MICROFINANCE AND MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT IN NIGERIA By Dr. Abiola Babajide (Corresponding author) Department of Banking and Finance, Covenant University, Ota P.M.B 1023, Ota, Ogun State, Nigeria Tel 234 8033249533, Email: [email protected] , [email protected] and Dr. Francis Iyoha Department of Accounting , Covenant University, Ota, Ogun State. Tel 234 8033515869, email: [email protected] and Mr. Joseph Taiwo Department of Banking and Finance, Covenant University, Ota P.M.B 1023, Ota, Ogun State, Nigeria Tel. 234 8034628696 Abstract This paper investigates the contributions of microfinance to the development of micro, small and medium enterprises in Lagos and Ogun states, Nigeria. The research was design to combined primary and secondary sources of data. The data obtained were analyzed using one sample t-test, Pearson correlation coefficient analysis and multiple regression analysis. The result obtained revealed that there is a low positive correlation between microloan received by entrepreneurs and business expansion capacity of MSMEs in Nigeria. It was also revealed that the non-financial services rendered by microfinance banks enhance business performance of MSMEs, while the financial services particularly the asset loan size; asset loan duration and asset loan repayment method does not have the capacity to enhance MSMEs business growth. The study recommend that Microfinance Bank (MFBs) should increase the duration of asset loans given to client, or spread the repayment over a longer period of time, or increase the moratorium. This will enable the clients to have greater use of the loan over a longer period for the acquisition of capital assets and technology. Key words: Microfinance, SMEs , business growth 1.1 Background to the study In Nigeria, credit has been recognized as an essential tool for promoting small and Medium Enterprises (SMEs). The contribution of Micro, Small & Medium Enterprises (MSMEs) to economic growth and sustainable development is widely acknowledged in developed and developing economies (CBN, 2004). There is an increasing recognition of its pivotal role in 1
employment generation, income redistribution and wealth creation (NISER, 2004). The micro, small and medium enterprises (MSMEs) represent about 87 per cent of all firms operating in Nigeria (USAID, 2005). Non-farm micro, small and medium enterprises account for over 25 per cent of total employment and 20 percent of GDP (SMEDAN, 2007) compared to countries like Indonesia, Thailand and India where Micro, Small and Medium Enterprises (MSMEs) contribute almost 40 percent of the GDP (IFC, 2002). Realizing the importance of small businesses as engine for growth in the Nigerian economy, the government took some steps towards addressing the conditions that hinder sustainable development of the SMEs subsector. The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was launched in 2005. The objective of the microfinance policy is to make financial services accessible to a large segment of the potentially productive Nigerian population,
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