Business Administration & Management

The Contribution of Microfinance Bank in the Empowerment of Small-Scale Business

The Contribution of Microfinance Bank in the Empowerment of Small-Scale Business

ABSTRACT

This study reviewed the crucial role of micro Finance Bank in promoting small scale enterprise.

The purpose of this study is to provide means through which those problems facing small scale can be solved; the significant of this is to provide means in which government can assist microfinance banks will bring lasting solution to those problems facing small scale industries, in the analysis of data collected, the research used descriptive method.

All the data gathered by the researcher were tabulated and analyzed accordingly.

It is included that microfinance banks is an indispensable ingredient for efficient, effective and successful performance of an organization, it also showed that microfinance banks is the source of fund to small scale business. The study of recommendation is that small scale owners should motivate good employees because it is another key success in business enterprises.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The history of community Banks (Micro finance banks) can be traced to 1990 when general Ibrahim babangida announced the establishment of community banks now microfinance Bank in his 1990 budget speech.

In January 2007, there was a new reform in banking sector which led to changing, its name from community bank microfinance bank. Various effort have been made in the past to extend banking activities to rural areas and improve their banking of which most of the establishment policies could not achieved but the introduction of microfinance bank stands out to the remedy to this problem.

Section 61 of bank and other financial institution act (BOFIA) stated that one of the levels of banking in Nigeria is microfinance bank. This can be seen as bank whose activities are restricted to specified geographical area in Nigeria. Microfinance bank is a scheme introduction by the federal government though central bank of Nigeria aimed at producing financial service to the less privileged which are traditionally not served with conventional financial institutions. Its capital base is twenty million naira (N20,000,000), and this will enhance efficiency in microfinance banking system and increase banking habit among the community dwellers and eradicate poverty.

1.2 STATEMENT OF PROBLEM

Several studies have helped to identify the major problem facing small scale business in Delta State. The primary focus of this study emanates from the fact that small scale enterprises owners are contend with daunting challenge:

  1. Lack Of Finance: finance has been the major problem faced by the small scale enterprise owners. Due to insufficient finance or capital needed for successful business transaction by small scale enterprises owners, they have decided to get loans from micro finance bank to support their business finance/ capital.
  2. Lack of experience in the field: this is another problem facing small scale enterprise owners. It is meant to understand that any business decision require experience and knowledge to avoid business failure.
  3. Poor planning: as a result of poor planning, so many small enterprises have failed in the long run. This is because business success entails adequate plan on how to get the required resource such as fund raising customers, raw-materials, recording, employees that will make the business grow effectively.
  4. Week marketing strategy/skill: the beginning and end of any successful business is satisfying customer’s wants and need. Small scale enterprises owners lack the adequate marketing skills, and this has stand as one the problems facing enterprises.
  5. Poor human relation: another problem facing small scale enterprises is poor human relation. The level at which managers relate with their employees is very poor because of this; the enterprises will experience a very low rate of turnover as a result of poor communication between the small scale owners and their employees.

1.3 PURPOSE OF THE STUDY

The aim objective of this study is to determine, the contribution of micro-finance bank in the empowerment of small scale business in Agbor, Delta State. The following are the specific objective:

  1. To determine whether the provision to fund to small scale business owners help in promoting such business.
  2. To determine whether micro-finance banks provide training exercise skill acquisition programme to those who wants to start up business, on the management or fund and running of small scale business.
  3. To determine whether micro-finance bank adopt strategy that help in managing small scale industries do as to enable them complete effectively, in the market environment.
  4. To determine whether loans from micro-finance banks are favourable to small scale industries in other to encourage borrowing.

1.4 SIGNIFICANCE OF THE STUDY

Considering the research topic “the contribution, of microfinance banks in the empowerment of small scale business in Agbor”. The following, group of people would derive great benefit from the study. The people in both urban and rural areas through the promotion of economic growth and development.

Microfinance banks have encourage infants industries through the provisions of loan to support their capital. Finally, the study will make government appreciate the need to assist micro-finance banks in bringing out lasting solution to those problems that are affecting small and medium scale enterprise in Nigeria at large, also would benefit future researchers on same topic as the material would be a great source of better guides to the and also a great benefit to small scale business owners to know the usefulness of micro finance banks and their functions in the empowerment of business in rural and urban areas.

1.5 RESEARCH QUESTIONS

  1. Does the provision of fund to small scale business owners by micro-finance banks help to promote small scale business?
  2. Does the provision of training exercise by microfinance banks help to promote or solve the problem of small scale industries lack of management issues?
  3. What strategy does a micro-finance bank adopt in promoting small scale industries as to enable them compete effectively in the market environment?
  4. What is the interest rate of those loans provided by micro- finance banks to small scale business?

1.6 HYPOTHESIS FORMULATION

In the course of the study, the following hypothesis is formulated:

Null hypothesis (Ho) there is no provision of fund to small scale business owners by microfinance banks that helps to promote small scale business.

Alternative hypothesis (Hi) – there is provision of fund to small scale business owners by microfinance banks that helps to promote small scale business.

Null hypothesis (Ho) there is no provision of training exercise by micro-finance banks that helps to solve the problem of small industries.

Alternative hypothesis (Hi) – there is no provision of training exercise provided by micro-finance banks that helps to solve the problem of small scale.

Null hypothesis (Ho) – there is no strategy adopt by micro-finance banks in promoting small scale industries in market environment.

Alternative hypothesis (Hi) – there is no strategy adopt by micro-finance banks in promoting small scale industries in market environment.

1.7 SCOPE OF THE STUDY

This research work focuses on the promoting of small scale and medium enterprises in Nigeria by paying special attention to the impact of bank credit on the development of small scale enterprise.

Although there are other types of banks that grant credit facilities to small and medium scale enterprise in Nigeria, this study focuses on micro-financed banks only.

The researcher studies the essential problems encountered by small and medium scale enterprises and suggest ways by which they can be adequately and efficiently financed.

1.8 DEFINITION OF TERMS

  1. Finance: management of money, management of flows of money through an organization, whether it is private, government organization and the claims and the claims of money, finance can be seen as a concept, principle and facts concerned in the evaluation and acquisition of production assets, procurement of funds and disbursement of funds.
  2. Management: this is defined as the process of organizing, staffing, directing and controlling at levels of an
  3. Planning: This includes process of forecasting, formulating, policies, objectives and event which will enable management in achieving the overall objectives of an undertaking.
  4. Entrepreneur: this is defined as the willingness and ability of an individual to seek out investment opportunities, establish and run enterprise successfully.
  5. Research: this is the process of finding out the solution to a problem, it includes the methodology and the magnitude of the problem.

CHAPTER TWO

LITERATURE REVIEW

This chapter review relevant literature under the following sub-heading.

  1. Definition of microfinance bank
  2. Function of microfinance bank
  3. Role of microfinance bank in promoting entrepreneurship
  4. Objective of microfinance banks
  5. Problems of microfinance

2.1 Definitions Of Microfinance Banks

Microfinance bank is defined as an institution constructed as a company to carry on the business of providing microfinance bank service such as collection of savings, provisions of loan, insurance money, transfer service and other financial service that are need by the poor as well as micro enterprises.

2.2 FUNCTION OF MICROFINANCE

  1. To pay and receive interest as agreed between the bank and their clients in accordance with policy.
  2. To provide investable fund for small and medium scale enterprises, industrial, farmer etc. through loan.
  3. To receive and collect proceeds of bank institution on behalf of its customer.
  4. To maintain and separate various type of account with as for other bank in Nigeria.
  5. To auxiliary banking service to their customer such as remittance of fund and safe custody facilities.
  6. To provide credit to its customer especially small scale enterprises based on its area of operation.

2.3 ROLE OF MICROFINANCE BANKS IN PROMOTING ENTREPRENEURSHIP IN URBAN AND RURAL AREAS

  1. Credit delivery: this is one of the most important roles of micro-finance banks as the loan extended are used to expand existing business and in some cases to start new ones. According to C.B.N (2008) microfinance loan granted to client is increasing from 2007 to data and most of it goes to financing micro enterprises in rural and urban areas.

Ketu (2008) observed that microfinance banks have disbursed more than N800 million micro credits to over 13,000 farmers across the country to empower their productive capacities. As such it is expected that agricultural output will increase with their increase in finding, the entrepreneurial capacity of the farmer is now improving.

  1. Boosting small scale enterprises/agriculture: about 60 percent of poor people in the country lives in the rural areas and 80 percent of them are farmers and artisan (NBS) 2005.

Microfinance banks have therefore been the main source of funding to these less disadvantaged groups. Rural people are empowered through micro finance loan and services, and enhance small scale agricultural practice and micro enterprises are dove loped. Government go into co-operative to partner with the microfinance banks to raise bulk loan to be disbursed to the beneficiaries, in so during the bank increasing and sustaining the number of the people going to small business.

  1. Employment generation: agriculture and micro enterprises contributes immensely to job creating, and are of particular interest to all micro finance banks in rural area. Micro finance banks have so far engaged in extending credits and other services to many rural enterprises and hence generating, employment and promoting entrepreneurship.

The promotion of employment in rural “areas by microfinance banks covers the following areas, blacksmithing, goldsmith, watch repairing, bicycle repairing, basket weaving, food selling, carpentry, brick-laying etc. even though found in urban and rural area, these industries are mere prominent in the rural areas, it has therefore been acknowledged that the rural setting is on area of many industries, which could be developed to contribute significantly to the national economy, just as rural people are more frequently self-employed than urban people (Ketu 2008).

  1. Facilitates poverty alleviation: improvement of the condition of women through provision of skill acquisition and adult literacy is another role played by microfinance banks. This is done through building capacities for with creation, among enterprising poor people and promoting sustainable livelihood and the introduction of simple cost benefit analysis in the conduct of business.

In most cases, a profit sharing agreement is entered between a bank and an entrepreneur and new method and innovations are passed to the prospective entrepreneur by banks professionals, while at the end of production period, the proceed is being shared and the entrepreneur if so wishes can continue on his own after the necessary skill and production techniques are acquired (Umar, 2008).

2.4 OBJECTIVES OF MICROFINANCE BANKS

  1. Provision of loan to small industries
  2. Provision of training exercise to entrepreneur
  3. Organizing of skill acquisition for the entrepreneur who wants to embark on small scale business.
  4. Boosting small scale enterprises to meet their competitors.
  5. Bringing banking activities close to the rural dwellers.

2.5 PROBLEMS OF MICROFINANCE BANKS

There are lots of problem facing micro-finance banks:

  • Problem of capital: Udafoit (1992) highlighted, that low capital base has hindered the microfinance bank intention to invest into viable areas of rural economic. He expressed that poor funding of the microfinance banks borrowing from their corresponding banks and individuals.
  • Lack of qualified personnel: the need for qualified technical personnel who are to manage the bank pose a big challenge to microfinance bank for effective operation, there is need for qualified technical personal, just like other professions such as engineering, medical and legal profession, reveals that only men and women who have indebt knowledge and have undergone various training on these fields are comp to handle and manage the affairs of their profession. So banks need people that well trained for the bank. Therefore, a training course should be organized for the staffs.

2.6 PROBLEM OF INFRASTRUCTURE

Most of the dweller were experiencing the problem of infrastructures like electricity, telephone, and transportation etc constant power failure, poor level of road network and lack of telecommunication poses a problem to microfinance banks in rural area, for instance in some remote village where there is no electricity, some of the machine that needs electricity will not be used when there is no light.

In fact, provision of infrastructures in rural areas in inadequate and this has greatly affected banking operation in the rural area.



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