THE ROLE OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESSES IN OGUN STATE
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ABSTRACT
This empirical study investigated the function of microfinance banks in financing small businesses in the state of Ogun. The goal of this study is to analyze the impact of microfinance banks on small businesses and to propose solutions to microfinance-related issues. This study’s aims were to assess the influence of microcredit from microfinance banks on the performance of small businesses in Ogun state and to evaluate the success of microfinance banks in fulfilling their function of providing small businesses in Ogun state with resources. The scope of this study is Ogun State in 2019 using company owners as a basis for the application of the idea of contingency management. This study employs a survey research approach, and the population of interest comprises of all business owners. As a sample size, 400 business owners were selected, and cluster sampling was employed. The questionnaire is the instrument utilized in this investigation. The data acquired came from original sources. The data analysis reveals that microcredit from microfinance has an effect on the performance of small firms in Ogun state, and that microfinance banks play a role in attracting resources for use by small enterprises in Ogun state. Following the findings, it was recommended that microcredit from microfinance be granted to small-scale businesses at a low interest rate and with a longer repayment period. Since microfinance banks play an important role in attracting resources for use by small businesses in Ogun state, the government should encourage the existence of microfinance banks. The study shows that microfinance has a significant impact on the survival of small businesses.
Small business enterprises, microfinance banks, business performance, Ogun state are the keywords that best describe this article.
FIRST PART
INTRODUCTION
1.1. Context of the Study
Small businesses are without a doubt the engine of economic expansion, poverty alleviation, job creation, and crime prevention. They form a considerable share of enterprises globally and play an important role in every economy. Small businesses have a number of problems, one of which is financing, which hinders their long-term existence. Researchers have demonstrated that the failure rate of small businesses in developing nations is higher than in developed nations (Marlow, 2009).
For a business to achieve its goals, its capacity to achieve its key performance indicator in a sustainable manner is of utmost importance (Simerly and Mingfanf, 2000; Wan and Yiu, 2009). Microfinancing is the provision of financial services to low-income and poor households with restricted access to established financial institutions (Conroy, 2003). Microfinance banks are established in Nigeria to provide the underprivileged’s access to loans and savings services in order to reduce poverty and promote equitable economic growth (Shreiner, 2001).
Government in Nigeria has in the past initiated a series of small business programs and policies in order to increase the flow of financial resources to small business firms (Oni and Daniya, 2012). 2003 saw the establishment of both the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the National Credit Guarantee Scheme. The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was created to address the issue of small company owners lacking access to loans. Although numerous programs and policies have been adopted in Nigeria, poverty, unemployment, and sluggish economic growth persist (Lawson 2007; Owenubiugie and Igbinedion, 2015; Obadeyi, 2015).
Despite their significant role, significance, and contribution to the nation’s economy, small business firms continue to face numerous challenges. They encounter major obstacles that hinder their capacity to operate and contribute optimally to the economy. The operations of small business organizations continue to be plagued by a variety of issues, including difficulty in accessing credit, short loan repayment periods, microfinance banks’ reluctance to finance small businesses, and excessive interest rates, among others.
Small businesses account for approximately 90% of the industrial sector in Nigeria, as well as 70% of industrial employment and 10% of manufacturing production (Ajayi, 2002). According to Anwatu (2006), 75% of the private sector in Nigeria is controlled by small-scale businesses. Developing the private sector is a driver of economic growth, wealth generation, and job creation in Nigeria.
The performance of small companies in Nigeria falls short of expectations (Basil, 2005 and Abiodun, 2011). This study evaluates the role of microfinance banks in financing small businesses in the state of Ogun.
1.2 Description of the Research Problem
In order to alleviate poverty, unemployment, and crime, and to promote economic progress, the survival of small businesses is regarded as vital in any country. There is inadequacy in the performance of small business enterprises in their roles of economic growth, job creation, and poverty alleviation; thus, there are obstacles to small businesses attaining their targeted objectives.
The majority of businesses fail to consider effective funding, which negatively impacts their chances of long-term survival, and consequently endure a progressive deterioration in their capacity. Lack of capital is one of the most significant challenges small businesses face. There is an issue of high interest rates and a short repayment period in a system where finances and credit are freely available. In addition, the majority of microfinance banks are unwilling to lend to small businesses. All of them are located in Nigeria and consequently impact the success of small businesses.
It is upsetting to see that the government of Nigeria has been unable to assist the poor in growing small businesses over the years. In the state of Ogun, the capacity of small businesses to attain and maintain a competitive edge is contingent upon the availability of appropriate methods that would safeguard their operations. In this context, the researcher examined the function of microfinance banks in financing small businesses in the state of Ogun.
1.3. Aims of the research
This study aimed to evaluate the function of microfinance banks in financing small businesses in the state of Ogun. The particular aims are to:
Examine the effect of microcredit from a microfinance bank on the performance of small businesses in the state of Ogun.
Evaluate the microfinance bank’s performance in its job of attracting resources for use by small enterprises in Ogun state.
1.4. Research Concerns
The following research questions will serve as the basis for this study:
How does microcredit from a microfinance bank affect the performance of small businesses in the state of Ogun?
To what extent does Ogun state’s microfinance bank fulfill its purpose as a source of capital for small businesses?
1.5 Scientific Hypotheses
The research is based on the following hypotheses:
Microcredit from microfinance has little effect on the performance of Ogun state’s small businesses.
Ogun state microfinance banks have failed to fulfill their responsibility of providing small enterprises with access to capital.
1.6. Importance of the Research
The importance of small businesses to the success or prosperity of any nation is discussed. This is because the availability of capital affects a small business’s capacity to achieve its objectives. As lack of capital affects the degree of productivity, it hinders the achievement of such crucial objectives that small businesses play in an economy.
This study is conducted empirically to evaluate the function of microfinance banks in financing small businesses in the state of Ogun so as to mitigate the problem of low productivity encountered by small enterprises.
This study is important to small businesses because it will help them determine how to operate. It will instruct them on the significance of microfinance and how to acquire business financing. It will also assist small business owners in maximizing the value of their firms.
This study would be of the utmost relevance to investors, the government, and scholars since it will provide policy suggestions to the many Nigerian stakeholders for implementing rapid capacity investment in small-scale industry. It is believed that the investigation of small business in Ogun state will offer investors and government with a comprehensive understanding of the operations of small enterprises. It will contribute to the existing literature on the issue by experimentally studying the function of microfinance banks in the nation’s small businesses. This research will be useful to;
Academia: Academia members will find the study relevant because it will serve as a basis for future research and a reference tool for academic publications.
This study will provide the government with information regarding small businesses and microfinance institutions. Formulation and implementation of policies based on these findings would guarantee the region’s development.
This study will also be useful for investors, particularly those with a research interest, as it will inform their private investment decisions.
1.7. Range of the Research
The purpose of this study is to evaluate the role of microfinance banks in financing small companies in Ogun state in 2019 using small company owners from Ogun state.
1.8. Definition of Terms for Operations
The following terms have been operationally defined.
Small business enterprise: a business with a limited number of employees and a restricted flow of funds and materials.
Business performance is the efficiency and effectiveness of an organization as represented in the management-established business objectives.
Microfinance is a category of financial services aimed at individuals and small enterprises without access to traditional banking and related services.
1.9. Design of the Research
This study is broken into five chapters. The first chapter is the introduction, which includes the study’s context, problem statement, research questions, research hypotheses, aims, importance, scope, and constraints, as well as the study’s structure. The second chapter examines the literature review, which includes conceptual literature, theoretical literature, empirical literature, and a theoretical framework. The third chapter describes the research methodology, including research design, population of study, sample size, sampling strategy, method of data collecting, instrument of data analysis, method of data analysis, and instrument validity/reliability. The fourth chapter contains the presentation and analysis of data, as well as a discussion of the findings. The fifth chapter contains a summary, conclusion, and recommendations.
THE ROLE OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESSES IN OGUN STATE
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