THE IMPACT OF FINANCIAL INCLUSION ON SMA BUSINESS PERFORMANCE. THE STUDY OF PRINTER BUSINESS OWNERS IN SHOMOLU AREA

Abstract

This study investigates the impact of financial inclusion on SMA Business performance, the study of printer business owners in shomolu area. The population of the study comprises all the micro small and medium size enterprises operating in shomolu in Lagos state out of which one thousand and twenty- eight (1,028) MSMEs in shomolu Local Government Ares each in Lagos state, were selected as the sample size of the study. Multiple regression technique of data analysis was employed as a technique of data analysis. The findings of the study indicates that Financial Literacy, Microfinance Banking Services, Government Intervention and credit facilities have a positive and significant effect on the performance of micro, small and medium size enterprises operating in shomolu local government of Lagos state. Based on the findings of the study, the research therefore recommended that: the owners as well as managers of micro, small and medium size enterprises in south western states of Nigeria should embrace financial literacy, save part of their profit, use their Microfinance Banking Services to transact and access and patronize different credit facilities packages as they were found playing prominent role in improving the performance of micro, small and medium size enterprises.

 

Chapter one

Introduction

1.1Background of the study

Financial inclusion, in general, is defined as a process of engaging all social groups and disadvantaged groups in having access to formal financial systems (Pham et al., 2019). Similarly, Koker and Jentzsch (2012) defined financial inclusion as ensuring access to formal financial services at an affordable cost in a fair and transparent manner. In a broader perspective, Oz-Yalaman (2019) defined financial inclusion as “individuals and businesses have access to useful and affordable financial products and services that meet their needs e-transactions, payments, savings, credits and insurance delivered in a responsible and sustainable way”. These definitions entail that financial inclusion includes accessibility, availability and the usage of financial systems. Financial inclusion has been extensively recognised as a major policy priority, given its significance in fostering economic development (Pham et al., 2019). Access to credit has been identified as one of the main obstacles to the development of private sector in developing countries (Chauvet and Jacolin, 2017; Naumenkova et al., 2019). Prior literature indicated that financial inclusion is linked to country economic development and sustainability. In this regard, Grohmann et al. (2018) indicated that financial inclusion, measured as access to and use of financial services, is an important goal of economic and, in particular, financial development. Consequently, it has been claimed to be a significant policy instrument that can help to achieve the sustainable development goals (SDGs). Financial inclusion, also known as a financial exclusion, is one of the main policy tools to increase welfare, reduce poverty and enhance macroeconomic stability (Oz-Yalaman, 2019; Lee et al., 2019).

Financial inclusion has been identified by some researchers (Beck and Honohan, 2009; Onaolapo and Odetayo, 2012; Stephen and Sibert, 2014; Godwin, 2011; Pallavi and Bharti, 2013) as one of the solution to the  development  of  business. Central Bank of Nigeria (CBN) is in the driving seat to achieve financial inclusion. The bank’s policy recognizes the role of Microfinance in providing financial access to the business operators that are usually excluded from or inadequately served by the available financial institutions. It follows  that  financial  exclusion  would  be  deleterious  to the  growth  and  development  of  business

According to Sarma (2008), financial inclusion is  a  process which ensures  easy access  to financial services in an economy. According to the author, ease of access is measured by proxies such as number of bank branches or ATMs per 1,000 adult populations. Khan (2011) contended that promoting financial  inclusion,  in  the  wider  context  of  economic  inclusion,  can improve financial conditions and uplift the living standard of the poor and the disadvantaged.

According to him, financial inclusion can both improve the efficiency of intermediation between savings and investments and facilitate change in the  financial  system configuration.  In  view  of Aduda  and  Kalunda  (2012),  financial  inclusion  is  the  process  of  ensuring  access  to  financial products and services needed by all sections of the society in    general, but particularly, the vulnerable, weaker sections and low income groups, fairly, transparently at an affordable cost in mainstream  institutional  players. Understood in this  sense,  financial  inclusion  has  continued  to assume increasing interest among policy makers, researchers and development oriented agencies, across   the   globe.   Accordingly,   countries   are   devising   various   regulatory   strategies   and frameworks  to  ensure  that  all  populations  excluded  from  financial  services  are  reached  and served.  According  to  the  CBN  (2012),  access  to  financial  services  mobilizes  greater  household savings  (enabling such  persons to  invest  in  themselves  and families),  leverages  capital  for investments  and expands  the  class  of  entrepreneurs.  Financial inclusion  offers incremental  and complementary solutions to tackle poverty, promote inclusive development and achieve the UN Sustainable  (Millennium)  Development  Goals  (MDGs).  It aims at  drawing  the  unbanked population into the formal financial services net so they have the opportunity to access the whole gamut  of appropriate financial  services. The CBN believes that “financial inclusion is achieved when  adult  Nigerians  have  easy  access  to  a  broad  range  of  formal  financial  services  that  meet their needs at an affordable cost” (CBN,  2011,  p.vii).  Such financial services  include,  but  not limited  to: payments,  savings,  loans,  and  insurance  and  pension  products.  Financial  inclusion, which  in  this  paper  will  be  construed  as  access  to appropriate,  fair  and  affordable financial services,  varies  widely  across  the  globe. According  to Demirguc-Kunt  and  Klapper  (2012), survey  data  suggest  that,  even  in  advanced  economies,  almost  one  in  five  adults  have  no  bank account  or  other  form  of  access  to  the  formal  financial  sector such  that  in many  emerging  and developing economies, the share of unbanked adults can be as high as ninety percent. In  Nigeria,  inclusion  is  likely  to  keep  expanding  in the  coming  years,  supported  by  economic  development  and  initiatives  of  the  CBN  and  other policymakers.  These  initiatives  (CBN,  2015)  include  nation-wide  sensitization  campaigns  to enlighten  the  public  on  financial  inclusion,  geospatial  mapping  of  financial  Access  Points,  in collaboration with the  Bill & Melinda Gates  Foundation, to develop a business case for service providers  on  expanding  access  points  to  unbanked  and  under-served  areas  was  completed. Further work to be done include leveraging on the outcome of 2014 Geospatial mapping survey to  develop  a  business  case  for  service  providers  on  expanding  access  points  to  unbanked  and under-served  areas.    Others  are:  the  digital  finance  inclusion  project,  executed  by  the  Federal Ministry  of  Finance,  the  Central  Bank  of  Nigeria  and  the  Bill  &  Melinda  Gates  Foundation  to increase the level of financial inclusion in Nigeria and to help achieve the target seventy per cent payments by the 2020. Also, CBN’s Financial Inclusion Secretariat has worked with McKinsey &  Co  on  a  proof-of  concept  (POC)  to  assess  deployment  of  E-Wallets  to  farmers,  under  which payments  to  farmers  were  made  electronically,  with  the  project  providing  an  opportunity  for enrollment  of  farmers  on  the  Bank  Verification  Number  (BVN)  platform.  This  is  in  addition  to the  drafting  and  release  of  terms  of  reference  for  three  research  studies  on  National  Savings Mobilization,  Scaling  up  Agent  Banking  Adoption  and  Financial  Inclusion  Product  Launch  for people   living   with   disabilities   (PLWD),   among   other   financial   literacy   activities. These initiatives are in alignment with the position of Yunus and Weber(2007)that the basic ingredient of overcoming poverty is packed inside each poor person and all we need to do is to help these persons unleash this energy and creativity. For the central monetary authority, financial inclusion matters  for several of  reasons.  Firstly  it  would afford access  to  appropriate  financial platforms which  would  allow  the  poor  or  otherwise disadvantaged  to  invest  in  physical  assets  and education,  thus  reducing  income  inequality  and enhancing economic well-being.  This  would impact  on  financial  development  which  would  invariably  aid  poverty  reduction  and  long-term economic  growth  (Burgess  and Pande,  2005)  and  Levine  (2005).Secondly,  if  greater  financial access  results  in  rapid  credit  growth  or  the  expansion  of  relatively  unregulated  parts  of  the financial system, it may  expose banks to financial risks as  appropriate support capacity may  be unavailable  for  the  new  level  of  operations  and  outreach (Nwanko  and  Nwanko,  2014). Therefore, to  ensure  that  economic  growth  performance  is  inclusive  and  sustained,  financial inclusion is necessary. This is because financial inclusion refers to the totality of initiatives that make  formal  financial  services  available,  accessible  and  affordable  to  all  segments  of  the population (Triki & Faye, 2013). This position implies that financial inclusion dictates deliberate attention to the historically excluded portions of the population from the formal financial sector due  to their  income  levels  and  volatility,  gender,  location,  type  of  activity  or  level  of  financial literacy.

Statement of the problem

The challenges which are in no small measure affecting their survival and performance, some of which are low income, lack of financial services awareness, lack of access to available sources of finance, inconsistency in Government policies, poor infrastructures, administrative bureaucracy, high charges and penalties. The most pronounced, however, is lack to access to finance/ capital. Access to Institutional Finance has always constituted a pandemic problem for business development in printer business owners in shomolu area. Credit to business owner is limited, particularly when compared to loans granted to larger firms. Figures obtained from the Central Bank of Nigeria (CBN) showed that out of the aggregate loans of N135.9 Trillion disbursed to the economy between 2019 and 2021, only N159.75 amounting to 0.1 per cent went to SMEs. (CBN Statistical Bulletin, 2021). This is because SME are strongly restricted in accessing the capital that they require growing and expanding. Their inability to access finance from both deposit money banks and commercial banks is due to high administrative costs, high collateral requirements and lack of experience within financial intermediaries. Even banks with retained liquidity levels in excess of what is required by law have shown reluctance in extending loans to SMEs especially on long term basis as they are considered highly vulnerable with credit risk. (Sacerdoti 2015)

Accordingly, countries are devising various regulatory strategies and frameworks to ensure that all populations excluded from financial services are reached and served. According to the CBN (2012), access to financial services mobilizes greater household savings (enabling such persons to invest in themselves and families), leverages capital for investments and expands the class of entrepreneurs. Financial inclusion offers incremental and complementary solutions to tackle poverty, promote inclusive development and achieve the UN Sustainable (Millennium) Development Goals (MDGs). It aims at drawing the unbanked population into the formal financial services net so they have the opportunity to access the whole gamut of appropriate financial services. The CBN believes that financial inclusion is achieved when financially excluded (SMEs inclusive) have easy access to a broad range of formal financial services that meet their needs at an affordable cost. Such financial services include, but not limited to: payments, savings, loans, and insurance and pension products etc. Financial inclusion, which in this paper will be construed as access to appropriate, fair and affordable financial services, varies widely across the globe.

Therefore, to ensure that business’ performance is inclusive and sustained, financial inclusion is necessary. This is because financial inclusion refers to the totality of initiatives that make formal financial services available, accessible and affordable to all segments of the population (Triki and Faye, 2013). This position implies that financial inclusion dictates deliberate attention to the historically excluded portions of the population including SMEs from financial services.

Objective of the study

The objective of the study is to investigate the impact of financial inclusion on SMA business performance, using printer business owners in shomolu area as a case study. The specific objectives of the study are;

1. To determine the impact of financial literacy of entrepreneurs on accessibility to finance in printer business owners in shomolu area.
2. To examine the impact of Microfinance Banking Services on the Sustainability of printer business owners in shomolu area.
3. To examine the impact of Government Intervention in terms of Provision of Credit Enhancement Programmes on the Performance of printer business owners in shomolu area

Research Question

The following research questions were formulated;

1. What is the impact of financial literacy of entrepreneurs on their accessibility to finance in printer business owners in shomolu area?
2. What is the impact of the Microfinance Banking Services on the sustainability of printer business owners in shomolu area?
3. Does Government Intervention in terms of Credit Enhancement Programmes have impact on the Performance of printer business owners in shomolu area?

Research Hypotheses

The following research hypotheses were formulated

HO₁: There is no significant impact of financial literacy of entrepreneurs on accessibility to finance in printer business owners in shomolu area.

HO₂: There is no significant impact of Microfinance Banking Services on the Sustainability of printer business owners in shomolu area.

Ho₃: Government Intervention in terms of Credit Enhancement Programmes has no significant effect on the Performance of printer business owners in shomolu area

Significance of the study

The study will be very significant to students and business owners. The study will give a clear insight on the impact of financial inclusion on SMA business performance. The study use printer business owners in shomolu area as a case study.  This study will aid Government in moderating the affairs of Financial Institutions, and also see the need to provide enabling environment for business owners to thrive so as to actually become the driver of our economic growth and development. The study enlightens the general public to know that business owner is a vibrant one which can be gainfully ventured into and thus make the economy of the Nation most viable and enviable to foreign investors. The study will also serve as reference to others researcher that will embark on the related topic

Scope of the study

The scope of the study covers the impact of financial inclusion on SMA Business performance.  The study will be limited to printer business owners in shomolu area.

Limitation of the study

This project research would have been easier if not for these limitating factors:

Time factor: time was not on the researchers to consult various sectors of the economy to review employees or given out questionnaire to various institutions on the effect of government revenue policies.

As we all know, time is never our friend. The time scheduled for the completion of this research thesis was too short. As a result, generating information/data was strenuous as it coincides with final year examination period, which needed attention.

Finance: this is another barrier that limited the researcher’s work.

Available resources: was unavailable for the research work.

 

Definition of terms

Financial inclusion: Financial inclusion is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products

Business performance: Business performance, which is closely tied to commercial effectiveness, is determined by the ability of a company to implement optimal organisation with the aim of offering a product or service that meets the expectations of consumers and customers

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