ABSTRACT
The critical causes on why financing small and medium scale industries by microfinance banks in Nigeria have not been very effective were evaluated. Not only are the SMEs starved with financial back-up, they are also faced with other external problems such as high interest rates, inconsistency in government industrial policies, lack of infrastructural facilities and internally; poor management practices, high rate of business failure, poor accounting standards, shortage of skilled manpower and financial indiscipline. In view of these numerous problems, this research work was conducted so as to come out with solutions as this will pave way for banks to have more confidence in financing these SMEs efficiently and effectively as against hitherto , their stringent lending policies and the risk averse behavior of funding. This has become necessary as it is a well known fact that the survival, growth and development of SMEs of any country depend largely on funding with other factors put in place.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In Nigeria, credit has been recognized as an essential tool for promoting small and Micro Enterprises (SMEs). About 70 percent of the population is engaged in the informal sector or in agricultural production. The Federal and State governments have recognized that for sustainable growth and development, the financial empowerment of the people is vital. If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve rural and urban enterprise production capabilities (Olaitan 2006)
Small Business Enterprise (SBE) transformation is all about seeking to bring about improvement in the living condition of the farmer, the artisan, the tenant and the landless within the simple and rustic economies of the country-sides and urban slums. The basis for employment generation and entrepreneurship development in the country, therefore, is to enhance the improvement of the living condition of the people (Mustapha, 2009).
The Micro business entrepreneurs lack the necessary financial services, especially credit from the commercial banks; this is because they are considered not credit worthy. Consequently they depended on families, friends and other informal sources of funds to finance their businesses.
Successive governments have come up with special programs, whose principal targets are the overall empowerment of low income earners in urban centers. These programmes range from Agricultural Development Projects (ADPs), the establishment of Agricultural Credit Banks to Better Life Programme for Rural Women and the like. Unfortunately most of the programmes failed to achieve the desired result. That led to the emergence of microfinance banks which aimed at extending credits to micro enterprises and encouraging entrepreneurship.
The Nigerian microfinance industry has come a long way; it boasts of all the four well-known models in the industry. A CBN study identified, as of 2001, 160 registered MFIs in Nigeria with aggregate savings worth N99.4 million and outstanding credit of N649.6 million, indicating huge business transactions in the sector (Anyanwu, 2004). Institutional structures for the provision of micro credit vary and may be any of the following: government or public sector-oriented, NGO supported, traditional or a mixture of two or more of these.
