1.1. BACKGROUND OF THE STUDY
Trade money is dynamic. Researchers have realized trade money as the most important alternative to bank loans as a source of external funding in the SME sector (Demirgüç-Kunt and Maksimovic, 2011). Moreover, several authors have demonstrated how trade money provides a safety valve for firms facing idiosyncratic liquidity shocks (Wilner, 2014; Boissay & Gropp, 2011; Cunat, 2011). Rodríguez (2010) argued that through trade money, suppliers can reduce the transaction costs associated with the liquidation of each individual commercial exchange. According to Ferrando and Mulier (2012) small and young SMEs are more likely to be financially constrained, and hence they rely more on the trade money channel to manage growth. However, to our knowledge very few studies have shown Trade money relationship with financial performance of SME.Globally SME sector has been reporting difficulties in access to finance. (Bebezuk ,2014, Slotty, 2009, Balling et al, 2009, Irwing &Scott,2010, Yongqian et al 2012). Access to external finance to SMEs has become more costly and troublesome while their accessibility has sharply declined. SMEs financial constraints limit their investment opportunity and stagnant growth. Access to finance is widely perceived to an essential factor for firms, and especially SMEs to maintain their daily business operation as well as to achieve long term investment opportunities and development targets .Presence of general limitations on access to capital markets, many east African firms heavily rely on the banking sector for credit. Therefore a well-functioning banking sector plays an important role in channeling resources to the best firms and investment ventures. Financing constraint crucially limit firms growth, availability of productive resources resulting to sluggish of a sector which might pose threat to the sectors contribution to the economy. Access to finance is defined as availability of financial services in the forms of demand deposits, credit, payments, or insurance (Beck&Honohan, 2011, Donovan, 2012, Aduda &Kalunda, 2012,Anold &Jonhson,2012,Massa,2013).The availability of such services can be constrained by physical access, affordability and eligibility. Barriers such as high transaction cost, distance and minimum balance requirements can exclude individuals and firms access to credit matters to SMEs. In particular, access to credit is associated with positive growth, (2012, Ouma & Ramo,2013). Access to finance refers to the possibility that individuals or enterprises access financial services including credit, insurance services and other risk management (Beck and Demurguc 2010). It is the ability of affirm to get and use financial services that are affordable, usable and meet their financial needs (Claessen, 2010). Access has four key dimensions physical access, affordability, appropriate features that meet the users’ particular needs and appropriate terms that do not effectively exclude any category of potential users. Access to finance services implies an absence to the use of these services, whether that the obstacles are price or non-price barriers to finance (Demirguc- Kunt et al,2015). Accessibility to finance is a need to all businesses. Lack of access to finance has been identified as one of the major constraints to small business growth, (Carpenter et al, 2002). Businesses use capital to acquire all resources. Accessibility of capital enables the start and running of business, and lack of it may lead to business failure. Factors related to initial working capital and credit accessibility are the most critical issues in SMEs growth and development. With insufficient financial flows into the business, many businesses cannot grow because they cannot get capital, they cannot buy raw materials and pay workers. Respondents to the Fin scope small business survey (Fin 2010), when asked to identify the single most significant obstacles to growth, access to finance ranked third with 8.7% of small business owners citing the lack of access to finance as reason. Business financing is very important factor in growth and performance of business, shepherd et al (2011) noted that one of the new ventures and especially, the small business obtaining financing. In Nigeria issues of constraint and uneven access have not faded away particularly in rural areas despite recent innovations in credit markets (Aduda & Kalunda, 2012). For example Atieno, (2011) observes that commercial banks and other formal institutions often fail to cater for small borrowers because of their strict lending policies and conditions. She also observes that 33% ofborrowers in Nigeria ranked credit constraints as among their problems and that 68% of capital from informal sources. Lack of adequate financial resources places a significant constraint on SME development. Cook and Nixson (2010) observe that, notwithstanding the recognition of the role of SMEs in development process in many developing countries, SMEs development is always constrained by the limited availability of sources to meet a variety of operational and investment needs. In Nigeria the micro business sector has made some contribution to the economic development of the nation, but the contribution is far below the level achieved by countries like India, Malaysia, Indonesia and the United State of America. Despite that, , SMEs in Nigeria employ about 60 % of the labour force, they contribute only 35 % of industrial output and account for 10 % of industrial exports (Nnana, 2002). The trade money system in Nigeria provides service to 35% of the economically active population while the remaining 65% are excluded from access to financial services. These 65% are often served by informal financial sector (CBN, 2010). Thus, access to finance has remained the major problem of SMEs in Nigeria. This low contribution of SMEs to the development of the Nigeria economy has been attributed to lack of access to credit from the formal financial system. A lot of literature has underscored the importance of credit for the development of SMEs. This may be the reason why various governments in Nigeria have established institutions and programs to provide the SMEs with credit. There is the need to investigate whether credit when accessed improves the performance of the SMEs. This research examines the effect of trade money on the performance of micro-business in Maiduguri, the capital city of Borno state of Nigeria.
1.2 STATEMENT OF THE PROBLEM
Trade money directly affects the growth of micro business in Nigeria (Padey, 2014). Proper management of debts lead to growth and smooth operation of businesses and poor management of debts will not only cripple the ability of commercial banks and other lending institutions to offer credit facilities to small and medium enterprises but threatens their profitability and survival (UIA Report, 2015). Traders in Maiduguritrading center finance their businesses with loans from commercial banks, overdrafts, leasing facilities, trade financing and money lenders. These loans are taken in different loan sizes and their repayment period differs depending on the lending authority. Traders either take group or individual loans depending on the size of the loans and the purpose to which these loans are to be put and the progress of each group or individual in the lending cycle. The loan sizes also depend on the collateral security and the capacity of the group or individual to pay (UIA report, 2015). Despite the fact that a lot of efforts have been put in providing traders with bank loans and trade credit as a form of credit financing to promote their growth, this has not been the case as majority lack collateral security, many are offered small loan sizes with high interest rates, short loan periods, the rapidly growing inflation rate and high deficiency. This discourages the financial institutions to offer them credit services thus threatening their profitability survival and ability to grow. As a failure to perform their operations, many traders have lost their businesses since they cannot be sustained with their own equity. It is likely that the cause of low growth of small and medium enterprises could be due to inadequate funding, planning, limited credit financing (UIA Report, 2015). The study therefore sought to investigate the effect of trade money on business performance of micro business in Maiduguri.
1.3 OBJECTIVES OF THE STUDY
The major aim of the study is to examine the effect of trade money on business performance of micro-businesses in Maiduguri, Other specific objectives of the study include;
1. To assess the performance of the profitability of micro-business in Maiduguri.
2. To examine the sales volume of trade money.
3. To examine the impact of trade money on business performance of micro business in Maiduguri.
4. To assess the customers patronage of micro-businesses in Maiduguri.
5. To examine the relationship between trade money and business performance.
1.4 RESEARCH HYPOTHESES
H0: There is no significant impact of trade money on business performance of micro business in Maiduguri
H1: There is a significant impact of trade money on business performance of micro business in Maiduguri
H0: There is no significant relationship between trade money and business performance.
H1: There is a significant relationship between trade money and business performance
1.5 RESEARCH QUESTIONS
1 What is the performance of the profitability of micro-business in Maiduguri?
2 What is the sales volume of trade money?
3 What is the impact of trade money on business performance of micro business in Maiduguri?
4 What is customer patronage?
5 What is the relationship between trade money and business performance?
1.6 SIGNIFICANCE OF THE STUDY
This research is important as it may provide feedback on government credit schemes on micro-businesses in Borno state, similarly the research will help in formulating future policies that may improve the condition of the people of Borno State. The study would also be of immense benefit to students, researchers and scholars who are interested in developing further studies on the subject matter.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study is restricted to the effect of trade money on business performance of micro-businesses in Maiduguri.
1.8 LIMITATION OF THE STUDY
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 OPERATIONAL DEFINITION OF TERMS
Trade money: is an essential tool for financing growth. Trade money is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade money.
Business performance: is the process of measuring the results of a firm’s policies and operations in monetary terms (Erasmus, 2015).
Micro-businesses: are typically defined as businesses needing less seed capital, and generally do not have access to typical avenues of business finance such as corporate credit accounts or commercial banking services.
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