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This study looked on the roles of microfinance banks in financing small and medium-sized businesses. The effort was meant to achieve the following goals: to establish the extent to which micro finance banks have assisted in providing credit facilities to small scale industrialists; and to determine the cost of variability in micro finance bank small scale industrial financing.

The survey of literature also describes the objectives and activities of the microfinance bank, the roles of microfinance policy, and the significance of micro and small scale firms in Enugu state and Nigeria as a whole. All aspects of this work are relevant to both management and anyone who may be interested in conducting additional research on this topic. Data was gathered from both primary and secondary sources.

The main primary data instruments used were questionnaires, whereas secondary data came from various relevant publications such as textbooks, journals, and online articles. The acquired data was analysed using simple tables and percentage analysis.

The study found that Microfinance Bank performance was very impressive during the study period, particularly in terms of making funds available for small and medium-sized enterprises in Enugu state; despite the fact that it was based on operations or services on savings deposit accounts, loan and advances (credit facilities) to customers and a few small scale industrialists, and payment of salaries to workers of various organisations.

According to the study, in order to reduce the risk of doubtful credit or facilities, the government should increase the percentage grants to micro finance banks for small and medium-sized enterprises, as well as place more emphasis on credit guarantee schemes by introducing more of them for the benefit of small and medium-sized enterprises.

Finally, the government and management of microfinance banks in Nigeria should emphasise collateral as a condition for extending credit to small scale businesses.



In the past, the government has launched a number of micro-credit schemes aimed at the poor, with the overarching goal of making credit available to individuals who were previously refused access to credit. Such credits were used all over the world to create small and medium-sized businesses, which have been termed as the springboard for long-term development.

Because of the underlying socioeconomic concerns affecting the nation, the government in all growing countries, including Nigeria, has expressed a strong interest in the development of small and medium-sized enterprises. Some of the reasons are that previous policies failed to generate the efficient self-sustaining impetus required to propel the country to the ‘take-off’ stage of growth,

there is a greater emphasis on self-reliance in development, and it is recognised that dynamic and growing petty-business can contribute significantly to a wide range of developmental objectives. However, due to several impediments in the development process, the full potential of the micro business has not been realised. In light of this,

the Central Bank of Nigeria (CBN) launched Micro Finance Banks as part of its reform agenda, a policy initiative aimed at bringing credit to the doorsteps of the poor, who do not have such access under the conventional banking system. The goal of this initiative is to articulate the opportunities for microfinance institutions to improve their performance, consequently lowering poverty and increasing job creation.

In December 2007, a microfinance banking organisation was conceptualised and established. It was designed to address the issue of establishing acceptable modern banking habits in rural areas, using social local institutions such as community social clubs and other persons who are invited to become co-owners of the bank by purchasing shares.

To oversee the foundation and operation of the National Board of Micro Finance Bank (NBMFB), the government stepped in as a second-tier supervisory agency. Since December 2007, 402 community now microfinance banks have been established, with a total deposit of =N=20 million. Loans and advances to individuals and businesses were (=N= 155.1 million), with a share capital cash of (=N=239.8 million).

To supplement the efforts of microfinance banks in mobilising rural infrastructures, the Directorate for Social Mobilisation (MAMSER) conducted extensive research into the introduction of the microfinance banking system in areas where it will be beneficial to the people. Okafor (1992) identified microfinance banks as the primary link between the official and informal financial sectors in his findings.

According to Egbe (2000), the 1980s saw a rapid expansion of commercial banking activities in many Nigerian rural communities where banking habits, culture, dedication, and community development were low, if not non-existent.

It is worth noting that during this time period, community funds were scarcely gathered among rural inhabitants for savings and loans in order to boost domestic investment. To summarise, the rural business class rarely seeks formal institutional credits to strengthen their economic foundation.

Despite the expected advancements in the Nigerian economy, the country is still primarily recognised as a developing country (Onyema, 2006). Furthermore, its industrial growth is not particularly outstanding. Informal microfinance activities proliferated throughout the country prior to the establishment of formal microfinance institutions.

Traditional informal practises in Nigeria include local money lending, rotating credit and savings practises, credit from friends and family, government-owned institutional structures, poverty alleviation schemes, and so on (Lemo, 2006). Nigeria’s central institutions are very new, as the majority of them were never registered after 1981.

Previously, commercial banks would lend to medium and large businesses that were deemed creditworthy. They avoided doing business with the poor and their micro-enterprises because the costs and risks were perceived to be relatively high (Anyanwu, 2004).

According to Barbara (1999), the need for microfinance banking among rural dwellers has grown, and as a result, the Federal Government initiative aimed at actualizing this growing need expanded the rural banking scheme with the establishment of Peoples Bank and Community Bank, respectively, between 1989 and 1990. These banks do not require sophisticated collateral for borrowing in order to make borrowing accessible to rural areas.

In addition, the two banks kept interest rates on borrowed funds as low as possible in order to make it easier for small-scale rural community industrialists and agriculturists to borrow. Today, many rural villages in Nigeria have one or more of these microfinance banks,

and their impact on the overall socioeconomic development of rural communities in Nigeria has been far-reaching. According to Usang (2006), many people recall how a shortage of cash frequently led to the failure of small firms and the extinction of brilliant ideas before they could be realised.

It is currently widely assumed that, as a result of the government’s lauded rural development initiatives, rural investment will be boosted through microfinance banking, putting an end to the difficulties of our hardworking, loyal, but under-privileged masses.

The goal underlying microfinance banking, on the other hand, is to stimulate rural development through rural commitment in modern financial institutions located in rural areas.

Thus, microfinance banking is envisioned as a tool for financial and economic liberation, as its expansion is linked to the community it serves. As a result, it is unclear if microfinance institutions have an impact on small and medium-sized companies in rural regions.


Most of the time, the owners provide the finance. The owners fail to recognise the importance of external sources of cash in order to impact business expansion; in most situations, the by the owner, members of the family, and friends. In another development, small and medium-sized businesses are having difficulty raising equity financing from financial institutions or people.

Even if the financial house agrees to give equity capital, the terms are usually deplorable. All of this leads to insufficient money accessible to the sector, resulting in bad financing. This is the bane of most Nigerian cottage industries. Approximately 80% of small and medium-sized businesses are suffocated as a result of insufficient financing and other issues related with it (Chukwuemeka, 2006). Poor finance has resulted in the following issues:

a) A lack of competent management as a result of the owners’ incapacity to retain the services of specialists. b) Use of old equipment and production procedures due to the owner’s incapacity to access new technologies. b) Excessive competition as a result of sales as a result of inadequate financing to deal with rising rivalry in the industry.

The following are the problems or issues that microfinance banks face when financing small and medium-sized firms in Enugu:

i. Small service units have a high operating cost.

High running costs, many loan applications to process, numerous accounts to manage and monitor, and repayment collection from multiple locations, particularly in remote communities, are all issues.

ii. Problem with Loan Repayment: Loan default is a serious threat.

threatens the viability of microfinance banks; it is the lethal “virus” that affects the banks’ operations. It demoralises employees and deprives beneficiaries of further useful services.

iii. Inadequate Credit Staff Experience: Micro

Financing is more than just making loans; in order to be successful, microfinance institutions must employ experienced and talented employees. As a young and expanding industry, there is a scarcity of experienced personnel in planning, product development, and successful client involvement.

iv. Problems with Illiteracy: This has an impact on record keeping.

and decision-making skills of borrowers, which has an impact on their relationship with banks.


In this context, the goal of this paper is to ascertain the involvement of microfinance banks in small and medium-sized enterprises in Enugu State, specifically:

1.) To identify and analyse the impact of microfinance institutions on socioeconomic development, i.e. job creation and income generation in rural communities throughout the state.

2.). To investigate the impact of microfinance bank loan subsidies, interest rates, and other factors on the level of credit demand by small enterprises.

3.) Determine the extent to which Microfinance Bank has aided in the provision of loan facilities for rural development, as well as the issues impeding the support.

4.) To identify the challenges that small businesses have in receiving financing from Microfinance Banks.


This study was guided by the following research question:

1. Do you believe microfinance banks have played an important role in small and medium-sized businesses in Enugu State?

2. Have microfinance banks had a good impact on Nigeria’s socioeconomic development as a whole?

3. To what extent has the Microfinance Bank aided in the provision of loan facilities for rural development, and what issues have hampered this assistance?

4. What are the challenges that businesses face while seeking financing from Enugu Microfinance Bank?


The study’s goal is to look into the involvement of microfinance banks in financing businesses in the area of interest. Because of the government’s present emphasis on industrialisation, and in order to minimise the country’s import costs and solve the problem of unemployment, the study concentrated on the needs for small and medium-sized businesses and their financing.


Business development and self-sufficiency in industrial and food production, as well as adequate provision of raw materials as inputs to other industries, are among the top priorities of the consecutive government plan.

Against this backdrop, the study of financial challenges confronting businesses is critical; such research will enable the industry to solve the problem and meet ever-increasing demand for manufacturing.

An examination of Microfinance Bank performance in financing company in Enugu indicated a big part of the reason for the recent fall in industrial output.

This study will allow the government to learn about the challenges that small and medium-sized businesses face, particularly in the field of finance banks, and to realise how tough the problems are to fix. As a result of this research, the government will be able to determine how to improve the condition of microfinance institutions.

Second, other researchers will find this study useful since it will allow them to delve into other related areas of study that this study could not cover. The relevance of this study is that it allows the researcher to broaden their knowledge about microfinance banks funding of enterprises.


The words that follow are defined in the context in which they are used in this research effort;

Microfinance Institutions

This is a self-sustaining financial institution owned and administered by a community or set of communities with the goal of providing credit deposits, banking, and other financial services to its members, mostly based on their self-recognition and credit worthiness.

Small-Scale Enterprises

This is a business that is owned and operated independently and is not dominant in its sector of operation. It is a business that has been created with total assets in capital, equipment, plants, and working capital of less than (=N=4, 000, 000) four million naira and employs less than 50 full-time indigenous workers.

Economic expansion:

This refers to the gradual increase in the productive capacity of the economy that results in rising levels of national income.

Economic advancement:

This can be defined as “the upward movement of the entire social system,” or it can be seen as the realisation of a variety of modernization concepts such as increased productivity, social and economic equality.

Modern knowledge has improved institutions and attitudes, as well as traditionally co-ordinated systems of policy actions capable of removing a slew of unwanted elements in the social system that have perpetuated a state of underdevelopment.”

monetary institution:

These are private or state institutions that transmit loanable funds from savers to borrowers. For instance, commercial banks and development banks, as well as microfinance institutions.


A bank is a financial institution that stores money and other precious objects for safekeeping. Examples include commercial banks, development banks, merchant banks, and so on. Each of these banks serves a distinct job or function in the economy.

Bank of the community:

A community or collection of communities owns and manages this self-sustaining financial institution.


They are instruments collected by banks to inform about cash, valuable objects, and so on for security.

Rural areas are isolated settlements with little or no development.

CBN: Central Bank of Nigeria: Established in 1952, this is the apex financial institution that supervises, regulates, and oversees other banks and the volume of money in the country.

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