THE ROLE OF MICRO FINANCE BANKS  IN FINANCING SMALL MEDIUM ENTERPRISE OPERATION IN ONITSHA

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

According to Conroy [Conroy JD (2003) ], microfinance is the provision of financial services to low-income families who have restricted access to conventional financial institutions. Microfinance can also be referred to as "banking for the poor." According to Rolando [Rolando GT (2010) ], microfinance is a great method to help businesses. It offers low-interest loans to the poor, allowing them to make a living. Small company owners, on the other hand, prefer personal savings and credits from cooperative societies to microfinance banks and commercial banks, according to Jegede [2011], citing non-accessibility, expensive collaterals, and high interest rates as reasons. According to the formal model approach studied by Arogundade [2010], microfinance lending in Nigeria has not been beneficial. According to the CBN Report [2005], official financial institutions offer services to around 35 percent of the working population, with the remaining 65 percent typically supplied by the informal sector. According to Orodje [2012], microfinance in Nigeria was rapidly declining before the CBN's intervention. Deception and mismanagement of funds were rampant in the industry. Senior managers of microfinance banks were unable to comprehend the concept of microfinance, resulting in mismanagement. Microfinance banks are being promoted as an important development tool to help the poor get access to loans and savings services [Shreiner M (2001)]. There is no doubt, according to Babgana [2010], that SMEs need help from microfinance banks in order to become sustainable and competitive. There is no universally agreed-upon definition of a small business. Numerous attempts have been made to define small business using criteria such as employee count, sales volume, and asset value. Employee size, total assets, investment, and sales level are some of the most commonly used yardsticks. Despite the variations, several sources describe small and medium businesses as having workers ranging from 0 to 250 [Ayyagari M, 2005]. A small company, according to the SBA [2011], is one with less than 500 workers. Small and medium-sized businesses (SMEs) are seen as engines of economic growth and development. Its major advantage is the possibility for job generation and cheap capital requirements. For classifying their small company sector, various countries utilize different classifications. Small companies, according to the Federal Government of Nigeria, are those with an annual revenue of less than N500, 000 and a capital investment of less than N 2 million [Aremu MA, 2011]. Small companies in the UK are defined as those with fewer than 500 workers and an annual revenue of less than £100 million for research purposes. SMEs in China are classified by industry, depending on the size of the employees, yearly returns, and total assets of the business. Food stores, kiosks, tailoring shops, poultry companies, general firms, and so on are examples of SMEs. Company survival, increased employment, higher profit, expanded outlets, increased capital size, and better business management are only a few of the benefits of effective small business management on an economy.

1.2 Statement of research problem

Microfinance is the provision of financial services, especially microcredit, to individuals who have previously been systematically denied access to such services by conventional financial institutions (Consultative Group to Assist the Poor (CGAP), 2012). Because microloans in developing countries have a high cost of over 60% annual interest, high returns on capital are required to improve tangible outcomes of such business income, there is comparatively little convincing evidence in the grand claims about the success effects of microfinance on small businesses (Attefah, Mintah, & Amoako-Agyeman, 2014) Ngehnevu & Nembo (2010) conducted a research in Cameroon on a microfinance organization called Camccul and its clients, concluding that microfinance had a beneficial effect on SME development. When it comes to commercial bank loans, SMEs are at a disadvantage when compared to large corporations. Access to finance is essential for the growth of SMEs (Pei-Wen, Zariyawati, Diana-Rose, & Annuar, 2016). Because of non-accessibility, expensive collateral, and high-interest rates, small company owners choose their savings and cooperative societies credit over MFBs and deposit banks loans. Customers have been seen defaulting as a result of the microfinance banks' high interest requests (Taiwo, Onasanya, Agwu, & Benson, 2016). As a result, the purpose of this research is to look at the role of microfinance banks in funding small and medium-sized businesses in Onitsha, Anambra State.

1.3 Objectives of the study

The primary objective of the study is as follows

1.     To determine the effect of a microfinance bank on small and medium-sized businesses in Onitsha.

2.     To see whether the operation of microfinance bank deposits aided the growth of small and medium-sized businesses in Onitsha.

3.     To see whether the gross profits of Onitsha's microfinance banks offered investment possibilities for small and medium-sized businesses.

4.     To determine the impact of microfinance bank loans on the development of small and medium-sized businesses in Onitsha.

1.4 Research questions

The following questions have been prepared for the study

1.     Does microfinance bank  have impact  on small and medium scale enterprises in Onitsha?

2.     Has microfinance bank deposits operation improved the development of small and medium scale enterprises in Onitsha?

3.     Has microfinance bank gross earnings provided investment opportunities for small and medium scale enterprises in Onitsha?

4.     Do you think microfinance bank loans have an influence on the growth of small and medium scale enterprises in Onitsha?

1.5 Significance of the study

The significance of this study cannot be underestimated as:

l  This study will examine stress management practices of career women in Lagos state Nigeria.

l  The findings of this research work will undoubtedly provide the much needed information to government organizations, career women, companies and academia.

1.6 Scope of the study

This study examines the role of micro finance banks  in financing small medium enterprise operation in onitsha.  hence, this study will be delimited to selected small medium enterprise in Onitsha Anambra  state. Nigeria

1.7 Limitations of the study

This study was constrained by a number of factors which are as follows:

 just like any other research, ranging from unavailability of needed accurate materials on the topic under study, inability to get data

Financial constraint , was faced by  the researcher ,in getting relevant materials  and  in printing and collation of questionnaires

Time factor: time factor pose another constraint since having to shuttle between writing of the research and also engaging in other academic work making it uneasy for the researcher

1.8 Operational definition of terms

Role: an actor's part in a play, film, etc

Micro finance bank:  a banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services.

Small medium enterprise: a convenient term for segmenting businesses and other organizations that are somewhere between the "small office-home office" ( SOHO ) size and the larger enterprise .

Operation: the action of functioning or the fact of being active or in effect.