MICRO-FINANCING IN NIGERIA, PROBLEMS, PROSPECTS, AND SOLUTIONS: ( A CASE STUDY OF SMALL AND MEDIUM SCALE ENTERPRISES IN ENUGU NORTH METROPOLIS)

ABSTRACT

The study focuses on ‘Micro Financing in Nigeria; Problems encountered, future prospect and their solutions. The case study area was small and medium scale  enterprises owners  within Enugu North metropolis. The benefactors of the micro-finance programme have been  applicants to one micro finance bank or the other before their request for fund were granted. The questionnaire used to carry out this research work was well structured to enable the researcher to get relevant information. Data collection employed was direct interview as most individuals could neither read nor write or both. The micro-finance Bank visited included: Umuchinemere Micro-Finance Bank and the University of Nigeria Nsukka Micro-Finance Banks both in Enugu. During the course of my research, analysis showed that most of the problems encountered by the applicants and the benefactors of the micro-finance program were “Procedural in nature”. Respondents say it is difficult to obtain. The instrument of data analysis used are simple percentage table and figures, and Chi-Square was also used for testing the hypothesis. Ninety four point thirty five percent (94.356) agreed that the procedures and straight while five point sixty five percent (5.656) agreed that the procedures are not straight. Conclusively, in order to enhance economic growth and development within the scope of study strategies on   how repayment of loans should be made easy for applicants were analyzed extensively.

CHAPTER ONE

1.0  INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The practices of micro-finance in Nigeria is culturally rooted and dates back to several centuries. The traditional micro-finance institution provides access to credit for the rural area, urban low income earners etc. They are mainly of the informed self help Group (SHG’s) or rotating saving and Credit Associations (ROSCA’s) types. Other providers of micro-finance services includes saving collectors and co-operates societies.

Nigeria can only achieve Robust economic growth by putting in place well focused programmes to reduced poverty through empowering the people by increasing their access to factors of production, especially credit.

Micro-finance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish micro-finance from other formal financial products.

These are:

i. The smallness of loans advanced and or savings collected. ii. The absence f asset-based collateral and

iii. Simplicity of operations.

In Nigeria, the formal financial system provides services to about 350 of economically active population while the remaining 656 are excluded from access  to  financial services.  The  656  are  often served  by  the  informed financials    sector,  through Non-Governmental Organization (NGO),  Micro- finance Institution Money Lenders, friends, relatives and credit Unions.

The non-regulations of the activities of some of these institutions have serious implications on the Central Bank of Nigeria’s (CBN’s) ability to exercise one aspect of its mandate of promoting monetary stability and a sound finance system.

A micro-finance policy recognize the existing informal institutions and bring them within the supervisory preview of the Central Bank of Nigeria would not only enhance monetary stability but also expand the financial requirement of the micro small an medium enterprise (MISMES).

Such a policy would create a vibrant micro-finance sub-section that would be adequately integrated into the mainstream of the National Financial System and provide the stimulus for growth and development. It will also harmonize operating standards and provide a strategic platform for the evolution of micro-finance institutions, promote appropriate regulation, supervision  and  adoption  of  best  practices.  In  these  circumstances,  an appropriate policy has become necessary to develop a long-term, sustainable micro-finance sub sector.

Furthermore, micro-finance policy also recognizes that the current financial landscape of Nigeria is skewed against micro-small and medium enterprise (MSMEs) in terms of access to financial services. To address the imbalance, this policy’s framework shall promote an even spread of micro- finance banks, their branches and activities to serve  active clients in the rural and peril urban areas.

1.2 STATEMENT OF THE PROBLEM

The world has come to realize and appreciate the indispensable role of the banking industry and its potentials in contributing to the evolution of mega corporate organizations that will accelerate the pace of economic development reduction of poverty through wealth creation and job creation which will go a long way in achieving the millennium development goals which Nigeria accented to (Soskoline, CL and Mactalane, D.K 1996).

According to the executive summary of Poverty Reduction Strategy/National Economic Empowerment and Development Strategy (NEED) (2004-2009) the available figure shows a low rate of private sector participation  in  mass  production  using  modern  technology  management experts and modern equipment and methods. This has been attributed largely to lack of adequate funds and capital. It is to this effect that a lot of reforms are going on currently in this country. One of such reforms is targeted at the capitalization base of the financial institutions in the country.

This research work will by empirically investigating the problems and prospect of micro-finance in small and medium scale enterprises.

1.3 OBJECTIVES OF THE STUDY

a. To ascertain the problems of micro-finance banks in financing small and medium scale enterprises.

b. To ascertain the role of micro-finance to Socio-economic development.

c. To find out accessibility of the people to micro-finance loan.

d. To find out the various problems preventing access to these funds. e. To proffer solutions to these problems.

1.4 RESEARCH QUESTIONS

1. What are the problems of micro-financing in small and medium scale enterprise?

2. Does Micro-Finance Banks activities positively linked to intermediation of small and medium enterprises?

3.Does Micro-Finance Banks impact positively on economic growth?

1.5 STATEMENT OF HYPOTHESES

Micro-Finance problems encountered by benefactors are associated with procedures.

This has led to the formation of the hypothesis that:

H0 = Micro finance problem encountered by benefactors are associated with procedures.

H1   =  Micro  finance  problem  encountered  by  benefactors  are  not

associated with procedures.

1.6 SIGNIFICANCE OF THE STUDY

This study is relevant and timely at a time when government is laying emphasis on diversification, recapitalization and globalization for poverty reduction, wealth creation and employment generation.

The significance, therefore, lies on the need to appreciate the roles banking industry in the industrial, economic growth and development of the nation.

The study is very relevant to the following bodies or persons.

(i) It will be of immense benefit to future researchers in this field who may wish to share ideas with us.

(ii)It could be able to serve as a reference material in academic purpose.

(iii)       It would be able to unravel the role of micro finance banks in rural development.

(iv)       The findings and recommendations of this study shall be of great relevant to the Federal Government, and corporate managers and shareholders.

(v)To help government make good economic policies in order to promote micro-finance in Nigeria.

(vi)       For them to improve and engage in small-scale business as they can now get access to small loan from micro-finance banks.

(vii)      For  the  rural  dwellers  to  improve  and  engage  in  small-scale

business as they can now get access to small loan from micro- finance banks.

1.7 THE SCOPE OF THE STUDY

The scope of the study is limited to the analysis of micro-financing small and medium scale enterprises in Enugu North Metropolis.

1.8 LIMITATION OF THE STUDY

Lack of adequate fund and time to travel round to source for more materials or data. There was no easy access to relevant materials that could contribute deeply to this topic.

1.9   DEFINITION OF TERMS (a) Micro-Finance Bank

A Micro-Finance Bank (MFB) is any company licensed, to carry on the business of providing micro-finance services, such as savings, loans, domestic fund  transfer,  and  other  financial  services  that  are  needed  by  the economically active poor, micro, small and medium enterprises to conduct or expand their business as defined by Central Bank of Nigeria regulatory and supervisory guidelines for micro-finance Banks (MFBs) in

(b) Micro-Finance Client

A  client of  a  Micro-Finance Bank  generally possesses the  following characteristics.

i. Has a monthly income of not more than twice the monthly per capita income of Nigeria or minimum wage whichever is higher.

ii.  Has  a  total  production asset (including those  arising  from  loans,  but excluding the cost of (land) of not more than five hundred thousand Naira (N500,000.00).

iii. Is not a regular employee of any organization and iv. Aged between 18 and 60 years.

(c) Micro Enterprise

A micro enterprise is a business that requires micro credit/loans to operate. The operations and management are often built around the sole owner or micro entrepreneur. The micro entrepreneur usually works alone or provides employment for a few people, typically the immediate family members, and does not often require formal registration to start. The management and accounting requirements of the business are usually very simple and flexible. Generally, Micro entrepreneurs work formally, without business licenses or formal records of their activities or earnings. The scope of economic activities of micro enterprises typically includes primary production and crafts, value-added processing and distribution trade.

(d) A Micro-Loan

A micro-loan is a facility granted to an individual borrowers 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 maximum principal amount shall not exceed N500, 000.00 or the Central Bank of Nigeria may review as from time to time. Generally, a micro-loan is granted to  the  operators of micro-enterprise, such  as  peasant Farmers, Artisans, Fishermen,  rural  women,  senior  citizens,  and  salaried  and  non-salaried workers in the formal and informal sectors. The tenure of micro loan is 180 days (6 months) ordinarily. It requires joint and general guarantees of one or more persons.

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