THE ROLE OF MICROFINANCE IN SMALL SCALE ENTERPRISE
A CASE STUDY OF OHHA MICROFINANCE
 ABSTRACT
        This research work was undertaken to roles of microfinance banks in financing small and medium scale enterprise. The work was intended to achieve the following objectives to ascertain the extent to which micro finance bank has been assisting in providing credit facilities to small scale industrialists, to determine the cost of variability in small scale industrial financing by micro finance bank. The literature review also describe objectives and functions of the microfinance bank,  roles of microfinance policy and importance of micro and small scale enterprises in Enugu state and Nigeria as a whole. All the aspect of this work is relevant to both management and those who may be interested in carrying out further study on this topic. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data instruments employed while data from various relevant publications such as textbooks, journals and internet articles constituted the sources of secondary data. The data collected were analysis using simple tables and percentage analysis. The study observed that Microfinance Bank performances were very impressive during the period under study especially in making fund available for small and meduim scale enterprise in Enugu state;         although it based on operation or services on savings deposit account, loan and advances (credit facilities) to customers and few small scale industrialists and also payment of salaries to workers of different organizations. The study recommended that In order to reduce the risk of doubtful credit or facilities, the government should increase the percentage grants to micro finance banks for small and medium scale enterprises and also put more emphasis on credit guarantee scheme by introducing more of such scheme for the benefit of small and medium scale enterprises. Finally, the government and management of micro finance bank should emphasize on collateral as a condition for granting credit facility to small scale business in Nigeria.
 TABLE OF CONTENTS
CHAPTER ONE
1.0       Introduction
Background of the study               
1.1        Statement of the study
1.2        Objective of the study  
1.3        Research Questions     
1.4        Scope of the study      
1.5        Significance of the study       
1.6        Limitation of the study
1.7        Definition of terms       
CHAPTER TWO
2.0       Literature review
2.1    Origin of Micro Finance Bank in Nigeria
2.2        Definition of Microfinance Banks    
2.3        Objectives and Functions of the Microfinance Bank
2.4        Micro Credit
2.5        Roles of Microfinance Policy
2.6        Types and Importance of Micro and Small Scale
2.7        The Roles of Microfinance Bank in Financing Business
2.8        Problems of Micro and Small Scale Enterprises
2.9        Challenges Facing Micro and Small Scale Enterprises
2.10    Ways of Developing Micro and Small Enterprises
CHAPTER THREE
3.0    Research methodology
3.1        Research Design                  
3.2        Area of Study     
3.3        Population of the Study        
3.4        Sources of Data
3.5        Sample Size Determination
3.6        Research Instrumentation
3.7        Method of Investigation        
CHAPTER FOUR
4.0        Presentation analysis and interpretation of data
4.1        Analysis and Interpretation of Findings    
 CHAPTER FIVE
5.0    Summary recommendation and conclusion
5.1        Summary of Findings           
5.2        Recommendations               
5.3        Conclusion
Bibliography
LIST OF TABLES
 Table 1.     Do you think that microfinance banks have played a significant role in small and meduim scale enterprise in Enugu State?
 Table 2.     Have the microfinance banks positive effect on socio economic development of Nigeria as a whole?
 Table 3.     To what extent has Microfinance Bank assisted in providing credit facilities for rural development and problems hindering the assistance?
 Table 4.     Are the problems encountered by businesses in obtaining credit facilities from Microfinance Bank in Enugu?
LIST OF ABBREVIATIONS
CBN:         Central Bank of Nigeria
NBMFB:             National Board of Micro Finance Bank
MAMSER:           Microfinance Banks in Mobilizing the Rural Infrastructures and Directorate for Social Mobilization
 CHAPTER ONE
1.0    INTRODUCTION
1.1    BACKGOUND OF THE STUDY
        In the past, government has initiated series of micro programmes targeted at the poor with the overriding objective of making credit readily available to those who were traditionally denied access to credit. Such credits in the world over were used for the development of small and meduim scale enterprise, which has been described as the springboard for sustainable development. In all emerging economies like Nigeria, the government has shown a great concern for the development of small and meduim scale enterprise because of the underlying socio economic factors plaguing the nation. some of the reasons include: the past policies failed to generate efficient self sustaining impetus needed to uplift the country to the ‘take-off’ stage of growth, the increased emphasis on self-reliant approach to the development and the recognition that dynamic and growing petty-business can contribute substantially to a wide range of developmental objectives. However, the full potential of the micro business in the development process have not been realized owing to numerous bottlenecks. In the light of this, the Central Bank of Nigeria (CBN) as part of its reform agenda, initiated Micro Finance Banks, a policy initiative aimed at bringing credit to the door step of the poor who do not have such access under the conventional financial system. The thrust of this project is to articulate the prospects of the micro finance banks towards boosting the performance thereby reducing the level of poverty and enhancing employment generation.   
Micro finance banking institution were conceived and came into been in December 2007. It was packaged to address the issue of cultivating appropriate modern banking habits in the rural area, through the social local institution such as community social clubs and other individuals who are encouraged to be co-owner of the bank through the purchase of shares. The government came in as a second tier supervisory agency through the National Board of Micro Finance Bank (NBMFB) to oversee the establishment and operation. From December 2007, a total of 402 community now micro finance Banks came into being with a total deposit of =N=20 million. Loan and advances disbursed to individuals and enterprises stood at (=N= 155.1million) all these are with share capital cash of (=N=239.8 million). To complement the efforts of microfinance banks in mobilizing the rural infrastructures and directorate for social mobilization (MAMSER) by virtue of their grass roots oriented programmes conducted extensive research into the introduction of the microfinance banking system in area that it will be of good benefit to the people. Okafor (1992), in his reports for micro finance banks being the main link between the formal and informal financial sectors.
        It is now common knowledge according to Egbe (2000) that the 1980s witnessed a rapid growth of commercial banking activities in many Nigerian rural communities where banking habits, culture, commitment and community development was poor if not non-existent. It is instructive to note that during this period, community funds among rural dwellers were hardly gathered for savings and loans in order to stimulate domestic investment. Suffice it to say that in rural communities, the rural business class hardly seeks formal institutional credits to improve their economic base.
        It would be observed that, despite the presumed developments in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema, 2006). More so, its industrial growth is not quite impressive. Before the emergence of formal microfinance institutions, informal microfinance activities flourished all over the country. Traditionally, microfinance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives, government owned institutional arrangements, poverty reduction programmes etc (Lemo, 2006). The Central institutions in Nigeria are relatively new, as most of them never registered after 1981.
Before now, commercial banks traditionally lend to medium and large enterprises which are judged to be credit-worthy. They avoided doing business with the poor and their micro enterprises because the associated cost and risks are considered to be relatively high (Anyanwu, 2004).
        Barbara (1999), posit that the need for microfinance banking among rural dwellers has been on the increase, and as such, between 1989 and 1990, the Federal Government initiative aimed at actualizing this growing need expanded the rural banking scheme with the launching of Peoples Bank and Community Bank respectively. To make borrowing easy enough for rural communities, these banks do not require sophisticated collateral for borrowing. Also, interest on borrowed money was made as low as possible by the two banks to enable small-scale rural community industrialist and agriculturist to borrow with ease. Today, many rural communities in Nigeria have one or more of this microfinance bank, and they have had far more reaching implications for the entire socio-economic development of rural communities in Nigeria. It is worthwhile to note, according to Usang (2006), that many would recall how lack of funds often caused the collapse of small businesses and the extinction of ingenious ideas before they could be translated into reality.
It is now widely believed that following government’s acclaimed policies on rural development, rural investment will be given a boost via microfinance banking as all frustrations of our hardworking, devoted but under-privileged masses would come to an end. However, the idea behind microfinance banking is to encourage rural development through rural commitment in modern financial institutions within the rural environment.
Thus, microfinance banking is supposed to be the machineries for financial and economic emancipation as its growth is connected with the community in which it serves. It is therefore not certain whether or not micro-finance banks actually impacts on small and meduim scale  businesses in the rural communities.
1.2    STATEMENT OF THE PROBLEM
          The financing in most cases in normally provided by the owners. The owners fail to realize the importance of external source of capital in order affect expansion in the business; in most cases, the by the owner, members of the family and friends in most cases. In another development, small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide equity capital, the conditions are always dreadful. All these result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it (Chukwuemeka, 2006). The problems that emanated from poor financing include:  
a) Lack of competent management which is the consequence of inability of owners to employ the services of experts. b) Use of obsolete equipment and methods of production because of owner’s inability to access new technology. c) Excessive competition which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry.
        The statement of the problem or challenges facing micro finance bank in financing small and meduim scale  enterprises in Enugu are:
i.             High Operating Cost: Small units of services pose the
challenges of high operating cost, several loan applications to be processed, numerous accounts to be managed and monitored, and repayment collection to be made from several locations especially in rural communities.
ii.            Repayment Problem: Loan default is a major threat
to micro finance banks’ sustainability; it is the deadly “virus” which affects the operation of the banks. It demoralized staff and deprives beneficiaries of further valuable services.
iii.          Inadequate Experienced Credit Staff: Micro
financing is more than dispensing loans, to be viable micro finance banks require experienced and skilled personnel. As a young and growing industry, there is a dearth of experienced staff in planning, product development and effective engagement with clients.
iv.          Problems Of Illiteracy: This affects record keeping
and decisions-making ability of borrowers and consequently affects their relationship with the banks.
1.3    OBJECTIVE OF THE STUDY
        It is against this backdrop that the purpose of this work attempts to ascertain the role of microfinance banks in small and meduim scale enterprise in Enugu State, and specifically:
1.)    To Identify and analyze the effect of microfinance banks on socio economic development i.e. employment and income generation of the rural communities in state.
2.).   To examine the influence of microfinance bank credit subsidy, interest etc, on the level of credit demand by small scale businesses.
3.)    To ascertain the extent to which Microfinance Bank has been assisting in providing credit facilities for rural development and problems hindering the assistance.
4.)    To identify the problems encountered by small scale business in obtaining credit facilities from Microfinance Bank.
1.4    RESEARCH QUESTIONS
        The following research question guided this study
1.                  Do you think that microfinance banks have played a significant role in small and meduim scale enterprise in Enugu State?
2.                  Have the microfinance banks positive effect on socio economic development of Nigeria as a whole?
3.                  To what extent has Microfinance Bank assisted in providing credit facilities for rural development and problems hindering the assistance?
4.                  What are the problems encountered by businesses in obtaining credit facilities from Microfinance Bank in Enugu?
1.5       SCOPE OF THE STUDY
        The study is aimed at investigating the roles of microfinance banks in financing business in the area concern. Due to current emphasis on industrialization of the country by the government and in order to reduce the country’s import bills and solving the problem of unemployment that the study focused attention on the needs for small and medium scale business and it’s financing.
1.6    SIGNIFICANCE OF THE STUDY
          The development of business and self reliance in industrial and food production coupled with adequate provision of raw materials as inputs to other businesses among the top most priority of the successive government plan.
        Against this background, the study of financial problems facing business is very essential, such study will enable the sector solve the problem and face every increasing demand for production.
        Examination of Microfinance Bank performance in financing business in Enugu revealed to a large extent why there has been a decline in industrial output in recent years. This study will enable the government get to know the problems facing small and meduim scale enterprise especially in the area of finance banks and realized how difficult the porches is, and device a measure to solve the problems. Through this study the government will consequently be able to know how to uplift the status of microfinance banks.
        Secondly, this study will be relevant to other researchers because it will enable them to look into other related areas of study, which this could not cover. The significance of this study enables the researcher widens their scope of knowledge in microfinance banks financing of businesses.
1.8 DEFINITION OF TERMS
          The following definitions are defined in the context for which they are used in this research work;
Micro Finance Banks
          This is a self sustaining financial institution owned and managed by a community or group of communities for the purpose of providing credit deposits, banking and other financial services to its members, largely on the basis of their self recognition and credit worthiness.
Small Scale Businesses
          This is a business that is independently owned and operated not dominated in its field of operation. It is a business established whose total assets in capital, equipment, plants and working capital is less than (=N=4, 000, 000) four million naira and employing less than 50 full time workers and wholly indigenous.
Economic growth:
 This refers to the steady process by which the productive capacity of the economy is increased over time to bring about rising levels of national income.
Economic development:
This can be known as nothing less than “The upward movement of the entire social system or it many be interpreted as the attainment of a number of ideas of modernization such as a rise in productivity, social and economic equal section. Modern knowledge improved institutions and attitudes and a traditionally co-ordinate systems of policy measures that can remove the host of undesirable conditions in the social system that have perpetuated a state of under development”.
Financial institution:  
These are institutions either private or public that channels loanable funds from savers to borrowers.  Example, commercial banks and development banks, micro finance bank.
BANK:
Bank is a financial institution where money and other valuable items are kept for safe custody, Example commercial banks, development banks, merchant banks e.t.c. Each of these banks performs different roles or functions in the economy.        
Community bank:
This is a unit and self sustaining financial institution owner and managed by a community or group of communities.    
Deposits:
They are instrument collected by the banks inform of cash valuable items e.t.c. for safety.  
Rural areas: They are those remote villages that have no or little development.
CBN: Central Bank of Nigeria: This is the apex financial institution that supervises, regulates and controls other banks, volume of money in a country in established in 1952.