CRITICAL ANALYSIS OF MICRO FINANCE BANKS IN FINANCING SMALL SCALE ENTERPRISES IN NIGERIA(A CASE STUDY OF OKANGA BANK OF NIGERIA PLC)
ABSTRACT
The topic of dissertation is critical analysis of micro finance banks in financing small scale industries in Nigeria, A case study of okanga micro finance bank of Nigeria plc.
The major objective of the study is to ascertain the extent to which okanga bank of Nigeria plc has helped to financial small and medium scale enterprises/. Instrument of data collection is questionnaires and research questions which formed the source of primary data, while materials from various published articles, textbooks, journals and newspaper formed the secondary data.
The method of analysis is the use of tables, percentages and chi-square .
The major finding of the research is that okanga bank of Nigeria plc has helped to financial small and medium scale enterprises period under review.
The recommendation based on the finding is that in order to reduce the risk in small and medium scale enterprises lending, the central bank of Nigeria and the government can do more than they are doing currently scheme.
The study concluded that if the desired objective of using small and medium scale enterprises as catalysts of development is to be achieved than the role of micro finance banks should be mutually supportive.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE
INTRODUTION ANALYSIS
1.1 Background to the problem
1.2 Problem statement
1.3 Objectives of the study
1.4 Research questions
1.5 Research hypothesis
1.6 Scope of study
1.7 Limitations of the study
1.8 Definition of study
Reference
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 Meaning of small and medium scale industry
2.3 Government policy
2.4 Support systems
2.5 Financing
2.6 Monetary policy development in favour of small and medium scale enterprises
2.7 Benefits of small and medium scale enterprises
2.8 Problems facing small and medium scale enterprises
2.9.1 Financing the project
2.9.2 Technical knows how
2.9.3 Personnel, matters and general administration
2.10 Improving funding small and medium scale industries
References
CHAPTER THREE:
RESEARCH METHODOLGY
3.0 Introduction of the study
3.1 Research design
3.2 Area of study
3.3 Population of study
3.4 Sample size determination
3.5 Instrument for data collection
3.6 Validation of the instrument
3.7 Reliability of the instrument
3.8 Method of data collection
3.9 Data analytical techniques
CHAPTER FOUR:
PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation of data
4.2 Hypothesis testing
CHAPTER FIVE FINDINS:
CONCLUSIONS AND RECOMMENDATIONS
5.1 Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO PROBLEM
The successive development plans of Nigeria have laid emphasis on the attainment of self reliance. The need for this national objective is because much is expected from individuals from the view point of providing employment opportunities self reliance in basic food and material production high per capital income, foreign exchange earnings and the production of industrial raw materials.
Okporobie (1989:10) observes that Nigeria small and medium scale enterprises continued to decline despite the so called priority given to the sector
However, the discovery by micro finance bank that this policy was not enough by it self led to micro finance bank request with effect from 1970/80 that micro finance bank must reserve a proportion of the minimum credit allocation to indigenous borrowers for small and medium scale Nigeria enterprises. The target prescribed in 1979 was ten percent (10%) which subsequently raised to sixteen percent (16%).
Even though available data showed that performance of microfinance banks against this directive has been disappointing. Micro finance bank intends to spare no effort in ensuring that banks fully couple without compromising the smooth functioning of the nation banning system.
He observed also, that without the development of small and medium scale enterprises in Nigeria, the nations quest for industrialization will certainly remain forever at stake. It is the opinion of the researcher that future development in our industrialization must address the basic issues of creating linkages without the economy to begin to produce real inputs to our manufacturing activities .
Priority attention must therefore be given to these enterprises for which domestic inputs could easily be produced and marketed.
The objective should be to maximize the value added in their processing and manufacturing as final goods immediately inputs.
Nzewi and Oze (1985:56) observed that empirical evidence indicates that strong producer incentives to small and medium scale enterprises are necessary not also only to meet the food requirement but also to provide growing input supplies and demand as a foundation for sustained economic growth.
The present economic constraint may well turn out to be a blessing in disguise to our enterprises effect particularly for dynamic manufacturing sector. For instance, the market determinate exchange rate through seeing with its result and high cost of imported inputs may serve as an impetus for industrialist to intensify their search for local substitutes.
Ekenyong and Nyong (1992) observed that small and medium scale enterprises are regarded an organic part of a viable structure for the attainment meaningful economy development in developing economic like Nigeria.
They are significantly more cost effective in bringing about development than large enterprises because of the perceived linkage and multiplier effects which small and medium scale enterprises have on the performance of the economy and economic growth in general.
Osayameh (1989) observes that the strength that make small scale and medium enterprises more amendable for assistance areas as follows.
1. Personal commitment of the proprietor whose life savings usually form the start up capital.
2. Low initial capital out lay requirement
3. Ease of entry and exit and prevalence of just minimal legal constraints
4. Amenability to business advisory services because of their small size which makes than more responsive to improvement suggestions.
Olashore (1987) Observes that the four main sources of funding enterprises in Nigeria are.
i. Formal financial institutions such as micro finance banks, insurance companies and the development bank.
ii. Informal financial landlords, credit and savings associations “esus” friends and relations personal savings and .
iii. Other financial scheme, NERFUND NEXIM
in 2001, there was an introduction of small and medium industries equity investment scheme (SMIEIS) in which N359 million was set aside to date by banks under small medium industries equity investment scheme.
Through micro finance bank small and medium scale enterprises (SMES) department, the bank has remain ed in fore front of SMES financing nations was extended to the SMES as at 31st March 2004.
Small and medium scale enterprises is any industry not exceeding N200,000 including working capital but excluding cost of land.
It is also defined by center for industrial research and development of Obafemi Awolowo university Ile Ife as those enterprises working capital do not exceed N250,000 with not more than 50 employees.
1.2 STATEMENT OF THE PROBLEM
The problem of credit to small scale enterprises may not necessarily be as a result of funding insufficiency but rather for some other reasons among which are.
i. Insufficient preparation on the part of small scale entrepreneurs in their request for credit assistance.
ii. Information gaps as to range of funding institutions and scope of services available in these institution
iii. Moreover, servicing of small business accounts is relatively experience, risky and difficult to monitor with low turn over of account.
However, the parishioners in the sector small scale industry do not display competence in preparing justification for their project. It is are to see most of them coming up with cash flow projections, projected balance sheets, among others. They are based on personal rudimentary in formation and speculation. At times when they seek the advice of consultants, the outcome that are made figures project based on assumptions which are most of their time unrealistic.
As a result such proposals are out rightly rejected by banks.
There are suitable when credit demands in this sector are not in compliance in this government monetary policy and credit guidelines which must be adhered to by micro banks.
The researcher identifies these problem and considers it necessary to carry our study on them.
1.3 OBJECTIVES OF THE STUDY
The objectives of the study include:
a. To ascertain the extent to which the micro finance bank of Nigeria plc has helped to finance small and medium scale enterprises.
b. To identify the problems encountered by small and medium scale enterprises in obtaining finance from micro bank.
c. To evaluate various measures introduced to boost the economy and its financing and how this has affected realization of the set goals.
d. To determine the causing changes in small scale enterprises financing by micro bank.
e. To make suggestion and recommendations based on the data generated by the study.
1.4 RESEARCH QUESTIONS
The critical appraisal to give answers to the following questions.
a. To what extent has micro finance bank helped to finance small and medium scale enterprises?
b. What are the problems encountered by the small scale enterprises in obtaining finance from micro finance bank ?
c. What are the various measures introduced to boost establishment and its financing and how this has affected the realization of the set goals?
d. What are the causes of changes in small scale enterprises financing by micro finance banks?
e. Does any linear relationship exist between lending to small scale enterprises and economic recovery and self reliance on the economy?
1.5 RESEARCH HYPOTHESIS
a. There is no linear relationship between lending to small and medium scale enterprises and economic recovery and self-reliance of the economy.
b. there is no relationship between micro finance bank lending to small and medium scale enterprises and the attitude of this customers
1.6 SCOPE OF STUDY
The scope of the study is the role of micro finance banks in financing small scale industries in Nigeria. A case study of okanga micro finance bank. It does not cover the role of micro finance banks in financing large scale enterprises.
1.8 LIMITATION OF STUDY
However, there wee constraint imposed on the researcher this includes the following.
a. Time a study of this nature, needs a relatively long time during which information for accurate or at least near accurate inferences could be drawn. The period of the study was short, hence time posed as a constraint to the researcher.
b. Cost: The researcher would have extent the survey to areas. But limitations here included cost of transportation to source for materials and cost of type setting the already completed work.
c. Dearth (Scarcity) of statistical data:
lack of statistical data from our financial institutions ministry of financial and economic development, commercial and merchant bank posed a constraints.
Many other micro finance banks adhere strictly to the rule of secret, in banking thus they refused to released information.
1.8 SIGNIFICANCE OF THE STUDY
This study will highlight problems associated with the role of commercial banks in financing small and medium scale industry in Nigeria.
It will give information on the possible areas for improvement.
Furthermore, the study will help micro finance banks to assess and appraisal their role in financing small and medium scale enterprises in Nigeria.
Moreover, suggestions and recommendations made in this paper will help policy makers formulate new economic policies maintain or modify the existing one.
It will equally serve as a guideline to researchers who may wish too decide with this study in the future.
It will also help small scale entrepreneurs to make sufficient preparation in their request for credit assistance.
It will guide the entrepreneurs in making credits demands that are compliance with government monetary policy.
The last but not the least it will help the entrepreneurs to displayed competence in preparing justification for their project. It is rear to see most of them coming up with cash projections, projected balance sheets.
1.9 DEFINITION OF TERMS
Small-scale industry:
Any enterprises with capital not exceeding N750,000 including capital but excluding cost of land.
It is also defined by center for industrial research and development of A and O enterprises as those industries whose total assess in plant equipment and working capital do not exceed N250,000 with not more than 10 employees.
2. MICRO FINANCE BANK
a financial institution that acquires deposit from savings surplus unit and give out loans to savings deficit units.
3. ENTERPRENEUR DEVELOPMENT CENTER:
Provide management, technical, consultancy and extension services for the small and medium scale.
4. INDIGENISATION DECREE:
A decree that stipulates that most business become, at least 60 percent owned by Nigerians.
5. SOLE PROPRIETORSHIP:
Is a business owned and conducted by one person presumably assisted by one or more persons for intakes wife and children.
SS/CS small scale industry credit scheme.
REFERENCE
Agbo O.G (2000) Small scale Business Management
Okobie M.N (1989) Banks Role to Small Scale Business. Business Time
Nzewi U.C. and Ozo . E.O (1985) Strategies for Nigeria Economic Recovery Oko, Anambra Polytechnic Press.
Epkpenyong D.B and Nyong M.O (1992) Small Scale Enterprises Development in Nigeria Seminar Paper on Economic Policy Research for Policy Action and Management in Nigeria.
Ojo A.T (1992) Bank and Small Business Lagos F and t Publisher LTD
Olashore O.(1987): Banks Loans to Small Scale industries Lagos Macmillan Publishers
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