AN APPRAISAL OF ACCESS TO MICRO CREDIT BY THE SMALL SCALE ENTERPRISES IN ANAMBRA STATE, NIGERIA
ABSTRACT
This study is concerned with the appraisal of access to micro credit by small scale enterprises in Anambra State, Nigeria. Thirty selected small scale enterprises drawn from three commercial towns in the state were studied to determine their level of access to micro credit. In spite of the recognition accorded small scale enterprises as engine of growth and national development, access to capital to expand their operations has remained inadequate. The concept of micro financing was created to deepen financial intermediation between the promoters of small scale enterprises and fund providers. The major objective of the study was to determine the aggregate level of micro credit which small scale enterprises accessed from the conventional banks and micro finance institutions between 1996 and 2005. Another objective which the study achieved is to ascertain the rate of success achieved by small scale enterprises in accessing the credit market. Four hypotheses were formulated and tested based on the objectives stated above.
 Both primary and secondary data were used in the study. The primary data comprise data generated from questionnaire (survey). The structured questionnaire was administered to 300 respondents selected from the 30 small scale enterprises understudied. The managers of micro finance institutions and conventional banks were interviewed based on their experiences in handling micro finance intermediations. The secondary data used came from financial and accounting records of the selected small scale enterprises. Descriptive statistics such as frequency tables, bar charts, pie charts etc were used in the presentation and data analysis. Test statistics such as t-distribution, correlation coefficient, and multiple linear regressions were used to test the hypotheses. Based on the analysis and statistically tested hypotheses, it was discovered that there was significant difference between aggregate level of micro credit accessed by small scale enterprises from conventional banks and micro finance institutions. It was also discovered that there was significant difference between the level of difficulties experienced by small scale enterprises and large scale enterprises in terms of ease access to micro credit from conventional and micro finance Institutions. Also available micro finance accessed by small scale enterprises from micro finance institutions and conventional banks between 1996 and 2005 had significant impact on their performance. The study concluded that the level of access to micro credit by small scale enterprises has not really improved as expected, in spite of the introduction of the 2005 micro finance policy, supervisory and regulatory framework. Strict monitoring of the implementation of micro finance policies was recommended.
  TABLE OF CONTENTS
 CHAPTER ONE: INTRODUCTION    
1.1    Background of the Study    
1.2    Statement of Problem    
1.3    Objectives of the Study    
1.4    Hypotheses    
1.5    Significance of the Study    
1.6    Scope of Study    
1.7    Limitations of the Study    
1.8    Definition of Terms    
     References    
CHAPTER TWO: REVIEW OF RELATED LITERATURE    
2.1    Small-Scale Enterprises: Conceptual Overview    
2.2    Operations of Small Scale Enterprises    
2.3    Benefits of Small Scale Enterprises in Nigeria    
2.4    Problems of Small Scale Enterprises    
 2.5    Prospects of Small-Scale Enterprises    
2.5.1    Structure of SSEs    
2.5.2    Registering Property    
2.5.3    Getting Credit    
2.5.4    Protecting Investors    
2.5.5    Closing a Business    
2.6    Selection and Training of Small Scale Industrialists    
2.7    Identifying Business Opportunities    
2.8    Activities to Promote Small Scale Business Development in Nigeria    
 2.9    Approaches to Small Scale Business Problems    
2.10    Small and Medium Enterprises Development Agency    
 of Nigeria (SMEDAN)    
2.11   Conceptual Overview of Micro Finance Activities    
2.11.1 Key Distinguishing Features that Separate Micro Finance from    
      other Formal Financial Products         
2.11.2    Appraisal of the Past Policy Measures         
2.11.3    Accessibility of Micro Credit by SSEs         
2.12    Evaluation of Performance of Financial Institutions in         
     granting Micro Credit to SSEs         
2.13    Impact Assessment of Micro Credit on SSEs         
2.14    Diverse Policies of Micro Finance         
2.15    Deposit Insurance         
           2.16    Justification for the Establishment of Micro-Finance Banks    
2.17    The Micro Finance Policy    
2.18    Regulatory Incentives    
2.19    Roles and Responsibilities of Stakeholders    
2.20    Micro Finance Banks as Panacea to Unemployment and Poverty Alleviation    
 2.21    Credit for Development         
2.22    Summary of Review of Related Literature         
     References         
CHAPTER THREE: RESEARCH METHODOLOGY         
3.1    Research Design         
3.2    Population of the Study         
3.3    Sources of Data         
3.3.1    Primary Sources         
3.3.1.1    Interview         
3.3.1.2    Questionnaire Construction         
3.3.1.3    Distribution and Retrieval of Questionnaire         
3.3.1.4    Validity of Instrument         
3.3.1.5    Reliability of Instrument         
3.3.2    Secondary Data         
3.4    Sampling Size Determination and Sampling Technique         
3.5    Method of Data Analysis         
3.6    Hypotheses Test Models         
     References         
 CHAPTER FOUR: DATA PRESENTATION, ANALYSIS, DISCUSSION
      OF RESULTS AND FINDINGS    
4.1    Introduction    
4.2    Analysis of Primary Data    
4.3    Analysis of Secondary Data    
4.4    Test of Hypotheses    
4.5    Discussion of Results and Findings    
4.5.1    Objective One: Aggregate Level of Micro Credit Accessed from    
     Conventional Banks and MFIs between 1996 and 2005    
4.5.2    Objective Two: Similarity between the Level of Difficulties Experienced    
     by SSEs and Large Scale Enterprises in Accessing Credit    
4.5.3    Objective Three: Impact of Available Micro Credit on the Performance of SSEs    
4.5.4    Objective Four: The Extent of Co-ordination in the Provision of    
     Micro credit to SSEs between MFIs and Conventional Banks    
     References    
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
      RECOMMENDATIONS         
5.1    Summary of Findings         
5.2    Conclusion         
5.3    Recommendations         
5.4    Areas for Further Studies         
     Bibliography         
     Appendix                    
 CHAPTER ONE
 INTRODUCTION
 1.1   BACKGROUND OF THE STUDY
Micro financing refers to the process s of providing the economically active poor and low income households with financial services such as credit, savings opportunities, micro-leasing, micro insurance and small payment transfers (Central Bank of Nigeria, 2006). The micro finance policy seeks to provide a framework for making financial services available, on a sustainable basis, to such groups of economic units. The policy seeks to create a vibrant micro finance sub-sector that provides the necessary stimulus for national growth and economic development. Micro finance banks are institutions established to provide financial services to the active poor.
The micro finance policy of Nigeria (2005) provides for two categories of micro finance banks (MFBs) namely micro finance banks licensed to operate within a local government area and MFBs licensed to operate state wide. The minimum capitalization for the first group, (the local government area based MFBs) was set at N20 million while that of the state wide micro finance banks is N 1 billion.
According to Okafor (2006), there are two approaches to the definition of micro finance: size of finance approach and scale of operations of the beneficiaries approach. Under the first approach, micro financing refers to financing involving small amount of funds which could, of course, be provided by small-scale financiers as well as other credit providers. Under the alternate approach, on the other hand, emphasis is placed on the scale of operations of the beneficiaries. In that connection, micro-finance would refer to financing and financial services delivery to Small-scale business operators.
According to CBN (2005), micro-finance is described as providing financial services to the poor, who are traditionally not served or not adequately served by the Conventional financial institutions. Micro finance institutions (MFIs) are institutions that specialize in the provision of financial services to low income earners, as well as Small-scale enterprises (SSEs). Examples abound in countries like Bangladesh and Indonesia, where financial products that match the needs of low income people are provided using innovative collective monitoring to strengthen repayment performance and charge interest rate that merely cover operational costs (Aderibigbe, 2001).
In Nigeria, the story is different. Micro credit scheme in the country is still struggling to achieve the desired results. One year after the United Nations put micro finance on the front burner, awareness of the need to formulate a functional policy for the sector has continued to grow in many countries. While progress is being recorded in the development of micro enterprises in some African nations like Kenya and Uganda, others are just waking up to the possibility of exploiting the potentials of micro finance to fight poverty and consequently catalyze growth and development (Eze, 2006).
There is a saying that the poor know when the rich make their money, but they are helpless” (Mensah, 2000: 123). This saying, which is known in many African localities, demonstrates the hopelessness of the African peasant with regard to gaining access to funds for their micro enterprises. Studies carried out by Eze (2006), Ernest (2002), Aderibigbe (2001), indicate that the poor are incapacitated because they do not have what it takes to attract capital. Similar studies earlier conducted by the World bank (1993); Yaron (1994), indicate that the very poor hardly have access to even the funds provided by the traditional micro credit institutions. The reality of the situation has been that the well-to-do possess the means to approach the banks and other financial institutions for their support in project funding.
Unfortunately, this situation still persists in many African countries despite the global effort to combat poverty by empowering the deprived members of the world community through functional micro credit and micro finance schemes. Although, the Central Bank of Nigeria (2006) puts the informal sector in Nigeria at 65 percent, some studies had shown that the formal financial system in Nigeria provides services to just about 20 percent of the economically active population. According to Eze (2006:2), what “makes Nigeria’s experience quite peculiar is that no less than 70 per cent of the population, which basically engaged in agriculture and micro business remain excluded from access to formal financial services”. The nation’s past efforts to encourage small business and lift the poor through subsidized agricultural credit yielded only little results. In separate studies, which assessed the past and subsisting performance of the experiment with agriculture and industrial development banks, hardly succeeded because of higher transaction costs, corrupt practices, high default rates and policy disconnect with the needs of the people.
Sometimes loans were disbursed to cronies and friends, in a manner that did not suggest that it was meant for business but what has become known in local parlance as “free money”. Loan scheme for the poor failed because of inappropriate designed features and politicization of the process which denied fund and the unbelievable that less than one percent of the targeted poor had access to such funds (Youssoufou, 2002). It is important to underline the fact that easy access to credit is more critical to this category of borrowers than interest rate subsidy.
Yaron (1994) and Aderibigbe (2001), argue that whenever the targeted public sector rural credit programmes are subsidized, the non-poor benefit far more than the poor. The primary need of the poor is to have access to credit that is available on acceptable terms and accessible when needed. However, there is a general consensus, in the literature, that access to credit schemes is not easily achieved.
 1.2   STATEMENT OF PROBLEM
 The Nigerian government has adopted the issue of poverty alleviation as one of the key objectives of her millennium development goals. Government policies and programmes are directed towards achieving that objective. One way of achieving this goal has been through the use of micro credit scheme, aimed at empowering Small-scale enterprises. It is generally accepted that the success of most advanced economies derives from the contribution of Small business units.
In terms of policy initiation to effect positive changes in the economy by improving the lots of Small-scale enterprises, the government has done well. Yet, the lots of the Small-scale enterprises have not significantly improved. It is well known that the implementations of these policies as well as the urgency of change of policies have not yielded much positive impact on small-scale enterprises in Nigeria.
So, rather than new Small-scale businesses springing up the existing ones are fast lapsing into oblivion. The economy is dwindling, more confusion is generated as unemployment increases. Everybody looks up to government as the only enduring employer of labour, which represents a fallacious view that has continued to stifle the growth of the Nigerian economy.
 Government has always created the impression that micro credit is aimed at providing credit to the un-served micro and small scale enterprises that lack access to credit.
Such government standpoint has generated criticism by the real poor who claim that every micro finance programme by government is highly politicized. But in reality the majority of the poor, especially the ones at the rural communities, do not benefit from such schemes. Since that is the case, can one confidently say that micro finance schemes have really impacted on the lives of majority of poor Nigerians living in the slums, rural and urban communities in Nigeria? Binswanger et al (1985), establishes that access to credit is a major arrow head for the development of Small-scale enterprises especially those operating in rural communities.
 This research revolves around four specific issues and problems in micro finance delivery, namely:
Unwillingness of micro finance institutions and Conventional banks to lend to small scale enterprises particularly in the area of farming due to the perceived risky nature of such enterprises and the related high cost of administering credit to them.
Difficulties experienced by Small scale enterprises and large scale enterprises in accessing micro credit from micro finance institutions and conventional banks.
The impact of low access to micro-credit on the performance of the Small scale enterprises.
Problem of co-ordination between micro finance institutions and conventional banks in the provision of micro credit to Small scale enterprises.
1.3   OBJECTIVES OF THE STUDY
The objectives of the study include the following among others:
Determine the aggregate level of micro credit which Small scale enterprises accessed from the conventional banks and micro finance institutions between 1996 and 2005.
Assess the difference between the rate of access to credit by Small scale enterprises compared to large scale enterprises.
Determine whether access to micro credit has impacted positively on the performance of Small scale enterprises.
Determine the extent of co-ordination between micro finance institutions and conventional banks in the provision of micro credit to Small scale enterprises.
1.4   HYPOTHESES
Based on the objectives stated above, the following null hypotheses are formulated for the study.
Ho1:  There is no significant difference between the aggregate level of micro credit accessed from conventional banks and the level accessed from micro finance institutions by Small scale enterprises.
Ho2:  There is no similarity between the level of difficulties experienced by Small scale enterprises compared to large scale enterprises in accessing micro credit from micro finance institutions and conventional banks.
Ho3:  Available finance so far from micro finance institutions and conventional banks to Small scale enterprises has no significant impact on the performance of Small scale enterprises in Nigeria.
Ho4:  There is no significant co-ordination between micro finance institutions and conventional banks in the provision of micro credit to Small scale enterprises.
1.5   SIGNIFICANCE OF THE STUDY
Although the availability of micro finance and the establishment of micro finance Institutions are expanding in Nigeria, the expectations are not adequately met, irrespective of the policy interventions. This research will help in the study of micro finance in the provision of credit to promoters of small scale enterprises. This study will definitely be very useful to small-scale enterprises, micro finance institutions, policy makers and future researchers. These groups and other stakeholders stand to benefit from the findings of the study in the following ways:
Small-Scale Enterprises
Through the findings of the study, promoters of small scale enterprises (SSEs) will be able to understand better the varieties of ways to access funds from micro finance
banks and other MFIs in Nigeria. The study will also enable them understand the intricacies of micro financing and how to surmount accessibility and other problems associated with the operations and/or administration of micro finance in Nigeria.
Micro Finance Institutions/Conventional Banks
The result of this study is expected to benefit operators of conventional banks and micro finance banks in fashioning out appropriate lending strategies, that will improve the accessibility of micro finance by small scale enterprises and other micro credit users. The study will also provide necessary information that will aid them in overhauling their entire system/apparatus of micro financing.
Government Agencies/Policy Makers
The outcome of this study is expected to be of benefit to policy makers such as government and its agencies, in providing a platform for implementing in its entirety the micro finance policy, regulatory and supervisory framework. The study will then put appropriate structures that will improve upon the accessibility of micro credit from micro finance institutions by small scale enterprises and other users of micro credit. Also, the research will determine whether the growth or expected benefits of micro financing activities reflect on the expansion of the informal sector on the empowerment of economically active population.
Future Researchers
The result of this study will help future researchers by providing reference materials that could guide them in enlarging their scope of study or taking a different course of action. There are a lot of issues bordering on micro finance in Nigeria. This study has only provided a platform for more studies and other researchers are expected to key in on this study, to unravel other problems associated with micro financing management in Nigeria.
1.6   SCOPE OF STUDY
This study will only focus on the micro financing schemes in Nigeria between 1996 – 2005 and how micro finance have impacted on the development and growth of small scale enterprises in Nigeria. The researcher will emphasize on the CBN policy, regulatory and supervisory framework launched December 2005, and it will be used as a guide in discussing critical micro finance issues in Nigeria. The study is restricted to the three commercial towns of Anambra state namely: Nnewi, Onitsha and Awka.
1.7   LIMITATIONS OF THE STUDY
Limitations of study derive largely from constraints and bottlenecks, which created deficiencies, restrictions, biases, prejudices and confinements to the conduct of the study. There are many primary limitations for the study: First is the lack of willingness to release information by conventional banks and micro finance institutions (MFIs) that were studied. Secondly, there is paucity of statistical data on the operations of micro finance banks in Nigeria. Thirdly, due to lack of time, materials, manpower, cost and finance, the study was geographically restricted to three commercial towns of Anambra state namely: Nnewi, Onitsha and Awka.
1.8   DEFINITION OF TERMS
Micro Credit Scheme: Micro credit scheme is usually defined as a consciously planned and coordinated institutional effort for making credit readily available to the small business operators of the national economy.
Poverty: The state of lacking access to basic necessities of life.
Micro Finance Institutions (MFIs): Micro finance institutions are institutions that have emerged to apply sound economic principles in the provision of financial services to low income earners and small-scale enterprises.
Deposit Money Bank: Any bank in Nigeria licensed under the BOFIA (1991) whose business includes the acceptance of deposits withdrawable by cheques.
The National Economic Empowerment and Development Strategy (NEEDS) is a poverty reduction strategic plan, incorporating economic reforms aimed at achieving economic growth, human development and improvements in the delivery of services by government as well as attainment of Millennium Development Goals (MDGs) in Nigeria.
Small-Scale Business: It is a business whose capital base is not in excess of one million naira (N1m) among other features.
Financial Institutions: Financial institutions which serve the purpose of channeling fund from lenders to borrowers. They hold money balances of or borrow from individuals and other institutions, in order to make loans or other investments.