Full Project – Effects of microfinance bank on women entrepreneur

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

This study is an attempt to investigate the ways in which microfinance programmes, both governmental and non-governmental, have driven financial sustainability and integrated community development among women in Nigeria. In the process the study examined the extent to which programmes have resulted in women’s economic, social, and political empowerment. Women are generally considered to be at the lowest rung of the poverty ladder in Nigeria, the study extrapolated the effects of microfinance on the mitigation of poverty. Finally, the study examined the policy implications of microcredit financing of women economic activities within the broad framework of gender stereotypical milieu of these enterprises. In order to accomplish accomplish these goals, I explored the theoretical bases of microfinance analysis with the overarching context of gender/feminist literature. This approach is important because of the low economic status of women in Nigerian society. As I proceed to argue here that there is a general likelihood that the microfinance approach is targeted at women, I also explain the underlying rationale for this approach from the Nigerian perspective. To realize this and test our propositions, I selected three microfinance, one non- organization and two government assisted microfinance organizations: Country Women Association of Nigeria (COWAN), the Peoples Bank of Nigeria, and Family Economic Assistance Programme. The latter two are both federally operated institutions of the government of Nigeria aimed at providing credit to those who ordinarily would not get them and by so doing raise their economic status and help to eliminate poverty.

The propositions that are made in this study are

(1) There a direct relationship between microcredit availability and economic development;

(2) There is a direct relationship between microcredit and women empowerment in Nigeria;

(3) The availability of microcredit facilitates income generating activities among people and contributes to their increased standard of living;

(4) That there is an association between micro financial institutions and the development of financial sustainability among Nigerian women; and

(5) That micro financial institutions are directly associated with women leadership development in Nigeria.

1.2 STATEMENT OF PROBLEM

One of the challenges of micro financing in Nigeria at present is how to the Micro Finance Institutions (MFI) can reach a greater number of small scale business entrepreneurs. The CBN survey indicated that their client base was about 600,000 in 2001, and there were indications that they may not be above 1.5 million in 2003. The existing microfinance banks in Nigeria serves less than 1 million people out of 40 million potential people that need the service (CBN, 2005).

Also, the aggregate micro credit facilities in Nigeria, account for about 0.2 percent of GDP and less than one percent of total credit to the economy. The effect of not appropriately addressing this situation would further accentuate poverty and slow down growth and development of SMEs in the country.

The Microfinance Banks replaced the ailing Community Banks created by former military head of state General Ibrahim Babangida but was soon caught in the throes of an inefficient Nigerian economic system. This laudable concept has been hijacked by money bags; it has been caught by bureaucracy of the Nigerian politics and economics. The concept of micro financing is presently being misapplied. The CBN directs that every microfinance bank should have a minimum reserve of not less than N20 million, while at the same time directing that the NDIC insures each depositor for a maximum N100,000.00 regardless of the amount of money invested.

These requirements takes the microfinance industry out of the reach of the people it was intended to serve; the very poor. While at the same time it discourages prospective investors because their funds are not sufficiently secured. It is interesting to know that the CBN does not regulate interest rates charged by microfinance banks; so with N20m tied up in the CBN vaults as legal reserve ratio, high cost of incorporation of business ventures; taxes, approvals, rents, salaries etc the operators hardly have enough left to commence operations.

Having failed to capture its target market, Microfinance banks in the country are now trying to compete with full-fledged banks but are grossly lacking in the most important aspect of its operations; that is raising funds from depositors and getting prospective clients to shed their phobia for bank loans for fear of exorbitant interest rates charged and hidden bank charges.

According to Akindutire,(2008) Operators of microfinance banks believe it is a short cut to owning a bank without going through the rigours of procuring a banking license or paying the over N250m CBN deposit required to start a banking business. It is commonplace to find a microfinance bank taking out expensive paid adverts and expensive corporate imaging in the hope that it will open them up to the market.

On the contrary it extrapolated their problems. For instance what would a microfinance bank be doing at AdeolaOdeku or Ikoyi? When the target market is at Okokomaiko, Mile 2, or all other places where you can find an akara, plantain (boli) seller, recharge card seller, okada rider e.t.c instead microfinance banks are competing for corporate accounts they want to have salary accounts for government parastatal, or finance petroleum marketing industries, consequently you will find them in suits, chauffeur driven in state of the art cars.

Against the backdrop of the foregoing problems, this study will examine the micro finance institutions and their impact on small scale businesses in Nigeria.

1.3 AIM AND OBJECTIVES OF STUDY

The primary objective of this study shall be to examine the effects of microfinance bank on women entrepreneur in kogi state.  Other salient objectives will include;

1. To determine the relationship between Micro finance banks and Small Business Entrepreneurs in Nigeria.
2. To examine the challenges of micro financing in Nigeria

iii.        To identify the impact of lack of financial support on small scale businesses

1. To suggest means by which micro finance institutions

Can be more responsive to Small business needs in Nigeria

1.4 Research Questions

The following research questions shall guide the study;

1. what is the relationship between micro finance Banks and small business enterprises in Nigeria?
2. What are the challenges of Micro Finance in Nigeria?

iii. What are the effects of lack of financial support on Small business?

1. How can micro Finance institutions be responsive to small business enterprises demands?

1.5 Research hypotheses

The following hypotheses will be tested in the study;

H_o:There is no relationship between Micro finance Banks

and Small Business Enterprises in Nigeria

H_i:There is a relationship between Micro finance Banks and

Small Business Enterprises in Nigeria

H_o: Micro finance banks do not encourage small business

owners in Lagos

H_i; Micro finance banks do not encourage small business

owners in Lagos

1.6 Significance of the Study

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 factors of production, especially credit. The latent capacity of the poor entrepreneurs would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant; increase employment opportunities, enhance household income, and create wealth.

However, the lack of required financial support from the microfinance banks to Micro Business operators in Lagos state has become a major concern in Nigeria. Hence, this study shall be relevant to policy makers in the areas of finding out the impact of micro financing on the small scale investors. Also, this study shall enhance further research in the subject area.

1.7 Scope and Limitations of the Study

The scope of the study shall cover micro finance banks and micro business entrepreneurs in Lagos state metropolis. However, owing to shortage of literature and financial data, raw data shall be generated from selected small business operators in Ojo local government area of Lagos state.

1.8 Research Methodology

The study shall employ the survey research method in the process of data collection. The method entails identifying population of study and collection of data through questionnaire administration.

Population of Study

The population of study shall comprise of Small Business Entrepreneurs in Ojo local government area of Lagos state. The population size is at about 420 Micro and Small Businesses Entrepreneurs which largely includes owners of supermarkets, electronic shops, pharmacies, Business centers/ cyber cafes, restaurants, barbing and hair dressing salons, pure water companies and paint companies in the metropolis.

Sample Size 

A sample size of 110 respondents was drawn from the study population. The constitution of the sample was as follows;

Sampling Technique

The study shall adopt the stratified random sampling technique. The method entails grouping respondents into strata on the bases of common characteristics which in this case is the industrial affiliation. After the grouping, the simple random sampling technique is then applied to select the required sample size

Data Collection Instrument

Data collection will be done through the questionnaire method. The questionnaire was structured into section A and B with close ended questions. Section A shall generate information on respondents’ bio-data while, section B, will elicits information on respondents perception of the impact of Microfinance Banks on small business enterprises in Lagos State.

The questionnaire is in a close ended format which allowed the respondents to offer their views according to the Lickert scale of responses as follows;

SA – Strongly Agreed

A – Agreed

U – Undecided

D -disagreed

SD – Strongly Disagreed

Administration of the Instrument

To foster quick response to the questionnaire, the researcher will personally administered the questionnaires to the respondents. The effort enable the researcher to clear some of the items contain in the instrument with the respondents while, at the same time, respondent attention were drawn to some items yet to be filled.

Method of Data Analysis

All data collected shall be analyzed using statistical tools such as frequency distribution table, percentages, and chi-square analysis for testing the formulated hypotheses.

Chi-square formula;

Chi-square formula;

X²     = ∑(O-E)²

E

df (degree of freedom)= N-1

Where;

X² = Chi-square calculated value.

O = Observed frequency

E   = Expected frequency which is derived by

While,

df       = Degree of freedom

N        = Number of Observation

∞       = level of significant (5%)

1.9 Definition of Key Terms

Small Scale Business: A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales

Micro Finance: Flexible structures and processes by which financial services are delivered to micro entrepreneurs

Micro Finance Banks (MFB): Special banks dedicated to

Entrepreneur: The proprietor or owner of a small business enterprise.

Manipulated.

• Microfinance Bank (MFBs) mean any company licensed to carry on the business of providing microfinance services such as savings, loans, domestic fund transfers and other financial services that economically active poor, micro-enterprises and small and medium enterprises need to conduct or expend their businesses. (Microfinance Banks regulatory and supervisory framework, December, 2005).
• Micro- credit: Disbursement of small or soft loans meant for rural development.
• Rural Dwellers: Are people residing in a country site or an area where there is less or no governmental infrastructures and facilities such as offices, electric power supply, industries and other basic social amenities.
• Microfinance: Is about providing financial service to poor who are traditionally not served by the conventional financial institutions.
• Informal financial institutions: They are traditional microfinance institutions that provide access to credits for rural and urban low-income earners. Example, rotating savings and credit association, self help groups, co-operative societies.
• Microfinance policy: is a regulatory guidelines on micro credits that help to promote monetary stability and sound financial system.
• Poor- A poor person shall be defined as one who has magic means of sustenance of livelihood and whose total income during a year is less than the minimum taxable limit set out in the law.

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Full Project – Effects of microfinance bank on women entrepreneur