The Role of Microfinance in SME Development: An Enugu State Case Study

Desklib provides past papers and solved assignments for students. This report analyzes microfinance's impact on SMEs in Enugu State, Nigeria.

1
THE IMPACT OF MICROFINANCE INSTITUTIONS ON SMALL AND MEDIUM
SCALE ENTERPRISE GROWTH IN ENUGU STATE NIGERIA

2
Table of Content
1. Introduction:...........................................................................................................................3
1.1 Research Rationale:..............................................................................................................3
1.2 Research aim:.......................................................................................................................3
1.3 Research Objective:.............................................................................................................4
1.4 Research question:...............................................................................................................4
2. Literature review:...................................................................................................................6
3. Methodology:.........................................................................................................................9
3.1 Research outline:..................................................................................................................9
3.2 Research philosophy:.........................................................................................................10
3.3 Research approach:............................................................................................................10
3.4 Data collection method......................................................................................................11
4. Ethical consideration...........................................................................................................12
5. Time plan and Resources:....................................................................................................13
5.1 Gantt Chart.........................................................................................................................14
6. References:...........................................................................................................................16

3
1. Introduction:
The developing countries in global perspective heavily depend upon the small and medium
organisations. In the last few decades, small and medium organisations have been taking the
centre stage in the economic growth as social reform as well. Nigeria has been emerging as
one of the major developing countries in the African region where small and medium
companies have been playing a significant role in the national economy. The role of the
micro-finance is quite significant in the current context due to lack of banking support and
government policy. The objective of the current discussion is to analyse the impact of micro-
finance companies in the growth of small and medium companies in Enugu State Nigeria.
The micro-finance companies have been emerging as the major source of funding in case
small and medium enterprise sector based in Enugu State Nigeria during the period of 2000-
2015.
1.1 Research Rationale:
The role of SMEs in national growth is quite significant from a global perspective. The SMEs
have been taking the centre stage in the global economy and proved to be the pillar for
economic growth in developing countries. In the last few decades, Nigeria emerged as one of
the major developing countries and small and medium organisations have been playing a
significant role in rural and social reformation. There is a major gap in funding resources due
to the incompetence of small and medium organisations in Nigeria. They failed to be in line
with specifications mentioned by the financial institutes and therefore, there are unable to
register further growth in the local economy. Enugu State Nigeria has a strategic position in
South-Eastern Nigeria and plays a central role in the business sector in Nigeria. The present
context is associated with the analysis of the impact of micro-finance companies in the

4
Nigerian economy and on the small and medium organisation situated in Enugu State
Nigeria.
1.2 Research aim:
The aim of the current research is to obtain the relevant outline of the impact of micro-
finance organisations such as micro-finance banks (MFBs) and micro-finance institutes
(MFIs) on the small and medium organisations situated in Enugu State Nigeria.
1.3 Research Objective:
There are various research objectives derived from the present topic which needed to be
achieved to comprehend the significance of the research.
 To determine the impact of micro-finance in SMEs growth
 To determine the gap between the funding requirement and economic resources in
Nigeria
 To determine the contribution of banking and financial institutions in the SME sector
in Enugu State Nigeria
 To determine the role of micro-finance in the national growth and financial support to
SMEs in Enugu State Nigeria
 To determine the future role and prospect of micro-finance in the Nigerian economy
1.4 Research question:
 Is there any gap between the funding resources and funding required in the small and
medium sector in Enugu State Nigeria?

5
 Whether government schemes and financial institutes like bank have any significant
impact on SME growth?
 Whether micro-finance companies provide financial support without much collateral?
 Do you prefer microfinance companies for the business loan rather than Banks and
financial institutes?

6
2. Literature review:
The future prospect and trend of economic growth could be determined by the nature of
credit transmission in the form of investments in any industrial platform. The primary issue
that has been faced by the SMEs in the global perspective is the shortage of funding support.
Developing countries like Nigeria has been facing the hurdle due to lack of economic growth
and appropriate political framework to develop appropriate policies to accommodate
necessary funding support to the MSEs (Gabriel, 2018). The core concept of economic
development of any developing countries is the facilitate SMEs with essential funding
resources and political framework to support and monitor the credit transmission. Nigeria
developed a vision to facilitate the SMEs with necessary funding and political and legal
infrastructure which would be attributing to the economic growth of the nation. Various
micro- financing companies are encouraged to establish the foundation in various parts of
Nigeria as part of the funding framework, developed and planned by the local government
and controlling bodies. The main issue with the SMEs in Nigeria is the lack of credential in
case of accessing the funding as they failed to achieve the standard requirements of SME
loans. Moreover, banks prefer big enterprises in case of approving loans as they are
reportedly creditworthy than MSEs in Nigeria (Ugwuja et al. 2018). Therefore most of the
loans go to the big enterprises and the MSE sector has been suffering due to lack of funding
and financial policies through there is a huge potential lie within the SME sector. Banks
choose not to involve with SME sector due to high risk involvement and high cost. The
micro-finance organisations in Nigeria and in many developing countries find it the suitable
platform to extend the business in this scenario and willing to replace the banking loan
system with micro-finance support to the SME sector (Nwude et al. 2018). The Micro-
finance institutes (MFI) in Nigeria took the centre stage of the finance sector for SMEs and
able to bridge the gap of SME and financial support for growth in Nigeria. The main

7
objective of the MFIs in Nigeria is to provide micro-finance to the SMEs and gain it back as a
huge return to the initial micro-investments (Nwosu et al. 2016). Many researchers describe
the attempt of the MFIs as the specialised schemes for the poor household business owner
those are not capable of achieving the initial loan requirements of lending institutions and
banks. 80% of the MSE and small business owners are associated with micro finance
institutes and these institutes are capable of lending necessary funding to the small businesses
in appropriate condition (Solomon et al. 2016). Local governments identified the source of
social reform as the financial empowerment of the SMEs and entrepreneurs in the Nigerian
region which enables the developing countries to achieve financial and social growth.
Nigerian government developed the growth strategies to support the entrepreneurial
capabilities in various part of Nigeria, especially in the rural sector to enforce positive
multiplications in cottage industry and small businesses. Although financial institutes and
banks in Nigeria once claimed to play a significant role in industrial reform through loan
support there is lack of data supporting the claim in this regime and there is no significant
industrial production registered to correspond with the involvement of the financial
institutions (Akande et al. 2018). The main focus of the current discussion is to identify the
impact of microfinance in developing countries like Nigeria. The current study and research
work is located in Enugu State Nigeria to understand the impact and contribution of micro-
financing companies in the social reform in rural areas and the growth of local SMEs and
household businesses. Formed in 1991, the Enugu State Nigeria has a population of 3.8
million people till the end of 2012 and currently, Enugu State Nigeria took the centre stage of
south-eastern province of Nigeria (Faruk et al. 2018). It has been the business capital of
south-eastern Nigeria since 1915 due to industrialization approach by the British
Government. Railroads and coal mining are the major sources of funding since that period.
Modern Enugu State Nigeria focuses more on SMEs development in line with the global

8
trend to facilitate socio-economic growth and social reform. Modern SMEs encountering a
major gap between the required fund and fund acquired due to banks and financial institutes
lending peripherals. Lack of co-lateral is one of the major issues in the funding gap which
creates a great platform for micro-finance companies to acquire a major share in the loan
industry. The MFIs are currently replacing the banking and financial institutes in Enugu State
Nigeria to facilitate the ongoing funding gap that has been affecting the SMEs hugely
(Imhonopi et al. 2018). The local government of Enugu State Nigeria have developed
enterprise centre which supports the 25000 entrepreneurs all over Enugu State Nigeria which
is accompanied by the local government initiative to support the aspiring entrepreneurs where
800 SMEs got funding support from the entrepreneur centre and local banking institute.
Therefore, it is evident that modern SMEs in Enugu State Nigeria are funded in multiple
ways with the incorporation of proper government initiatives and a network of micro-finance
organisations located across Enugu State Nigeria. Micro-finance organisations in Enugu State
Nigeria took the centre stage between 2000-2015 which benefits hugely the rural growth and
local business development (Nwanne, 2018). Studies showed that the majority of the rural
and urban development process was done by the initiatives of local micro-finance companies
and local financial organisations. Nigeria government developed various plans and schemes
in the last few decades to facilitate the SMEs and household businesses which enable the
local people to earn more and take own decisions. The contribution of micro-financing
companies helps to revive the Gross Domestic Product (Ezeaku et al. 2017). Initially, GDPs
are on the verge of shutting down due to lack of funding and lack of government policies. In
2005, the Nigerian government took the initiative to accommodate the micro-finance
companies in the Nigerian economic framework to help SMEs grow and contribute to the
local and national development. Local SMEs are getting loans from MFBs and MFIs at easy

9
terms which enable the local house to hold businesses to grow and flourish in the current
economic scenario (Mbah et al. 2018).

10
3. Methodology:
The main objective of the current section is to obtain data from the pre-selected region in
Nigeria to identify the impact of micro-finance in small and medium industries situated in the
various part of Enugu State Nigeria. There are various approaches need to be adopted in the
present case to help the researcher to identify outcomes relevant to the modern business
environment in developing countries. There are two major data collection has been done in
this regard such as quantitative data and qualitative data which need to be combined to
understand the impact of micro-finance in SMEs based Nigeria and the corresponding impact
on the economic growth. Designing a suitable research outline enables the researcher to focus
on the systemic approach of the research which could contribute to the significant outcome.
3.1 Research outline:
Development of the research outline is one of the significant aspects of the current research
process which need to be formulated in a precise and scientific manner to contribute to
substantial research outcome. The research outline consisting of choosing a small scale
organisation based in Enugu State Nigeria and identification of potential candidates who
could contribute to the current research approach. The researcher needs to develop a suitable
questionnaire consisting of relevant questions which could contribute to the research
objective and aim of the research. The survey process is consisting of two distinctive parts
such as quantitative approach and qualitative approach. In the quantitative approach,
questionnaires have been developed which need to be analysed in Liker Scale. The Liker
Scale is consisting of quantitative data such as strongly agreed, agreed, neutral, not agreed,
strongly disagreed. This data enables the researcher to identify the trend in the current context
through the graphical presentation. The qualitative approach is consisting of interviewing
household business owners and small business owners in Enugu State Nigeria to link the

11
quantitative data with qualitative research outcome. The final outcome of the quantitative and
qualitative analysis enables the researcher to identify the factors influencing SMEs in Enugu
State Nigeria.
3.2 Research philosophy:
The basic concept of research philosophy is the unique approach of the researcher in case of
research proceedings to identify suitable philosophy in line with the research requirement.
The researcher needs to identify the need for the research and accommodate suitable research
philosophy to link the data with the research outcome. There are various research
philosophies associated with the research approach such as positivism, constructivism and
pragmatism where the positivism research philosophy directs the researcher to analyse the
data collected from quantitative data collection technique in the Enugu State Nigeria’s SME
organisation. the data have been analysed in the analytical tools to yield the desired outcome
in the chosen context to derive a hypothesis associated with the chosen topic. The
constructivism approach is based on pre-defined hypothesis on the chosen topic and the data
analysis is needed to be done to facilitate the previously chosen hypothesis in this context.
The pragmatism approach constitutes of both positivism and constructivism philosophy
which is the combined approach of quantitative and qualitative data collection and analysis.
3.3 Research approach:
Choosing the appropriate research approach is essential for the success of the research. There
is two distinctive research approach associated with modern research methodology such as
inductive and deductive research approach. The objective of the inductive research is to
derive a new hypothesis based on the collected data from quantitative and qualitative data
collection in case of the current chosen topic. Whereas, the deductive approach is the process
of facilitating the pre-existing hypothesis through the data collected from quantitative and

12
qualitative data in the current chosen topic. In the current scenario, the inductive approach
has been adopted as the chosen research approach to facilitate the current research
proceedings.
3.4 Data collection method
There is two distinctive data collection method associated with the current research
proceedings such as quantitative and qualitative data collection method. The quantitative data
collection method focuses on collecting data based on surveys carried out in the selection
region and chosen sample. The sample size depends upon the volunteering people
participating in the survey. The collected data would be analysed on the Liker Scale and the
output could be obtained from the analysis performed in the analytical tool. The Liker Scale
is consisting of some factors such as strongly agreed, agreed, neutral, disagreed and strongly
disagreed. The mean, median and mode of the collected data could be analysed from the liker
scale that could be applied in the data analysis tool. The qualitative data in the present case is
the interview output performed on selected samples. The quality of the data collected is
needed to be considered in the present case to link the quantitative data. In the present case,
people attached with SMEs in Enugu State Nigeria are involved with the survey process. 100
samples have been selected from various backgrounds associated with SMEs and a set of the
questionnaire has been developed consisting of 7 to 8 questions focusing on the impact of
micro-finance on SMEs in Enugu State Nigeria. The outcome of the quantitative data
collection would be analysed in a data analysis tool to yield the final result. There are some
significant volunteers have been selected for the interview process and the qualitative data
would be analysed which eventually linked with the previously obtained quantitative data to
generate the final outcome.