CHAPTER ONE

                                 
INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Effectively functioning financial markets
like micro finance banks have fundamental roles to play in fostering
development among small and medium scale enterprises in developing countries
like Nigeria. Small and Medium Scale Enterprises are sub-sectors of the
industrial sector which play crucial roles in industrial development (Ahmed,
2006). Following the adoption of Economic reform programme in Nigeria in 1981,
there have been several decisions to switch from capital intensive and large
scale industrial projects which was based on the philosophy of import
development to Small and Medium Scale Enterprises which have better prospects
for developing domestic economy, thereby generating the required goods and
services that will propel the economy of Nigeria towards development. It is
based on this premise that Ojo (2009), argued that one of the responses to the
challenges of development in developing countries particularly, in Nigeria, is
the encouragement of entrepreneurial development scheme. Despite the abundant
natural resources, the country still finds it very difficult to discover her
developmental bearing since independence. Quality and adequate infrastructural
provision has remained a night-mare, the real sector among others have
witnessed downward performance while unemployment rate is on the increase. Most
of the poor and unemployed Nigerians in order to better their lots have
resorted to the establishment of their own businesses. Consequently,
Entrepreneurship is fast becoming a household name in Nigeria. This is as a
result of the fact that the so called white collar jobs that people clamour for
are no longer there. Even, the touted sectors (Banks and companies) known to be
the largest employer of labour are on the down-turn following the consolidation
crisis and fraudulent practices of the high and mighty in the banking sector.
The companies of course are folding up as a result of erratic power supply,
insecurity and persistent increase in interest rate which has led to high cost
of production and undermines profit making potentials of companies operating in
Nigeria (Hassan, 2003).

Since the office jobs that people desire are
no longer there for the teeming population, and the few ones that succeeded in
getting the jobs are thrown out as a result of the factors identified above,
the need for the government and the people to have a rethink on the way-out of
this mess became imperative. Hence, the need for Small and Medium Scale
Enterprises (SMEs) became a reality as a means of ensuring self-independent, employment
creation, import substitution, effective and efficient utilization of local raw
materials and contribution to the economic development of our dear nation
(Nigeria). All the afore stated benefits of Small and Medium

Scale Enterprises cannot be achieved without
the direct intervention of the government and financial institutions like micro
finance banks. Over the years a number of policies have been formulated by the
government with a view to developing Small and Medium Scale Enterprises. The
Nigerian government under the then leadership of Chief OlusegunObasanjo
promulgated micro-finance policy and other regulatory and supervisory frame
work in 2005. However, the researcher is examining the contribution of
microfinance banks to the Small and medium Scale enterprises in Nigeria.

Microfinance, according to Otero (1999, p.8)
is “the provision of financial services to low-income poor and very poor
self-employed people”. These financial services according to Ledgerwood (1999)
generally include savings and credit but can also include other financial
services such as insurance and payment services. Schreiner and Colombet (2001,
p.339) define microfinance as “the attempt to improve access to small deposits
and small loans for poor households neglected by banks.”  According to Wikipedia definition, a bank is a financial institution
that accepts deposits from the public and creates credit. Lending activities can be performed
either directly or indirectly through capital
markets. Due to their
importance in the financial stability of a country, banks are highly
regulated in most
countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets
equal to only a portion of their current liabilities. In addition to other
regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of
capital standards, known as the Basel
Accords. Therefore,
microfinance bank involves the provision of financial services such as savings,
loans and insurance to poor people living in both urban and rural settings who
are unable to obtain such services from the formal financial sector.

1.2
STATEMENT OF THE PROBLEM

Most of the small and medium scale
enterprises in Nigeria have remained relatively small and seen stunted growth
over the years. This is due to the fact that a large percentage of
entrepreneurs in the country remain unserved by the formal financial institutions.
The microfinance institutions available in the country prior to 2005 were not
able to adequately address the gap in terms of credit, savings and other
financial services. As reported by the CBN, the share of micro credit as a
percentage of total credit was 0.9%, while its contribution to GDP was a mere
0.2% (CBN, 2005). The CBN in 2005 identified the unwillingness of conventional
banks to support micro-enterprises, paucity of loanable funds, absence of
support institutions in the sector, as well as weak institutional and
managerial capacity of existing microfinance institutions among other reasons
as the major reasons for the failure of past microfinance initiatives in the
country. In order to remedy the situation, the Microfinance Policy, Regulatory and
Supervisory Framework (MPRSF) for Nigeria was launched by CBN in 2005 to
provide sustainable financial services to micro entrepreneurs. However,
although microfinance has proven to be one of the ways of bridging the resource
gap created in the Nigerian economy, the country has not enjoyed the full
benefits from it due to problems militating against its proper execution. The
lack of documentation of the practice of micro financing in Nigeria has made it
difficult to formulate supportive programmes for the growth of the sector. As a
result of this, the high rate of failures of SMEs has become a matter of major
concern in developing economies. International Finance Corporation (IFC)
reported in 2002 that only 2 out of every 10 newly established businesses survive
up to the fifth year in Nigeria. The report was corroborated by Small and
Medium Enterprise Development Agency of Nigeria (SMEDAN, 2007) that only 15% of
newly established businesses survive the first five years in Nigeria. This is a
pointer to the fact that there is a problem. The indispensable role of finance
to the growth and performance of SMEs and the adoption of microfinance as the
main source of financing SMEs in Nigeria therefore makes it imperative to study
the extent to which microfinance can enhance SME growth and performance.

1.3
OBJECTIVES OF THE STUDY

i) To examine the role of microfinance banks in
enhancing entrepreneurship among women in Nigeria.

ii) To determine the effectiveness of
microfinance banks in Nigeria.

iii) To identify the factors limiting the
development of microfinance banks in Nigeria.

iv)  To
determine the effect of financial services of micro finance banks on women
empowerment in Nigeria.

1.4
RESEARCH HYPOTHESES

H0:
There is no significant difference in the
level of awareness of micro finance banks supports by Nigerian women.

H1:
There is a significant difference in the
level of awareness of micro finance banks supports by Nigerian women.

H0:
There is no significant difference in the
difficulties women face when accessing finance from various sources.

H2:
There is a significant difference in the
difficulties women face when accessing finance from various sources.

1.5 SIGNIFICANCE OF THE STUDY

A study of this
nature is very imperative as it provides an average Nigerian a means to access
to financial services in their localities to boost their standard of living in
a sustainable manner in line with the millennium development goal of
alleviating poverty in developing countries. The study will assist micro finance institutions to adopt
the necessary measures needed to ensure the desired growth in the small and
medium scale business enterprises (SMEs) industry. It is also beneficial for
formulation of policies and programmes by the federal and state government as
they might be looking forward to taking necessary steps to prevent the collapse
or failure of small scale businesses in Nigeria and Cross River State in
particular. Again, it will enable the entrepreneurs to have more understanding
of how businesses should be financed, thus having knowledge on funding further
research in this area. Finally, the study would serve as a source of reference
for other researchers or members of the general public who need information in
the subject. More importantly, entrepreneurs of small and medium scale
enterprises may find it useful in the successful operation of their enterprises
as the study will unveil some of the reasons why some small and medium scale
business enterprises (SMEs) finds it hard to repay their loans.

1.6
SCOPE AND LIMITATION OF THE STUDY

This study covers the operations of
microfinance banks in Nigeria but particularly focused on Nsehe Micro Finance
microfinance with a view of identifying their contributions towards the
development of women entrepreneurship in Nigeria. In the cause of the study, the researcher encounters some limitations
which limited the scope of the study;

Staff Reluctance: In most cases
the staffs of Nsehe Micro Finance microfinance often feels reluctance over
providing required information required by the researcher. This result in
finding information where the structured questionnaires could not point out.

Researcher’s Commitment: The
researcher, being of full time student spent most of her time on other academic
activities such as test, class work, assignment, examination etc which takes
average focus from this study.

Inadequate Materials: Scarcity of
material is also another hindrance. The researcher finds it difficult to long
hands in several required material which could contribute immensely to the
success of this research work.

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).

1.7 DEFINITION OF TERMS

Microfinance:
Micro finance is defined as providing micro loan to
poorest of the poor (basically those are neglected by banks, microfinance
provides them loan facility), and a source of financial services for entrepreneurs and small businesses lacking
access to banking and related services.

Bank: A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either
directly or indirectly through capital
markets. Due to their
importance in the financial stability of a country, banks are highly
regulated in most
countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets
equal to only a portion of their current liabilities. In addition to other
regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of
capital standards, known as the Basel
Accords.

Contribution: Contribution refers to the act of
contributing or the thing contributed (such as personal time, money, ideas,
private property or assistance).

SMEs:Small and
medium-sized enterprises (SMEs, also small and medium enterprises) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below
certain limits. The abbreviation “SME” is used in the European
Union and by
international organizations such as the World
Bank, the United
Nations and the World Trade Organization (WTO). Small enterprises outnumber
large companies by a wide margin and also employ many more people. SMEs are
also said to be responsible for driving innovation and competition in many
economic sectors.

1.8
ORGANIZATION OF THE STUDY

This research work is organized in five
chapters, for easy understanding, as follows Chapter one is concern with the
introduction, which consist of the (overview, of the study), statement of
problem, objectives of the study, research question, significance or the study,
research methodology, definition of terms and historical background of the
study. Chapter two highlight the theoretical framework on which the study is
based, thus the review of related literature. Chapter three deals on the
research design and methodology adopted in the study. Chapter four concentrate
on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and
recommendations made of the study.

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