CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The recent economic situations in the country have proven to the government beyond doubt, that the large scale enterprises cannot perform the major roles of economic development. This is true for Nigeria being a developing country. Hence, priority has been placed on the small scale Businesses in Nigeria. Government steps in achieving this include ban on importation of goods and commodities, encouragement of local industries, establishment of the small and medium enterprise Equity Investment Scheme (SMEEIS). In 1989, the World Bank projected an increasing size of small and indigenous sector in Sub-Saharan Africa. The small scale Businesses in Nigeria have a reputation as the ‘Seed bed’ for economic development.
The impact of Micro Finance Banks on small scale business cannot be over emphasized. The world today is inhabited by an estimated 6.6 billion people, 2.5 billion of which are believed to be living on less than US $ 2 (N300) a day. This group constitutes much .of World’s unbanked population. They have no access to financial services with which to create wealth. This is because they lack necessary collateral often requested by conventional banking institutions for credit facilities. This goes further to impoverish and worsen national and even global poverty levels. (Anyanwu C. M. (2004). In confronting this challenge, the federal government through Central Bank of Nigeria (CBN) had carried out different reforms in the banking industries. The reforms culminate in the adoption of Micro Financing. This combat the negligence of the small scale enterprises, by the conventional banking institutions. Micro Finance as oppose to conventional banking is defined as “the provision of credit and lower income group”. It usually involves very small of less than US $200 (N30,000), without any form of ‘formal’ collateral as defined by the Nigeria Micro Finance Newsletter, volume 5, July- December 2007. Central Bank of Nigeria (CBN) defines Micro Finance as providing financial services to the poor who are traditionally not served by the conventional financial institutions. According to CBN three things distinguish micro Finance from other financial products: These are:
(i) Small loans advanced and or saving collected.
(ii) The absence of asset- based- collateral and.
(iii) Simplicity of operations. The conventional financial system provides services to only 35% of the economically active population in Nigeria, while the remaining 650/0 are excluded. The Micro Finance Banks were brought under the supervision of the CBN. A micro Finance Policy was put in place to recognize, enhance and their existence formalized. This secures their monetary stability, expand their financial infrastructure and development. This policy injects vibrancy, stimuli for growth, harmonized operating standards and provides platform for economic revolution through the Small Scale Enterprises (SMEs), low investment in the small scale enterprises in the past led to low entrepreneurial drive spirit among citizens. It silences business acumen, business ideas development among youths and encourages redundancy. The resultant factors of these are unemployment, poverty, social vices like robbery, forgery etc. all these led to low productivity and economic backwardness. These backdrops justify the introduction of Micro Finance Policy. This helps to develop a long term, sustainable Micro Finance sub-sector that will enhance the Small Scale Enterprises (SMEs) towards economic growth and development. Micro Finance plays an important role in the fight against poverty, by providing sustainable access to financial services. For instance, Micro Fi4nance helps the poor to increase their income, build viable business and in essence help in reducing their vulnerability .to external shocks (social and economic). It can also serve as a powerful instrument for self -employment to women (CBN 2005). Nigeria, being a developing country is faced with financial problem low for small scale enterprises (SMEs). This result in low par capital income, poor standard of living, abject poverty, malnutrition, poor health status and a host of poverty related problems. Micro Finance is about provision of financial services to the economically active poor who are traditionally not served by the conventional financial institutions. Micro Finance focuses its spot light on the Small Scale Enterprises (SMEs). Micro Finance appreciates small business initiatives and ideals. It supports and raises necessary non-collateral based credit facility.
1.2 STATEMENT OF THE PROBLEM
Over the years, there has been noticeable laxities in the government effort through the CBN in financing small scale business In Nigeria. This makes it difficult for small scale business to thrive. The government however later initiated credit programmes, sectorial Credit Allocation, Concessionary Interest Rate and Agricultural credit Guarantee Scheme (ACGS). In addition to these were the establishment of Nigerian Agriculture and Cooperative Bank (NACB), the National Agricultural Insurance Corporation (NAJC) , others are the People’s Bank of Nigeria (PBN), the community Banks (CBs) and the Family Economic Advancement Programme (FEAP). In year 2000, government merged the NACB with the PBN and FEAP to form The Nigerian Agricultural Cooperative and Rural development Bank Limited (NACRDB) to enhance the provision of finance to the Agricultural sector. The National Poverty Alleviation Programme (NAPEP), was also created and was given a mandate to provide financial service to alleviate poverty. All these reforms in the banking sector is to redirect focus on the small scale businesses. This however are confronted with several setbacks. They were with little or no. success. The programmes or initiatives are Micro finance service majorly sponsored by the government. Something significant about the programmes is that they are focused mainly on agricultural and other activities such as tailoring, hairdressing, trading, weaving, agroprocessing, black smiting, barbing, transportation e.t.c. These programmes were equipped with huge funds but the effects were not visible and were short- lived where visible. The initiatives were not sustained due to mismanagement, fraud and change in government. It was thus imperative for the government organizations and donor agencies to recognize the need for the establishment of Micro Finance Bank. It provide funds for the small scale industries towards economic growth and development.