme designed for them?
iii. Are the small scale businesses making good use of their advances?
iv. Have these loans given by microfinance institutions improved the general performance of the small scale business?
1.5 Hypotheses of the Study
Hypothesis is a preposition that is stated in a testable form and predicts a particular relationship between two or more variables. By test‖ we mean either to confirm it or to prove it wrong (Baily, 1987). The hypotheses in this case are:
Ho - Microfinance Institutions do not support the operations of small scale businesses in Uyo metropolis.
Ho - Small scale businesses have not benefited from the credit scheme designed for them by microfinance institutions Uyo metropolis.
Ho - Small scale businesses are not making good use of their advances from microfinance institutions in Uyo metropolis.
Ho - The loan given out by microfinance institutions in Uyo has not improved the general performance of the small scale businesses in Uyo metropolis.
1.6 Significance of the Study
The relevance of the roles played by modern microfinance institutions cannot be overlooked. When the objectives of this study are achieved it will go a long way to create awareness among small and medium entrepreneurs about the existence of MFIs as well as correct the perceptions of small and medium entrepreneurs that have unfounded reservations about the operations of the modem MFIs.
The study will provide solutions to the challenges faced by modern MFIs in services delivery and provide a platform for the improvement of their services which the state economy undoubtedly needs to attain the millennium development goals. The research will help entrepreneurs and managers understand the major role of microfinance institutions in financing small scale businesses as well as how to benefit from the loans given to them by these institutions. It will also serve as a guide or reference to scholars and writers who need to know more about microfinance role in financing small scale businesses.
1.7 Scope and Limitations of the Study
The study attempts to find out the role of microfinance institutions in financing small scale businesses and will be limited to Uyo metropolis. The small scale businesses that are covered are; hair dressing industry and agricultural industry and keke rider. In the process of carryout this research, some constraints are identified and these include; the unwillingness of the microfinance banks to release relevant information (facts and figures) of individual amounts of small scale businesses. Another major constraint is the secret nature of some of the small scale businesses in Uyo metropolis, in the sense that they operate without the necessary permit and registration formalities required for their legal existence. This in turn, tends to create suspicion from the board of internal revenue. Time and finance has constrained on the researcher to perform a more thorough research. The need to define some of the key terms that were frequently used in this study cannot be over looked.
1.8 Organization of the Study
For the purpose of easy comprehension, this work was organized in five chapters. Chapter one is the introduction with the following subheading: background to the study, statement of the problem, objectives of the study, research questions, research hypotheses, significance of the study, scope and limitations of the study, organization of the study and definition of terms. Chapter two deals with the review of related literature using conceptual, theoretical and empirical frameworks. Chapter three considers research methodology with special reference to research design, the study area, population of the study, sampling procedure/sample size determination, data collection method, the research instrument, the validity and reliability of the research instrument, while chapter four is concerned with data presentation, analysis and interpretation of findings. Chapter five deals with summary of the findings, conclusion and recommendations.
1.9 Definition of Terms
i. Microfinance institutions (MFIs): are designated financial institutions dedicated to assisting small enterprises, the poor, and the households who have no access to the more institutionalizes financial systems, in mobilizing savings, and obtaining access to financial services (Elahi et al 2004).
ii. Micro finance: is defined as the provisions of very small loans (micro - credit) to the poor, to help them engage in new productive business activities and/or to grow/expand existing ones (Kimotho, 2005).
iii. Small medium enterprises: this is an outline which requires small amount of capital and has some reasonable number of employees. (Anderson 1998).
iv. Microcredit is broadly recognized as the practice of offering small, collateral - free loans to members of cooperation's who otherwise would not have access to the capital necessary to begin small businesses (Hossain, 2002).
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