THE IMPACT OF MICRO CREDIT FINANCE IN THE PERFORMANCE OF SMALL AND MEDIUMS BUSINESS ENTERPRISES
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Nigerian government has over the years embarked on series of policy and institutional reforms aimed at enhancing the low of finance from the banking sector to Small and Medium Enterprises (SMEs) as well as those involved in the petty business (Micro) activities and to entrepreneurial ventures at the informal level in particular.
However, the important objective of boosting the performance of the entrepreneurial activities of SMEs has not materialized. Traditional Banks perceive micro activities as bad risk, hence have little interest in funding the sector, this is coupled with issues of high transaction costs and short tenor of payback period when funding is considered.
Since a robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to formal financial services, the Central Bank of Nigeria (CBN 2005) as part of its banking reform agenda embarked on licensing Microfinance Institutions (MFIs) aimed at providing financial services to entrepreneurs who are not served by the conventional financial institutions (Ozioko, 2010). Emphasis, therefore, shifted from large-scale industries to SMEs, which have the potentials for
developing domestic linkages for rapid and sustainable industrial development. According to Yarron (1998) Nigeria
has remarkable entrepreneurs who need support at every level and this includes Micro, Small and Medium
Enterprises as well as big businesses. A common characteristic of these enterprises is their need for good financing.
SMEs are critical agents of economic transformation as they account for more than 50 percent of Gross Domestic
Product (GDP) of developing economies, are main source of innovation and technological development, source of
supply of both human capital and raw materials to larger businesses and main source of entrepreneurship and
enterprise (Sanusi, 2003). The contribution of the SME sector to the Nigerian economy is crucial for the achievement
of the broader development objectives such as poverty alleviation, spreading of employment opportunities and
increasing indigenous ownership of resources in the economy (Chidoko, Makuyana, Matungamire, & Bemani, 2011).
SMEs contribute nearly half of Nigerian GDP and accounts for over 25 percent of employment in the country. There
are 17 million SMEs in Nigeria, employing 32.41 million persons and contributes about 46.54 percent to the nation’s
GDP in nominal terms (National Bureau of Statistics 2013).
The microfinance arrangement makes it possible for MSMEs to secure credit from Microfinance Banks (MFBs) and
other Microfinance Institutions (MFIs) on more easy terms. It is on this platform that we intend to examine the impact
of microfinance on small business growth. Therefore, the study will fill the gap in literature on the impact of both the
financial and non-financial services on small business growth and to examine the capability of microfinance to
transform small enterprises to small scale industries through their technology/asset related loans.
THE IMPACT OF MICRO CREDIT FINANCE IN THE PERFORMANCE OF SMALL AND MEDIUMS BUSINESS ENTERPRISES