EFFECT OF FINANCIAL INCLUSION ON THE PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMES) IN SOUTH WESTERN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background To The Study
Micro, Small and Medium Enterprises (MSMEs) have been largely acknowledged as the oil required for lubricating the engine of socio-economic transformation of any Nation. Small enterprises are vital for economic development because they encourage entrepreneurship, generate employment, reduce poverty and provide suitable livelihood.
MSMEs are fundamental as part of the economies fabric in developing countries, and they play a crucial role in furthering growth, innovation and prosperity. In this sense, Palmarudi and Agussalim (2013), state that MSMEs have historically been the main players in domestic economic activities, especially as providers of employment opportunities, and hence generators of primary and secondary sources of income for many households. Ojokuku and Sajuyigbe (2014) confirmed that MSMEs has been recognized globally as the engine of economy growth and development. MSMEs are the solutions to the problem of slow economic development among developing countries.
The National Policy on MSMEs defines MSMEs (which, according to SMEDAN, represents 90% of the enterprises in Nigeria) based on the dual perspective of employment and assets (excluding land and buildings) (SMEDAN, 2009). According to this policy, a micro enterprise is defined as an entity employing less than ten persons with less than five million naira value of assets while a small enterprise has 10 to 49 employees and between five and fifty million Naira assets and a medium enterprise employs 50 – 199 persons and posts assets worth of between N50 and N500 million.
Micro, small and medium enterprises (MSMEs) play a big role in the Nigerian economy and economies around the globe. MSMEs outnumber large companies by a wide margin and also employ many more people. MSMEs are also said to be responsible for driving innovation and competition in many economic sectors.
According to SMEDAN and National Bureau of Statistic (NBS) Collaborative Survey (2013), The total number of MSMEs as at 2013 stood at 37,067,416 (Micro-36,994,578, Small- 68,168, and Medium-4,670) out of which South West Nigeria has 9,628,993 ( Micro- 9,602,249, Small- 25,157 and Medium- 1,587) ,that is, Ekiti- 965,208, Lagos-3,235,987, Ogun-1,167,642, Ondo- 1,028,769, Osun- 1,358,446, Oyo- 1,872,941 . The Ministry of Industry, Trade and Investment claimed that MSMEs in Nigeria account for more than 84 percent of total jobs in the country, also account for about 48.5 percent of the Gross Domestic Product, GDP, as well as about 7.27 percent of goods and services exported out of the country.
The 2017 National Survey of MSMEs covered enterprises in Nigeria employing below 200 persons, which are MSMEs and was conducted in all the 36 states of the federation and Nigeria’s Federal Capital Territory, Abuja. From the statistics, it showed that MSMEs has increased to 41,543,028 in 2017, (Micro-41,469,947, Small- 71,288, and Medium-1,793) out of which South West Nigeria has 9,886,473 (Micro- 9,863,183, Small- 22,720 and Medium- 570), that is, Ekiti- 1,018,438, Lagos-3,337,552, Ogun-1,180,574, Ondo- 1,060,388, Osun- 1,373,915, Oyo- 1,915,606 , most of the businesses are located in Lagos , Nigeria’s largest commercial city.
According to Olowe, Moradeyo and Babalola (2013), many MSMEs in Nigeriaa could not reach the growth stage of their life cycle due to lack of access to finance. MSMEs are, collectively, the largest employers in many low-income countries, yet their viability can be threatened by a lack of access to such risk-management tools as savings, insurance and credit. Their growth is often stifled by restricted access to credit, equity and payments services.
Financial Inclusion plays a crucial role on MSMEs development. The traditional idea of financial inclusion is the provision of access to and usage of diverse, convenient, affordable financial services. The centre for financial inclusion defines financial inclusion as a state in which all people who can use them have access to suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Access to financial services can therefore boost job creation, raise income, reduce vulnerability and increase investments in human capital.
Central Bank of Nigeria (CBN, 2019) financial inclusion is the delivery of formal financial services in a reliable, convenient, affordable, continuous and flexible manner to those who may not ordinarily access the regular financial services.
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 MSMEs 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 Micro, Small and Medium Enterprises (MSMEs).
The National Financial Inclusion Strategy adopted by CBN identified the major tools for driving Financial Inclusion as Banking Services (Agent Banking, Linkage Banking etc), Know-Your-Customers Requirement, Financial Literacy, Consumer Protection, Implementation of MSME Development Fund, Credit Enhancement Programmes. In this study, focus will be on Financial Literacy, Banking Services (majorly Micro Finance Banks) and Government Intervention (Credit Enhancement Programmes) in enhancing Financial Inclusion for MSMEs.
In this study, Financial Inclusion means making available required services accessible in a reliable and convenient manner to MSMEs in South West Nigeria.
All Businesses face challenges in taking certain financial decisions and making informed judgments regarding financial services that impact on their financial activities. Making such decisions requires financial literacy. Financial literacy is the set of skills and knowledge that allows an individual to take appropriate financial decisions (Norman, 2010), without financial literacy, financial inclusion is baseless because stakeholders cannot understand the benefits/ risks associated with financial services.
Financial Literacy is viewed as a critical element for encouraging financial inclusion, consumer protection and ultimately, financial solidness and capability especially among young people (CBN 2015). Since the recent mandatory introduction of monetary policies in Nigeria aimed at boosting financial inclusion (CBN 2011), it has become imperative to study how financial literacy and inclusion boost entrepreneurial growth considering firm size and location in Nigeria. Financial Inclusion and Literacy is inseparable unit that helps to comprehend the requirements and advantages of the items and administrations offered by the formal financial institutions. However, more emphasis seems to be on financial inclusion, while financial literacy receives little attention (EFInA, 2016; CBN 2011).
Microfinance, pioneered by the Nobel-Prize winner Muhammad Yunus, helps the financially marginalized by providing them with the necessary capital to start a business and work toward financial independence. These loans are significant because they are given even though the borrower has no collateral.
Microfinance also called microcredit is a way to provide small business owners and entrepreneurs access to capital. Often these small and individual businesses do not have access to traditional financial resources from major institutions. This means it is harder to access loans, insurance, and investments that will help grow their businesses. Essentially, microfinance is providing loans, credit, access to savings accounts, even insurance policies and money transfers to the small business owner and entrepreneur
EFFECT OF FINANCIAL INCLUSION ON THE PERFORMANCE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMES) IN SOUTH WESTERN NIGERIA