CHAPTER ONE

INTRODUCTION

1.1     AN OVERVIEW OF THE STUDY

In the past, government has initiated series of micro programmes targeted at the poor with the overriding objective of making credit readily available to those who were traditionally denied access to credit. Such credits in the world over were used for the development of small and meduim scale enterprise, which has been described as the springboard for sustainable development. In all emerging economies like Nigeria, the government has shown a great concern for the development of small and meduim scale enterprise because of the underlying socio economic factors plaguing the nation. some of the reasons include: the past policies failed to generate efficient self sustaining impetus needed to uplift the country to the ‘take-off’ stage of growth, the increased emphasis on self-reliant approach to the development and the recognition that dynamic and growing petty-business can contribute substantially to a wide range of developmental objectives. However, the full potential of the micro business in the development process have not been realized owing to numerous bottlenecks. In the light of this, the Central Bank of Nigeria (CBN) as part of its reform agenda, initiated Micro Finance Banks, a policy initiative aimed at bringing credit to the door step of the poor who do not have such access under the conventional financial system. The thrust of this project is to articulate the prospects of the micro finance banks towards boosting the performance thereby reducing the level of poverty and enhancing employment generation.  

Micro finance banking institution were conceived and came into been in December 2007. It was packaged to address the issue of cultivating appropriate modern banking habits in the rural area, through the social local institution such as community social clubs and other individuals who are encouraged to be co-owner of the bank through the purchase of shares. The government came in as a second tier supervisory agency through the National Board of Micro Finance Bank (NBMFB) to oversee the establishment and operation. From December 2007, a total of 402 community now micro finance Banks came into being with a total deposit of =N=20 million. Loan and advances disbursed to individuals and enterprises stood at (=N= 155.1million) all these are with share capital cash of (=N=239.8 million). To complement the efforts of microfinance banks in mobilizing the rural infrastructures and directorate for social mobilization (MAMSER) by virtue of their grass roots oriented programmes conducted extensive research into the introduction of the microfinance banking system in area that it will be of good benefit to the people. Okafor (1992), in his reports for micro finance banks being the main link between the formal and informal financial sectors.

       It is now common knowledge according to Egbe (2000) that the 1980s witnessed a rapid growth of commercial banking activities in many Nigerian rural communities where banking habits, culture, commitment and community development was poor if not non-existent. It is instructive to note that during this period, community funds among rural dwellers were hardly gathered for savings and loans in order to stimulate domestic investment. Suffice it to say that in rural communities, the rural business class hardly seeks formal institutional credits to improve their economic base.

       It would be observed that, despite the presumed developments in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema, 2006). More so, its industrial growth is not quite impressive. Before the emergence of formal microfinance institutions, informal microfinance activities flourished all over the country. Traditionally, microfinance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives, government owned institutional arrangements, poverty reduction programmes etc (Lemo, 2006). The Central institutions in Nigeria are relatively new, as most of them never registered after 1981.

Before now, commercial banks traditionally lend to medium and large enterprises which are judged to be credit-worthy. They avoided doing business with the poor and their micro enterprises because the associated cost and risks are considered to be relatively high (Anyanwu, 2004).

       Barbara (1999), posit that the need for microfinance banking among rural dwellers has been on the increase, and as such, between 1989 and 1990, the Federal Government initiative aimed at actualizing this growing need expanded the rural banking scheme with the launching of Peoples Bank and Community Bank respectively. To make borrowing easy enough for rural communities, these banks do not require sophisticated collateral for borrowing. Also, interest on borrowed money was made as low as possible by the two banks to enable small-scale rural community industrialist and agriculturist to borrow with ease. Today, many rural communities in Nigeria have one or more of this microfinance bank, and they have had far more reaching implications for the entire socio-economic development of rural communities in Nigeria. It is worthwhile to note, according to Usang (2006), that many would recall how lack of funds often caused the collapse of small businesses and the extinction of ingenious ideas before they could be translated into reality.

It is now widely believed that following government’s acclaimed policies on rural development, rural investment will be given a boost via microfinance banking as all frustrations of our hardworking, devoted but under-privileged masses would come to an end. However, the idea behind microfinance banking is to encourage rural development through rural commitment in modern financial institutions within the rural environment.

Thus, microfinance banking is supposed to be the machineries for financial and economic emancipation as its growth is connected with the community in which it serves. It is therefore not certain whether or not micro-finance banks actually impacts on small and meduim scale  businesses in the rural communities.

STATEMENT OF THE PROBLEM

The financing in most cases in normally provided by the owners. The owners fail to realize the importance of external source of capital in order affect expansion in the business; in most cases, the by the owner, members of the family and friends in most cases. In another development, small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide equity capital, the conditions are always dreadful. All these result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it (Chukwuemeka, 2006). The problems that emanated from poor financing include: 

a) Lack of competent management which is the consequence of inability of owners to employ the services of experts. b) Use of obsolete equipment and methods of production because of owner’s inability to access new technology. c) Excessive competition which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry.

       The statement of the problem or challenges facing micro finance bank in financing small and meduim scale  enterprises in Delta are:

i.            High Operating Cost: Small units of services pose the

challenges of high operating cost, several loan applications to be processed, numerous accounts to be managed and monitored, and repayment collection to be made from several locations especially in rural communities.

ii.           Repayment Problem: Loan default is a major threat

to micro finance banks’ sustainability; it is the deadly “virus” which affects the operation of the banks. It demoralized staff and deprives beneficiaries of further valuable services.

iii.         Inadequate Experienced Credit Staff: Micro

financing is more than dispensing loans, to be viable micro finance banks require experienced and skilled personnel. As a young and growing industry, there is a dearth of experienced staff in planning, product development and effective engagement with clients.

iv.         Problems Of Illiteracy: This affects record keeping

and decisions-making ability of borrowers and consequently affects their relationship with the banks.

OBJECTIVES OF THE STUDY

The general objective of this study is to examine the impact of micro-finance bank on the performance of small scale businesses in Delta State.  The study will be on the  performance  of small scale industry business in Delta State the specific objectives not necessarily in order of priority are:-

1.  To see how micro finance bank will be the best to encourage banking habit among rural dwellers.

2.  The study also aims at improving the economic status of the small scale producer in the rural areas by giving them more capital.

3.  Also the purpose of this study is to find out how best micro finance bank credit can be used to promote community, performance and the attitude of community or rural  dwellers toward the exercise.

4.  To investigate the impact of micro finance bank in community performance.    

RESEARCH QUESTIONS

A major challenge facing many developing countries especially in Africa, is devising appropriate performance strategies that will capture the financial services required by farmers and small and medium entrepreneurs whose countries constitute about 70% of the population. Therefore, the researcher wishes to formulate the following questions to guard him.

1.  What impact has micro-finance banks made in the performance of cottage industries in Delta State?

2.  What impact has micro –finance banks made in the performance Agric product in Delta State?

3.  What impact has micro-finance banks made in the performance of trading in Delta State?

 RESEARCH HYPOTHESIS

The following hypothesis which are stated in the null and alternative form are to be given a validity test in this research work. Ho:   Microfinance banks have not made meaningful impact in the performance of cottage industries in Delta State.Hi:     Microfinance banks have made meaningful impact in the performance of cottage industries in Delta State.Ho:   Microfinance banks have not mademeaningful impact in the performance of agric product in Delta State.Hi:     Microfinance banks have mademeaningful impact in the performance of agric product in Delta State.Ho:   Micro-finance banks has not made in the meaningful impact in the performance of trading Delta State? Hi:     Micro-finance banks have made in the meaningful impact in the performance of trading Delta State?

​SCOPE OF STUDY

The scope of the study shall cover the impact of micro finance banks on small scale business in Delta State metropolis between 2005-2012.  The researcher is interested in what micro finance banks have done in the area of cottage industries, agric product and trading in Delta State. However, owing to shortage of literature and financial data, raw data shall be generated from selected small scale business operators in the area of Delta State.

​SIGNIFICANCE OF THE STUDY

1.  The significance of this research work cannot be over emphasized as the following are made known.

2.  The impact of microfinance bank in small scale business.

3.  The overview of microfinance bank.

4.  To bring to the knowledge of poor, economically weak and the general public the need for micro credit.

5.  It will also be of much importance to researchers who may wish to carryout on related topics.

LIMITATION OF THE STUDY

In course of carrying out this research work, the limitations of the study were as follows:

Cost:

       Inadequate fund may stunt this work beyond our taste, lack of fund may also affect not only the period of the research but also its quality. To exalt everything about analyzing the effects of human resources development on the organizational growth and come out of legacy for the posterity one need to travel far and near.

Time:

       Time is as costly as money, it is even easier facing financial problems than time, and time lost is hardly regained. Financial markets do exist but time existed for time, with the school academic load, the period for the research work is too short putting other courses into the budget.

Reluctant to cooperate:

The management of some business organization is too reluctant to disclose the required information and more so when it comes to disclosing exposing the organizational books record. The idea equally affects the quality of facts given in the research some do pith pact to suit the firm.

DEFINITION OF TERMS

The following definitions are defined in the context for which they are used in this research work;

Micro Finance Banks

This is a self sustaining financial institution owned and managed by a community or group of communities for the purpose of providing credit deposits, banking and other financial services to its members, largely on the basis of their self recognition and credit worthiness.

Small scale businesses and agriculture

This is a business that is independently owned and operated not dominated in its field of operation. It is a business established whose total assets in capital, equipment, plants and working capital is less than (=N=4, 000, 000) four million naira and employing less than 50 full time workers and wholly indigenous.

Economic growth:

 This refers to the steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national income.

Economic development:

This can be known as nothing less than “The upward movement of the entire social system or it many be interpreted as the attainment of a number of ideas of modernization such as a rise in productivity, social and economic equal section. Modern knowledge improved institutions and attitudes and a traditionally co-ordinate systems of policy measures that can remove the host of undesirable conditions in the social system that have perpetuated a state of under development”.

Financial institution: 

These are institutions either private or public that channels loanable funds from savers to borrowers.  Example, commercial banks and development banks, micro finance bank.

BANK:

Bank is a financial institution where money and other valuable items are kept for safe custody, Example commercial banks, development banks, merchant banks e.t.c. Each of these banks performs different roles or functions in the economy.       

Community bank:

This is a unit and self sustaining financial institution owner and managed by a community or group of communities.   

Deposits:     

They are instrument collected by the banks inform of cash valuable items e.t.c. for safety. 

Rural areas: They are those remote villages that have no or little development.

CBN: Central Bank of Nigeria: This is the apex financial institution that supervises, regulates and controls other banks, volume of money in a country in established in 1952.