ASSESSMENT OF THE ROLES OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESS IN EKITI STATE (A CASE STUDY OF ULAYIN MICROFINANCE BANK)

ASSESSMENT OF THE ROLES OF MICROFINANCE BANKS IN FINANCING SMALL SCALE BUSINESS IN EKITI STATE  (A CASE STUDY OF ULAYIN MICROFINANCE BANK)

ABSTRACT
          This
study focuses majorly on the Assessment of the Roles of Microfinance Banks in
Financing Small Scale Business in Ekiti State, making Ulayin Microfinance Bank
as a case study. Small scale businesses have unstable and declining profit
ability and performance and other are closed even before their anniversary. To
improve on profitability and consequent performance and prevent failure, small
scale businesses must identify performance drivers focus on improving them the
lack access to funds and income opportunities because they operate with
inadequate capital and this realize a small profit margin. They need to be the
main focus since they are driving forces to economic growth and development.
Microfinance
bank provides chance to access credit but requires collateral security charge
high interest rate and imposes stringent supervision over loan repayment and
saving mobilization that most of the owners cannot meet. Traders who manage
getting credit continuously perform poorly and spend even the small return in
servicing the credit acquired. Despite the activities performed by microfinance
bank in financing small scale businesses needs to be of the study.



TABLE
OF CONTENT
Title page                                                                                i
Certification                                                                                      ii
Dedication                                                                               iii
Acknowledgement                                                                             iv
Abstract                                                                                  vi
Table of content                                                                      vii
CHAPTER
ONE
1.0     Introduction                                                                            1
1.1           
Background of the Study                                                        1
1.2           
Statement of the Problem                                                        3
1.3           
Research Questions                                                       4
1.4           
Objectives of the Study                                                  5
1.5           
Significance of the Study                                                         5
1.6           
Scope of the Study                                                                  6
1.7           
Limitation of the Study                                                  6
1.8           
Organization of the Study                                              7
1.9           
Definition of Terms                                                       8
CHAPTER
TWO: LITERATURE REVIEW AND
THEORETICAL
FRAMEWORK
2.1     Concept of Micro-Finance Banks                                  10
2.2     Traditional Microfinance Institutions                                      10
2.3     Challenges Facing Microfinance Institutions                           14
2.4     Growth of the Small Scale Businesses in
Nigeria          18
2.5     Measuring the Performance of Small Scale
Business     20
2.6     Women’s empowerment and Microfinance
Contrasting
Paradigms                                                  22
2.7     Microfinance Activities in Financing
Small
Scale Business                                                     23
CHAPTER
THREE: METHODOLOGY
3.0     Introduction                                                                            25
3.1     Research Design                                                            25
3.2     Study Population                                                           26
3.3     Sample Size and Sampling Procedures                          26
3.4     Data Sources, Collection Methods and
Collection
          Tools/Instruments                                                                   27
3.5     Data Analysis and Data Processing                               28
3.6     Ethnical Issues and Considerations                               28
3.7     Challenges Encountered in the Field                              29
CHAPTER
FOUR: PRSENTATION AND ANALYSIS
OF
FINDINGS
4.0     Introduction                                                                            30
4.1     Background Characteristics of the
Respondents           31
4.2     Credit and Saving Policies and Terms of
          Microfinance Institutions                                                        36
4.3     Performance of Small Scale Business in
          Oja-Oba Market                                                             44
4.4     Relationship between Microfinance
Activities and
          Small Scale Businesses                                                  49
CHAPTER FIVE: SUMMARY, CONCLUSION AND
  RECOMMENDATION
5.1     Summary                                                                       53
5.2     Conclusion                                                                     54
5.3     Recommendations                                                                   54
References                                                                      56     
Appendix1                                                                     58
Questionnaire                                                                59

CHAPTER
ONE
1.0     INTRODUCTION
1.1     BACKGROUND OF THE STUDY
          The
role of small scale business as an engine to economic growth has garnered
considerable public attention. They have significantly low revenues and most
have closed even before their first anniversary. (Balunywa, 1995). Despite of
uncertainties and risk in business, many are born, operate with just minimal
gains to maintain business with no growth. Small scale business uses
credit/loan from Micro Finance Institution (MFI) to finance their operation and
others use the credit to set up business performance (profit and scale growth)
is still small.
          Micro
Finance Institutions are organized and operate by NGOs with initial
capitalization from donors with interest in growth and development of Small
Scale Business (SSBs) that cannot obtain such from formal financial
institutions like banks due to the characteristics exhibited by such businesses
(Ledger Wood, 1999). They are intended to eradicate poverty through operating
different activities. Micro Finance Banks lend to individuals or group of
individual at acceptable interest rates. These are a number of beneficiaries
from the activities of Micro Finance Institutions (MFIs); these include traders
from Oja Oba in Ado – Ekiti. Most of them finance their business operations
using borrowed funds from Microfinance bank.
          However,
owners of small scale business like traders in the market are not satisfied
with the activities of microfinance institutions, they continuously complain
about the unfair terms and conditions given by microfinance bank. Newspapers
have reported that this has been experienced by traders and got fear that if
nothing is done to regulate this, there will be even more room for failure (New
Vision 24th June, 2005).
          This
explains why microfinance is highly regulated and supervised. The main
objectives of microfinance bank or institution are to eradicate poverty and
raise the standards of living of people as well as general sufficient
employment (Kiying, 2000). Microfinance institution, household with low incomes
and small scale businesses.
          The
critical aspect to consider is how the clients of microfinance institutions
benefit from the microfinance activities and the study is basically profound on
the theme of empowering the poor through enhancing performance of small scale
businesses (Rhymes, 1994). The major clients are women (MFPED, 2000: Wright et
al, 1999). Despite the crucial role of the women entrepreneurs have low
business performance compared to their male counterparts (Kanji, 2006) and this
is caused by factors which normally affect entrepreneurial performance. Such
factors include: lack of credit, saving, education or training and social
capital (Shane, 2003).
1.2     STATEMENT OF THE PROBLEM
          Small
scale businesses have unstable and declining profit ability and performance and
other are closed even before their anniversary (Arkurtoo, 2005 and Balungwa,
1995).
          To
improve on profitability and consequent performance and prevent failure, small
scale businesses must identify performance drivers focus on improving them the
lack access to funds and income opportunities because they operate with
inadequate capital and this realize a small profit margin. They need to be the
main focus since they are driving forces to economic growth and development
(Harris and Gibson, 2006 and others).
          Microfinance
bank provides chance to access credit but requires collateral security charge
high interest rate and imposes stringent supervision over loan repayment and
saving mobilization that most of the owners cannot meet (MSED, 1999). Traders
who manage getting credit continuously perform poorly and spend even the small
return in servicing the credit acquired. Despite the activities performed by
microfinance bank in financing small scale businesses needs to be of the study.
1.3     RESEARCH QUESTIONS
          The following
questions were raised for the study.
i.                  
What credit and policies and terms are
given by microfinance banks in Nigeria?
ii.                
What is the relationship between
microfinance institution and the small scale business in Ekiti State?
iii.             
How do microfinance banks contribute to
the development of small scale business in Ekiti State?



1.4     OBJECTIVES OF THE STUDY
         

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1.6     SCOPE OF THE STUDY
          The study
focuses on the assessment of the roles of microfinance bank in financing small
scale business in Ekiti State while holding other factors constant. Microfinance
bank activities considered in the study are credit (loan, size and use),
training (management and skills), saving and deposit taking.
          The
opportunity at hand faced by the business, attitude to risk and intention to
entrepreneur must be considered in the study. the aspect of performance will
cover return/profit, output, investment, employment and sustainability.
1.7     LIMITATION OF THE STUDY
          Like
in any other human activities, the sturdy has its limitations and constraints.
High cost of materials and increase in transportation fare, scarce financial
resources have constituted a constraint to the study.
          Time
considerations and distance involved in collecting the primary data is another
limitation of the study. This is because the time leg between the end of course
work and the submission of the project is greatly inadequate constituted a
constraint on the researcher as some respondents gave inaccurate information or
failed to return their questionnaires.
1.8     ORGANIZATION OF THE STUDY
          The
study is divided into five chapters. Chapter one gives the general introduction
to the study, statement of the problem, objective of the study, research
questions, significance of the study, definition terms.
          Chapter
two is for literature review which highlights the overview of microfinance
institution, contribution of microfinance banks toward small scale business,
concept of microfinance bank in financing small scale enterprises.
          Chapter
three highlights the methodology adopted in carrying out the research work, that
is, the field work, population of the study, sample size and sampling
procedure, method of sourcing data and the real analysis of the collected data
are carried out in chapter four. Chapter five drops the conclusion, summary and
recommendations along with references.
1.9     DEFINITION OF TERMS
i.                       
Small scale Business: A business in
which the managers are the owners, area of operation mainly local, owners
supply capital and small in size within the industry.
ii.                       
Loan: This is financial assistance
rendered by financial institution to borrowers. It is payable and collateral is
required before a financial institution can grant the loan.
iii.                       
Microfinance: Is a form of financial
services for entrepreneurs and small businesses lacking access to banking and
related services. The two main mechanisms for the delivery of financial
services to such clients are:
a.     Relationship:
Based banking for individual entrepreneurs and small businesses
b.     Group-based
models, where several entrepreneurs come together to apply for loan and other
services as a group.
iv.                       
Entrepreneur: This is the one who
conceives the idea of a business, runs the business, bears the risk and enjoys
profit or loss.
v.                       
Bank: A financial institution that keeps
custody of valuables such as money, gold, jewelries, etc. for customers. They
charge customers for their services.
vi.                       
Manager: One who adopt a process for
running the affairs of a business.
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