A CRITICAL ASSESSMENT OF MICRO FINANCE BANKS AND THEIR CONTRIBUTION TO THE DEVELOPMENT OF SMALL SCALE ENTERPRISES (BRASS MICRO FINANCE BIDA)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STYUDY

Nigeria is an immensely endowed country in both natural and human resources, with the population of over 140 million people who are largely engaged in the farming sector and small scale business. This sector is primarily dominated by micro, small and medium scale enterprises (MSMEs) and both peasant farmers who require financial assistance to boost their business and improve their livelihood. However, lack of access to formal financial assistance has constrained their development in the country. Microfinance bank in Nigeria has no been affecting people life in the time past due to unavailability of fund at their disposal and government policy that has constrained their activities and relegate it to the background. Kudos should be given to the Central Bank of Nigeria Governor who has greatly revolutionalised the banking sector through bank consolidation and turned the community banks into microfinance banks. In the same vein, it is very difficult for a common man to receive loan from banks like UBA, First Bank, Skye Bank etc. due to lack of Collateral security but microfinance has made it possible to receive loan with little or no collateral. These microfinance banks have gone to the extent of buying tools, paying for shops and providing business capitals to enterprises. However, the problem is even with the creation of microfinance banks, what benefits has the  sector derived from them over the years.

1.2 STATEMENT OF THE PROBLEM

The Nigeria economy has been progressing as expected, the unemployment rate is so high that it is believed that 3 out of 5 graduates are likely to be jobless in the first 5 years of their graduation, inflation is galloping as prices double almost daily, poverty rate reached a chronic state where countries in the world and general welfare is dilapidating, mortality rate is increasing across the year basically due, to poor infrastructure and social amenities. To solve these problems, there is a need to investigate which sector has the highest potential to contribute positively to the economy, and most importantly to the grassroots.

Although, theory may back enormous contributions of small and medium scale enterprises to economic development, there is need to investigate if that is the case in Nigeria. It is obvious that if the available SMEs, in Nigeria were not faced with certain problems of infrastructure, funding, raw material sourcing, foreign dumping amongst other.

It is however, in the light of the above problems that this research study is initiated to investigate the problems, the extent of their hindrance to growth of the sector and their possible solution.

1.3 OBJECTIVES OF THE STUDY

The main objective of this research work is to assess the contribution of micro-finance banks in the development of small and medium scale enterprises in Niger state. Specific objectives of the study are:

1. To determine the socio-economic characteristics of the respondents.
2. To determine the level of growth in the microfinance banks over time in Bida, Niger state.
3. To determine the impact of microfinance banks on the development of small and medium scale enterprises.
4. To determine the constraints to securing loans from microfinance banks.
5. To make recommendation based on research findings.

1.3 RESEARCH QUESTIONS

 The following will constitute the research question for this study.

1. Do we have enough microfinance banks in the state to cater for the existing small scale and Small Business Ventures?
2. What have been the impacts of Microfinance banks on SMES?
3. How easy is it for the organization to secure loan from the existing microfinance banks?
4. Are the microfinance banks accessible to other sectors asides small scale businesses?

1.4 FORMULATION OF HYPOTHESIS

H0: Microfinance banks do not influence small scale business profitability.

H1: Microfinance banks influence small scale business profitability.

H0: Microfinance banks do not give loan to Small and Medium Scale Businesses

H1: Microfinance banks give loan to Small and Medium Scale Businesses

H0: Microfinance banks have no impact on the rate of sales in small scale business.

H1: Microfinance banks have an impact on rate of sales in small scale business.

1.5 SCOPE OF THE STUDY

The research work is focused on the contributions of micro finance banks to the development of SMES using Brass Micro Finance bank, Bida as a case study. However, the result obtained in this research work will be use as a benchmark for making reference to other small and medium scales business.

1.6 HISTORICAL BACKGROUND OF MICROFINANCE BANK OF NIGERIA

Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products. They are: The smallness of loans advanced; the absence of asset – based collateral Simplicity of its operations. Who are Microfinance Clients/Customers Anybody who possesses the following characteristics shall qualify as a customer of microfinance bank. Has a monthly income of not more than twice the monthly per capital income in Nigeria, or minimum wage whichever is higher; Has a total productive asset (including those of land) of not more than five hundred thousand naira (N500,000.00); Is not regular employee of any organization Is aged between 18 and 60years. Generally, microloan is expected to be granted to the operators of micro-enterprises such as peasant farmers, artisans, fishermen, rural women, senior citizens, salaried and non-salaried workers in the formal and informal sectors. What is Microloan? A microloan is a facility granted to an individual borrower or a group of borrowers whose principal source of income is derived from business activities involving the production or sale of goods and services The principal amount to be granted shall not exceed five hundred thousand naira (N500, 000.00) The said loan are usually unsecured, but typically granted on the basis of the applicant’s character and the combined cash flow of the business and that of the household. Ordinarily, the tenure of a microloan is 180days. However in the case of crops with a longer gestation period, a maximum tenure of twelve months shall be permitted. Poor Person A poor person is defined as one who has meager means of sustenance of livelihood and whose total income during a year is less than the minimum taxable limit set out in the law relating to tax. (thirty thousand naira (N30,000.00) Why do we grant Microcredit? The government introduced the microfinance for a number of reasons among which are: Economic empowerment of the borrower; Poverty alleviation; Creation of wealth Some Permissible Activities of Microfinance Banks Microfinance banks are allowed to engage in the provision but not limited to the following activities: Promotion and monitoring of loan usage among its customers by providing auxiliary capacity building in such areas as record keeping and small business management Provision of loan disbursement services for the delivery of the credit programmes of governments, agencies, groups and individuals for poverty alleviation on a non – recourse basis; Operation of micro leasing facilities, and microfinance related hire – purchase; Provision of loan to microfinance clients for home improvement and customer credits.

1.7 DEFINITION OF TERMS

1. Microfinance Banks: This is a type to banking service that is provided to unemployed or low income individuals or groups who would otherwise have no other means of gaining financial services

 Small And Medium Scale Business: it is defined according to Central Bank of Nigeria as a business independently owned and operated. A business that has a small share of the market (not in position to significantly influence the size of the market).

 Economic Growth: Economic growth is an increase in the capacity of an economy to provide goods and service; compare from one period of time to another. Economic Development Economic development has been defined as “the process by which a community creates, retains and re-invests wealth and improves the quality of life.

Capital: It is the amount of cash and other assets owned by a business or it is wealth used for the creation of further wealth.