European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
MICROFINANCE BANKS SERVICES AND SMALL SCALE ENTERPRISES
FINANCING IN ABUJA, NIGERIA
1
Ibitomi Taiwo1
Air Force Institute of Technology, Kaduna
Department of Banking and Finance
prof4real4all@yahoo.com
2
Micah Ezekiel Elton Mike2
Air Force Institute of Technology, Kaduna
Department of Accounting
eazyfass@gmail.com
ABSTRACT: Microfinance Banks (MFBs) was majorly established in Nigeria to empower and
provide financial services to the poor and Small Scale Enterprises (SSEs) in the rural and urban
areas. Yet the contribution of the SSEs to the Nigerian economy is meagre, this is simply because
MFBs is hijack by the money bags in the society. The study therefore, examined the impact of
microfinance banks on financing small scale enterprises (SSEs) in Abuja, Nigeria. The specific
objectives of the study were to: (i) evaluate the impact of micro loans on SSEs financing in
Abuja, Nigeria; (ii) assess the influence of micro savings on SSEs financing in Abuja, Nigeria.
The research design used for the study was survey research design. The population of the study
comprises of 57 MFBs and 2,794 SSEs in Abuja, Nigeria. A sample of 349 SSEs and 26 MFBs
were selected through stratified random sampling techniques. Copies of questionnaires were
distributed to the selected sample. The data was analyse through simple percentages and order
logit regression. The finding of the study revealed that: (i) an increase in the amount of loan
given by microfinance banks increase the growth of small scale enterprises; (ii) an increase in
micro savings of small scale enterprises lead to an increase in small scale enterprises financing
by microfinance banks. Based on the findings, the study therefore concluded that MFBs impact
positively on financing SSEs in Abuja, Nigeria. The study recommends that MFBs should
increase the supply of micro loans to SSEs, this will help in a long way to expand their business
and create more employment opportunities to the country. The study also stated that more
programmes and policies should be put in place that will create an enabling environment for
small businesses to operate optimally in Abuja, and other part of Nigeria.
KEYWORDS:microfinance banks; small scale enterprises; microloan; micro savings; financing.
INTRODUCTION
Small Scale Enterprises (SSEs) contribute significantly to the economy of the developed and
developing countries of the world by increasing employment generation, revenue earnings and
many others. In both developed and emerging economies of the world, SSEs play a critical role
in sustainable economic development and also act as a catalyst for economic growth and
development (Normah, 2016; Obokoh, 2018). Thus, the need for apt development of the sector
cannot be overemphasized as it has the ability to stimulate indigenous entrepreneurship, create
more jobs, mobilize raw materials and semi-processed products as inputs for large- scale
enterprises, and contributes to Gross Domestics Products (GDP) of many countries (Lawrence,
13
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
James & Udechukwu, 2016). Despites these contributions, the Financing of Small Scale
Enterprises (SSEs) is a major constraints in developing countries majorly among the deposit
money banks due to the high risk of non-performing loans from the enterprises. This led to many
deposit money banks denying the poor and SSEs in both urban and rural areas in Nigeria access
to financial services. In order to bridge this gap, the government of Nigeria established various
institutions as well as programmes to enhance the standard of living of people, provide loans to
SSEs, and poor people to be self-reliance and turnout more entrepreneurs than job seekers in the
country. Some of the programmes established in the past by the government of Nigeria are
Directorate of Food, Roads and Rural Infrastructure (DFFRI), Better life /Family Support
Programmes, The Family Economic Advanced Programme, Peoples Bank and many others
(Ibitomi & Ijaiya, 2018). All these programmes failed to achieve their objectives due to poor
implementation, corruption and host of many other factors. As a result of the failure recorded in
the past, government did not relent in their effort to make financial services accessible to the
poor and SSEs, thus, the emergence of Microfinance Banks (MFBs) as an alternative credit
system for the poor and SSEs in Nigeria came into existence (Obokoh, Monday & Ojiako, 2016).
The MFBs is meant to empower Micro and SMEs in the rural and urban areas through the
provision of micro loans and also guide them in the usage of those loans for the growth of their
businesses. Central Bank of Nigeria (CBN) (2005) asserted that MFBs was majorly established
for the purpose of provision of financial services to the poor and Micro, Small and Medium
Scale Enterprises (MSMEs) who are traditionally not served by the conventional financial
institutions. MFBs are majorly responsible for assisting MSMEs, the poor and households who
have no access to formalized financial institutions in accessing funds (capital) for the
growth of their businesses (Duru & Ogbe, 2013). The loans of MFBs are mostly for selfemployed individuals, household-based vendors who operate small retail shops, street vending,
artisan, manufacture and service provision, so that they can be able to grow their businesses in
order to reduce unemployment and contributes to the growth of the economy (CBN, 2006).
Today, there is comparatively little convincing evidence on ground w i t h r e s p e c t s t o the
success of MFBs s e r v i c e s on financing small businesses because o f high cost of
m a k i n g t h e l o a n s a v a i l a b l e t o b u s i n e s s e s (Zinman, 2019). The Abuja, Nigeria has
the highest number of microfinance banks in Nigeria due to the presence of high profile people
and business in the town and also been the administrative headquarters of Nigeria. This zone
comprises of the highest microfinance banks in Nigeria (CBN, 2018).
The study therefore was guided by the following objectives:
i.
To examines the impact of micro loans on small scale enterprises financing in Abuja,
Nigeria ;
ii.
To assess the influence of micro savings on small scale enterprises financing in Abuja,
Nigeria ;
The following research questions were raised with a view of achieving the objectives of this
study.
What impact does micro loans have on small scale enterprises financing in Abuja, Nigeria?
To what extent do micro savings impact on small scale enterprises financing in Abuja, Nigeria?
14
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
To proffer answers to the research questions raised and realized the study objectives, the study
seeks to test the following hypotheses which were stated in null form.
Ho1: Micro loans do not have significant impact on SSEs financing in Abuja, Nigeria.
Ho2: Micro savings does not have significantly impact on SSEs financing in Abuja, Nigeria.
This study was necessary because of the recent philosophy of the present government in reducing
the rate of unemployment and to finance small businesses in Nigeria. Since Abuja is where the
administrative headquarters of Nigeria is located, the study of this nature will allow us to
examine the impact of MFBs on SSEs Abuja, Nigeria. There is heavy present of MFBs in Abuja,
Nigeria which constituted about 7% of the total MFBs in Nigeria (57 MFBs out of 1007 MFBs in
Nigeria), (CBN, 2018). The scope of this study covers from 2017 to 2019, the reason for the
choice of 2017 was due to the year this study started.
LITERATURE REVIEW
Concept of Microfinance Banks
Ofoegbu, Akambi and Joseph (2013) described microfinance banks as any financial services that
are flexible in structure and processes which are delivered to small scale enterprise as well as low
income earners and the poor on a sustainable basis. In Nigeria microfinance banks therefore is
seen as poverty reduction strategy that is carried out in providing credit and other financial active
and low income households and their businesses (Acha, 2012). The practice of microfinance
banks is not new in Nigeria, it has been in existence providing the needed finances through
informal microfinance approaches such as self-help groups, credit associations, accumulating
credit, savings association and direct borrowing from friends and relations and community banks
(CBN 2005; Akpan, 2009; Okpard, 2009).
The distinguishing features of microfinance banks according to Olaifa (2017) are stated below:
i.
ii.
iii.
Simple operations for their activities
Giving of small loans and collections of small savings
Removal of collateral security as a condition for loam advances.
There shall be three (3) categories of MFBs in Nigeria (Revised regulatory and supervisory
guidelines for MFBs in Nigeria, 2012).
Category 1: Unit Microfinance Bank
A Unit Microfinance Bank is authorized to operate in one location. It shall be required to have a
minimum paid-up capital of N20 million (twenty million Naira) and is prohibited from having
branches and/or cash centres.
Category 2: State Microfinance Bank
A State Microfinance Bank is authorized to operate in one State or the Federal Capital Territory
(FCT). It shall be required to have a minimum paid-up capital of N100 million (one hundred
15
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
million Naira) and is allowed to open branches within the same State or the FCT, subject to prior
written approval of the CBN for each new branch or cash centre.
Category 3: National Microfinance Bank
A National Microfinance Bank is authorized to operate in more than one State including the
FCT. It shall be required to have a minimum paid-up capital of N2 billion (two billion Naira),
and is allowed to open branches in all States of the Federation and the FCT, subject to prior
written approval of the CBN for each new branch or cash centre.
In Nigerian concept, microfinance banks are institutions constructed as a company, licensed to
carry on the business of providing microfinance services such as micro credit loans, insurance,
money transfer services and other non-financial services that are needed by the poor as well as
the small-holder or micro enterprises.
Emmanuel and Ikenna (2015) noted that diversification of ownership is encouraged to enhance
good cooperate governance of licensed MFBs, hence, microfinance institutions can be
established by individuals, groups of individual, churches, community development associations,
private corporate entities, missionaries and foreign investors
Microfinance Banks Services
The term microfinance banks is seen as provision of financial services to low income clients
including the self-employed. Financial services generally include savings and loan/credit. In
addition to financial intermediation, many microfinance banks provide social intermediation
services such as development of self-confidence and training in financial literacy and
management capabilities among members. Microfinance banks services were discussed below.
Micro Loans
Bauchet, Marshall, Starita, Thomas and Yalouris (2011) asserted that the narrative of microcredit as providing small loans to capital constrained micro-entrepreneurs who then earn a high
return on the loans to be able to repay a relatively high interest rate, and re-invest in their
businesses to grow further, and eventually move out of poverty. The provision of small loans to
the poor, usually in cash, although occasionally in kind (Lacalle, Rico & Duran, 2008). Interest
rates vary considerably, but are often between 20 percent and 40 percent per year. Roodman
(2011) hinted that as MFBs mature, rigid terms tend to be relaxed, leading to, among other
things, lower interest rates. While a number of MFBs charge a flat rate on the full amount
borrowed, there is a shift to charge interest on the declining balance. Further, charging a variable
interest has become more common, meaning that the rate is not fixed over the loan period but
rather fluctuates, based on another interest rate, usually the prime rate.
Micro savings
Savings mobilization has recently been recognized as a major force in microfinance. In the past,
microfinance focused almost exclusively on credit; savings were the "forgotten half" of financial
intermediation. The availability of deposit services, sometimes purely stand-alone savings
accounts, but often linked to credit, either as a compulsory condition of having a loan, or
sometimes part of a combined intervention in which a group saves, and then members are
allowed to borrow from their shared savings resource. The types of micro-savings services thus
16
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
vary, are offered by various types of providers, and function both as protection (to ameliorate the
impact of shocks) and promotion (to build an asset base) (Hulme, Moore & Barrientos, 2009).
Concepts of Small Scale Enterprises
The concept of Small Scale Enterprises (SSEs) is one of the most reviewed topic in management
due to the importance attached to it by various scholars and its impact in an economy like ours in
the country. Worldwide, SSEs is seen as the engine room of economic growth and development
(Suberu, Aremu & Popoola, 2018). The meaning of SSEs varies from one country to another,
institutions to institutions and years to years. Sometimes, in the literature, small scale business,
small scale industries and small scale entrepreneurship are majorly used interchangeably to mean
SSEs.
Some of the following definitions are given in relations to small scale enterprises. The National
Directorate of Employment (1989) defined small scale business to include any business
enterprises with capital outlay as low as N 5,000 and number of employees fewer as three
persons. It has been seen that this definition lacks merit simply because some of SSEs likes salon
hairdresser, shoe maker or Sea Street for instance need capital investment of more than N 5,000
to start up a business as at then, simply because of the cost of acquisitions of working tools like
machines, dryers and other accessories. Mohammed (1990) defined small scale enterprises as
any business organization in which the total worth of the business is less than N4000, 000.00
including the fixed assets and the cost of investment projects (excluding land). Ibitayo (1991)
defined small scale enterprise as a business organization with a return of not more than N
750,000 and with employees of not more than 50 full time workers (including investment and
working capital). Ekpenyong (1999) defined small scale enterprises as a business that have
relatively little capital investment outlay that produces in small quantities as a result of control of
a small share of the market and employ not more than fifty workers and the planning and
entrepreneurial functions are vested in the hands of the owners. This definition is also faulty
simply because it fail to mention the amount required to start up small scale business, as the
author defined his omission based on the violability and hairdresser to the capital formation and
this makes it imperative to accept the definition.
Watson and Everett (1999) asserted that the most functional definition of SMEs is one given by
United Nations Industrial Development Organisation (UNIDO) which states that small scale
business should be characterized by the following variables:
i.
The business are majorly owned and managed by individual or group and the
management is different from the owners.
ii.
The business enterprises controls small share of the market and therefore constitutes a
little quota in the large size market.
iii.
The owners provide the capital for the business enterprises and policy decision with
respect to the business enterprises are taken by the owners.
iv.
The area of the operation and workers are in the local community for variable patronages
and supply.
17
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
There is no generally acceptable definition of small scale enterprise as shown by various studies
(Oleka, Naduagwu & Igwenagu, 2014, Zhiri, 2017; Adeoti, Abadeyan & Olawale, 2015;
Obokoh, Monday & Ojiaka 2016; Emmanuel & Ikenna, 2015; Okoh, Ugwumba & Isitor, 2009).
Anyanwu (2004) opined that the classification of SSEs depends largely on the economics sectors
THEORETICAL REVIEW
Linear growth theory supported this study.
Linear Growth Theory
The linear growth theory is propounded by Harrold 1939 and Domar 1946 which is commonly
called Harrold Domar growth model. The assumption of the theory stated that for steady growth
rate to occur in business, aggregate demand must also grow at the same rate as the economy
output capacity grows. The assumptions states that there are two major determinants to the rate
of growth of a business. The first is the capital investments and its output called the capitaloutput ratio, this assumptions stated that the more capital is invested in business the higher the
output will be and this will help in contributing to the growth of the economy. The second
assumption is the relationship between savings and national income called savings ratio, this
states that the higher the savings of the business the more the economy will grow. Therefore, the
growth of any business is a function of financing i.e. SSEF = F (MFBs, GEE) where SSEF is
Small Scale Enterprise Financing, f is function, MFBs is Micro Finance Banks, GEE is
Government Enabling Environment.
This implies that for any business to grow, there is need for heavy investment and for heavy
investment to take place, there is need for corresponding of loans and savings to be provided by
an institutions such as microfinance banks, this will enable more investment by small businesses
to gain more and expand their businesses. Despites the various efforts made to lend finances to
small businesses, the rate of their improvement in the business is hindered by the country and the
global economic performance. As the national economic performance grows the small scale
businesses also perform well simply because more business opportunities will be open. This
theory therefore believes that the activities perform by the microfinance banks in carrying out
their core mandates through credit provision, savings mobilization, insurance training etc. serves
as a turning ground and tools for increasing the productive capacity of small businesses,
therefore the development of MFBs served as financial intermediaries that contributes to
economic growth of rural areas by channeling savings to high productive activities and reduction
of risks that may endangered their productive capacity. For growth to occur in SSEs, there must
be heavy investment in small scale enterprises and for heavy investment to take place. It is the
functions of the MFBs since the DMBs are mostly reluctant of financing SSEs due to the risk
attached to it.
Empirical Review
Pie-Wen, Zariyawati, Diana-Rose and Annuar (2016) studied the impact of microfinance banks
facilities on the performance of small and medium enterprises in Malaysia. The study used
survey research design. The method of data collection was through primary data with the use of
18
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
questionnaire distribution. The sample size used for the study was 125 SMEs. The independent
variables used for the study were business income, total loan granted, loan tenure, educational
level, and business training. Logic regression was used for the analysis of the data. The findings
of the study revealed that business income has significant impact on microfinance banks loan,
total loan granted to SMEs is based on the savings of the business, educational level of the
business owners impact significantly on microfinance banks services, loan tenure impacts more
on the owners business and business training helps to increase the knowledge of the owners on
their businesses. The study concluded based on the findings that microfinance banks impacts
positively on SMEs in Malaysia.
Abraham, Sakwa and Aloys (2014) investigated the relationship between small scale enterprises
performance and access to microfinance banks credit in Mount Elgon constituency Kenya. The
study adopted a descriptive survey design using a primary data collection. The population for
the study was 1200 and the sample size used was 120 SSEs which were randomly selected. The
method of data analysis was descriptive and inferential statistics, the inferential statistics used
were Chi-square and t-tests. The results of the data revealed that there was a significant positive
relationship between performance of the business in terms of increase in average monthly profit,
monthly business savings, number of employees and access to funds by SSEs. It also reveals
that the age of the business, business ownership, having other branches and number of
employees significantly affected access to credit in the SSEs.
Awuah and Addaney (2016) examined the interactions between Microfinance banks and SMES
in Sunyani municipality of Ghana. Primary data was used with a sample size of 150 SMES. The
study found that the main challenges faced by SME in Ghana include short duration of loan
payment, huge interest rates and requests for collateral among others. The study also established
that the effect of MFIS on SMES is positive.
Musomandera, Jaya and Anthony (2015) studied microfinance banks and business growth of
SMEs in Rwanda. The study employed both Primary and secondary data. The population of the
study was 884 and sample size of 275. The method of data analysis was regression analysis. The
result of the analysis revealed that MFBs provides many different services to women SMEs in
Kicukro such as loan, advice on investment savings and training on business. MFBs also help in
the support of different sectors ranging from agricultural sector, trading sector, crafts, agro
processing, services, constructions and manufacturing among others.
Zhiri (2017) researched on impact of microfinance banks services on performance of SMEs in
Zaria metropolis. Cross sectional and descriptive research designed was used. The sample size
for the study was 300 SMEs operating in Zaria metropolis using stratified random sampling. The
method of data analysis was regression analysis. The analysis of the data reveals that
microfinance banks services have significant impact on the level of entrepreneurship activities of
SMEs in Zaria metropolis and also the presence of microfinance institutions is positively related
to SMEs performance in Zaria.
19
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
Taiwo, Onasanya, Agwu and Benson (2016) examined the role of microfinance banks on
financing small businesses in Nigeria. Descriptive research design was employed for the study.
Primary data was used. The sample size for the study was 150 small businesses across Lagos
State using stratified random sampling. The method of data analysis was descriptive and
inferential statistics. The analysis of the result revealed that the recapitalization of MFBS has
helped in the growth and expansion of small business finance in Lagos. As a result microfinance
institutions helped in financing small businesses in Lagos state.
Agor, Essien and Ndiyo (2016) studied the impact of microfinance banks on financing small
scale businesses in Calabar metropolis in Cross Rivers State. The research was descriptive in
nature and the design used was survey method. The method of data used was primary data
through questionnaires. The sample size used was 60 small scale business enterprise and 40
microfinance banks staff, simple random sampling was used in the selection. The method of data
analysis was through simple percentages. The results of the data analysis revealed that
microfinance banks have positive significant impact on the growth of small and medium
business enterprises and also that there is an increase in the awareness of the activities of
microfinance banks which have positive impact on the establishment of SSEs in Calabar.
Obokoh, Monday and Ojiako (2016) studied microfinance banks and small and medium sized
enterprises access to finance. The Nigerian experience. The area of the study was in the Niger –
Delta area which covered the nine states. Akwa Ibom, Bayalsa, Delta and Rivers state were used
for the study. Data were collected through primary data, the population of the studies was 800
SMEs and a sample size of 300 SMEs was used for the study. Stratified random sampling
techniques was used in the selection of the respondents. The method of data analysis was through
frequency, percentage and multiple regression analysis. The result of the findings revealed that
there are positive contribution of microfinance banks ending to the development of SMEs in
Niger- Delta region. Despites of the contribution the findings also revealed that some factors still
affect the success of MFBs lending which include cumbersome process, poorly packed business
plans and perceived high cost of credit still limiting the access of indigenous SMEs to credit.
Odetayo (2016) studied empirical analysis of the challenges of microfinance banks in financing
small scale enterprises in Nigeria. The study area was in Osun state. Descriptive survey research
design was adopted for this study. The population of the study comprises of all the MFBs and
small scale enterprises in Osun state. The sample size for the study was 90 microfinance banks
staff selected from 30 microfinance banks and 450 small scale enterprises were sampled using
purposive random sampling. The method of data analysis was through descriptive statistics. The
analysis of the results revealed that, the challenges facing microfinance banks in financing small
scale enterprises in Nigeria are payment of loans, deviation from loan agreement, diversion of
the loan granted, non-compliance with advice and non-repayment of loans granted.
Adeoti , Gbadeyan and Olawale (2015) investigated the impact of microfinance banks credit on
the survival of small and medium scale enterprises in Irepodun Local Government Area (L.G.A)
of Kwara State, Nigeria. Primary data was used for this study. The population of the study were
the two structural MFBs in Irepodun L.G.A which was also used as the sample size for MFBs,
20
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
the sample size for the SMEs was 320 which were selected from the customers of the MFBs.
The method of data analysis was ANOVA. The result of the findings revealed that microfinance
banks contribute significantly to the survival of SMEs in the study area.
Oleka, Maduagwu and Igwenagu (2014) investigated the impact of microfinance banks on the
performance of small and medium scale enterprises in Nigeria. The studies covers the period of
2003 – 2013 (ten years). The method of data collection was primary data and secondary data
through the use of questionnaires and annual report of CBN on SMEs. The sample size for the
study was 300 SMEs which were selected through simple random sampling. The method of data
analysis was through regression analysis. The results of the study revealed that access to
microfinance banks significant enhanced the growth of SMEs in Nigeria and also that business
size, business age, business location, loan size, loan maturity are found to have positive effect on
SMEs growth.
Nwele, Ogbonna, and Uduimo (2014) studied the impact of microfinance banks’ lending on
economic growth of third world nations. Study of Nigeria. Primary and secondary data were
used for data collection. The analysis of the data was done through programme designs,
numerical structure response in implementation and performance model. The results of the
findings revealed that microfinance loans have not gone deep enough to ensure a clean break
from community and commercial banking practices.
Ashamu (2014) examined the impact of microfinance banks on financing small scale business in
Nigeria. The study was carried out in Lagos State which was descriptive in nature. The research
design used was survey methods. Primary data was used as a means of data collection. The
sample size for the study was 120 small scale enterprises in Lagos state. Purposive sampling
technique was used. Descriptive statistics was used as a method of data analysis using sample
percentages and chi-square. The findings of the study revealed that MFBs do not impact on SSEs
and this resulted in the enormous challenges facing the MFBs in Nigeria.
Yusuf, Amao and Olawale (2014) examined the effects of microfinance banks credit on small
scale enterprises in Osun state Nigeria. The area for this study was Irewole local government of
Osun state. The study used primary data for sources of data collection. The population of the
study was 77,309, stratified and systematic random sampling was used in the selection of the
sample size of 120 small scale entrepreneur. Ordinary Least Square (OLS) regression method
was used for the method of data analysis. The result of the data revealed that loan repayment
period, family size and years in business were the key determinants of business turnover and that
the volume of credit available to respondents are affected by repayment period, numbers of
sources and interest of loan.
METHODOLOGY
The model used for this study was formulated from the theory of linear growth theory which this
study was anchored upon, the theory stated that Small Scale Enterprises Financing (SSEF) = f
(Microfinance Banks). The model for the study was formulated below.
21
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
SSEF = f (MFBs) …………………………………………… ….3.1
SSEF = f (ML, MS) --------------------------------------------------------3.2
SSEF = Small Scale Enterprises Financing
ML= Micro Loans
MS = Micro Savings
SSEF = α0 + β1ML + β2MS + β…..........................................................3.3
α0 = autonomous intercept of the model,
A prior Expectation = β1, β2, β3, β4, β5>0.
β1 to β5 = parameter estimator.
Both descriptive and inferential statistical techniques were used to analyse the data obtained via
self-administered questionnaires. Percentages and frequencies were used for descriptive
statistical analysis. However, ordered logit regression analysis was employed for inferential
statistical analysis because the variables are ranked in nature and the data are on nominal scale of
measurement. The scale adopted is both open for demographic data and closed scale for general
data. In order to estimate the order logit regression model, E-views econometrics and statistical
package was used. The procedure involved specifying the dependent and independent variables;
in this case, Micro Loans and Micro Savings was used as the independent variables and small
scale enterprises financing was used as the dependent variable. The programs were run and from
the output, the values of the constant, α (slope), coefficient of regression, β and the error term, ε
are obtained. In addition, the output showed the t-statistic and p-values for the coefficients which
results in either rejecting or failure to reject the hypothesis at a specified level of significance.
The p-value is the probability of getting a result that is at least as extreme as the critical value.
The null hypothesis is rejected if the p-value is less than or equal to the critical value. The output
will show the coefficient of determination (r2), which measures the proportion of the dependent
variable that is explained by the regression model.
The research design used for this study was survey research method. The choice of the method
was due to the usage of primary sources of data collection through questionnaire and oral
interview. The population for this study is 2794 registered small scale enterprises domicile in
Abuja (SMEDAN, 2018). The sample size selected for the study was 349 small scale enterprises
in Abuja, Nigeria using Yamane (1967) statistical formulae for determination of sample size was
used. The sample size was 394 which were selected from artisans, services, manufacturing and
trading businesses in Abuja, Nigeria. The method of sampling techniques was stratified sampling
for selection of SSEs, the reason for the choice of stratified sampling was due to the different
categories of small scale enterprises in Abuja, Nigeria.
22
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
The descriptive statistics shows the bio-data of the sampled respondents, four hundred and
fourteen (414) copies of questionnaire were administered and four hundred and (424) were fully
filled and returned which was used for the analysis of this study.
Regression Analysis
Table 4. 1 presents the ordered logit regression result for the investigation of the impact of MFBs
on small scale enterprises financing, ordered logit regression was estimated with small scale
financing as the dependent variable and Micro Loan (ML), Micro Savings (MS) as the
independent variables. The result shows that all the independent variables are positively related
to small scale financing. This means, the better the implementation of these variables, the more
likelihood of increase in small scale financing in Abuja, Nigeria.
More so, the result indicates that all the independent variables (ML, MS) are statistically
significant at 5% level of significance. This is shown by the standard error of the marginal
effects of the variables 2.9801 and 3.2699. Coefficient (marginal effect) of a variable is said to
be significant if the standard error is less than half of the value of the coefficient.
The fitness statistic used in the model is the Log Ratio (LR) chi-square statistics reported along
with the marginal effect estimates in Table 4.1. A model is considered to have a good fit when
the P-value of the LR statistics is less than the traditional levels (10%, 5% and 1%) of
significance used in social and management sciences. Otherwise the fitness of the model is said
to be bad. The Log Ratio statistics of the ordered logit regression models presented in Table 4.1
is 49.73 with P-value 0.0033. This shows that all the models have a good fit and their results are
valid and plausible for tenable policy inferences.
Table 4.1: Ordered Logit Estimates for Small Scale Enterprises Financing
Variables
Marginal
effect Std Error
Z-stat
Prob
(dy/dx)
Micro-Loans
2.9801
41.544
0.0717
0.0014*
Micro-Savings
3.2699
0.4154
7.8716
0.0000***
LR-chi2
49.73
Prob (chi2)
0.0033
Source: Field Survey (2019)
Notes: *, ** and *** denotes statistically significant at 1%, 5% and 10% significance level
respectively.
DISCUSSION OF FINDINGS
From the analysis carried out, it was empirically established that micro finance banks services
has an impact on small scale enterprises financing. This implies that with a unit change in the
23
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
microfinance services (micro loans and micro savings) there is likelihood small scale enterprises
financing will increase in Abuja, Nigeria.
However, for detailed analysis it is found that hypotheses H01 and H02 which was the dimensions
of micro finance services, namely micro-loans and micro-savings were positive and significantly
related to small scale enterprises financing/development. This implies that increase in the amount
of loan given is expected to help the small businesses to expand. This result meets our apriori
expectation and led to rejection of the null (Ho1) hypothesis. An increase in micro savings of the
small scale enterprises will lead to increase in small scale enterprises financing. This result meets
our apriori expectation and therefore led to the rejection of the null (H02) hypothesis. The result
is in consonant with the study of Kisaka and Mwewa (2014); Leah and Willy (2017);
Musomandera, Jaya and Anthony (2015); Kibet, Kenneth & Omwono (2015); Dinah and
Benjamin (2015); Quansah, Amaukwah and Aikins (2012). Their findings revealed that
significant number of the SSEs benefited from the MFBs loans and savings (i.e. the amount of
money collected from the MFBs contributed positively in promoting their businesses and market
shares). The implication of this findings is that the more microfinance banks give out micro
loans to small scale enterprises the more their businesses grow, that is more loans from
microfinance banks to SSEs help the business to carry out more activities for the development of
their businesses and at the long run help in reducing unemployment rate in at the country and at
large contribute to the economic development of the country. The implication of savings
revealed that as SSEs savings increases with the microfinance banks the more the banks gives
loans to their business and the more the banks attend to them in terms of financing their
businesses.
Finally, the findings from the study are in tandem with linear growth theory which argued that
for any business to grow, there is need for heavy investment and for heavy investment to take
place, there is need for corresponding of loans and savings to be provided by an institutions such
as microfinance banks, this will enable more investment by small businesses to gain more and
expand their businesses. Based on the findings of this study, the study therefore concludes that
MFBs in ABUJA, Nigeria impacted positively on financing small scale enterprises.
CONCLUSION AND RECOMMENDATIONS
Conclusion
This study empirically investigated the impact of Microfinance banks on small scale enterprises
financing in Abuja, Nigeria. A significant relationship has been established between
microfinance banks and small scale enterprises financing/performance. The study confirms the
positive contributions of microfinance banks (micro-loans and micro-savings) towards
promoting small scale enterprises market share, production efficiencies and competitiveness.
Although microfinance banks in Nigeria are faced with insufficient funds which militates against
their efforts to grant sufficient loans to small scale enterprises, yet their tendencies to augment
the financial needs of small scale enterprises is considerable acknowledged as shown from the
result of this study. Based on the findings, the study therefore concludes that the
growth/expansion in SSEs is due to changes in micro loans and micro savings.
24
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
Recommendations
The following recommendations were made in line with the findings and conclusion of the study:
1. Microfinance banks should persist improvement on their supply of micro-loan to SSEs in
other to enhance more business expansion and the capital base/profit of both small scale
enterprises and the microfinance banks. Policy makers such as Central Bank of Nigeria,
Financial Reporting Council of Nigeria should support local savings institutions such as
microfinance banks, that have evolved to meet local financial needs, and whose structure
is easily understood in most developing countries.
2. The microfinance banks should help in encouraging the SSEs to save as micro-savings
will help SSEs acts as a buffer in terms of shocks which could be economic,
environmental, or any disaster and also help microfinance banks to lend more to SSEs.
3. Microfinance banks should help in monitoring SSEs for proper use of their resources for
business expansion, more techniques should be given to them on how to grow their
business in terms of opportunities within their environment. As this will enhance a good
relationship of their businesses to microfinance banks and also for proper funding of their
businesses. Policies and programmes to influence the establishment of more micro
finance banks in both rural and urban communities should be encouraged by government.
This will enhance access to credit, encourage banking/savings habits among the rural and
urban dwellers, and ensure even growth and development of small businesses in Nigeria
REFERENCES
Abraham, K. K., Sakwa. M., & Aloys, N.K. (2014). The relationship between small scale
enterprises performance and access to credit from microfinance institutions in Mount
Elgon constituency Kenya. International Journal of Academic Research in Business and
Social Science, 4(9), 507-517.
Abdel, H.A., Abdimajid, O.A., & Ali, Y.S.A. (2013). The accessibility of microfinance banks for
small businesses in Mogadishu Somalia. International Journal of Humanities and Social
Science, 3(11), 172-180.
Acha, I. A. (2012). Microfinance banks in Nigeria: problems and prospects. Journal of finance
and accounting, 1(5) 106-111
Adeyemi, K. S. (2008). Institutional reforms for efficient microfinance operations in Nigeria.
Central bank of Nigeria. Bulletin, 32 (1), 26-34
Akpan, J. (2009). Fundamentals of finance . (3rd) edition, Uyo; Abaam publishing co. 22-28
Albert, N.W., & Bwisa, M.H. (2013). Effects of micro finance lending on business performance;
a survey of microfinance and small enterprises in Kitale Municipality, Kenya.
International Journal of Academic Research in Business and Social Sciences, 3 (7), 56 –
66.
Anyanwu, C. M. (2004). Microfinance institutions in Nigeria. Policy practice and potentials
being a paper presented at G24 workshop constraints to growth in sub-Sahara Africa
Pretoria, South Africa, Nov. 29 – 30, 2004.
Asor, A.E., Essien, E.M., & Ndiyo, N. (2016). The impact of micro financials banks on small
scale businesses in Cross River State; a case study of Calabar metropolis. International
Journal of Innovative Finance and Economics Research, 4(1), 25-31.
25
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
Awuah, B.S., & Addaney, M. (2016). The interaction between micro finance institutions and
Small and Medium Scales Enterprises in the Sumyani Municipality of Ghana. Asian
Development Policy Review, 4(2), 57-64.
Bauchet, J., Marshall, C., Starita, L., Thomas, J., & Yalouris, A. (2011). Latest findings from
randomized evaluations of microfinance. CGAP Access to Finance Forum, Report No 2.
Central Bank of Nigeria (2018). Annual Report and Statement of Accounts. Central Bank of
Nigeria, Abuja.
Central Bank of Nigeria (20006). Statistical bulletins for annual reports on microfinance banks
Central Bank of Nigeria (2005). Microfinance policy regulatory and supervisory framework for
Nigeria. Abuja CBN.
Dinah, K.A., & Benjamin, B.G. (2015). Determining the effect of Micro Finance on Small Scale
Enterprises; the case of Holive Municipality of Ghana. Research Journal of Finance and
Accounting. 6(22), 60-67
Duru, I. U., & Ogbe, A.A. (2013). Relationship between microfinance banks and financing of
small scale enterprises in Kogi State, Nigeria. International Journal of Economic
Development, Research and Investment. 4(3), 71 – 81.
E k pe n y o n g , D. B., Nyon g , M. O. (1992). Small and medium-scale enterprises in Nigeria:
their characteristics, problems and sources of finance. African Economic Research
Consortium. Zakuna Printers Ltd, Nairobi, Kenya.
Ibitomi & Ijaiya (2018, December 4). Impact of microfinance on small and medium sized
enterprises in Nigeria proceedings of the 7th international conference on innovation and
management (pp. 4-5), Wuhan, China
Ijaiya, M.A.(2011). Informal micro finance and economic activities of the rural dwellers in
Kwara South Senatorial District of Nigeria. International Journal of Business and Social
Science, 2(15), 136-146.
Kabeert, N. (2001). Conflicts over credit: re-evaluating the empowerment potential of loans to
women in rural Bangladesh, conceptualising and evaluating empowerment. World
Development. 29(1): 63-84
Madole, H. (2013). Impact of microfinance credit on the performance of SMEs in Tanzania
Musomandera. L., Jaya, S., & Anthony, L. (2015). Micro finance bank and business growth of
women small and medium enterprises in Rwanda. (A case of selected women small and
medium enterprises in Kicukiro district). European journal of accounting, auditing and
finance research, 3(11), 26-39.
Normah, M.A. (2016, September 4). SMES: building block for economic growth, paper
presented at the National Statistics Conference., (pp. 1 – 13) Kuala Lumpuer, Malysia.
Nwakwo, O. (2008). Micro credit finance banks and poverty alleviation in Nigeria: challenges
and prospects. Journal Business Administration and Management, 3(1), 41 – 46.
Nwele, J. O., Ogbonna, I.C., & Udiumo, A.A. (2014). Impact of micro finance lending on
economic growth of third world nations: study of Nigeria. International Journal of
Business Economies and Management, 1(8), 201-215.
Obokoh, L.O. (2018). Small and Medium Sized Enterprises development under trade
liberalization: a survey of Nigerian experience. International Journal of Business and
Management, 3(12), 92 – 101.
Obokoh , L.O., Monday, J.U., & Ojiako, U. (2016). Microfinance banks and small and medium
26
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
sized enterprises access to finance. The Nigerian experience. Journals of Banks and
Banks System. 11(4), 111-121.
Odetayo, T.A. (2016). Empirical analysis of challenges of microfinance banks in financing small
scale enterprises in Nigeria. Account and Financial Management Journal. 1(5), 301 307.
Ofoegbu, E.O, Akaube, P.A., & Joseph, A.T. (2013). Effect of contextual factor on the
performance of SMES in Nigeria. A case study of chorin metropolis. Management and
Applied Economics Journals, 3 (1), 95-114.
Okoh, R.N., Ugwumba, C.O.A., & Isitor, S.U. (2009). Microfinance for small – scale enterprises
development in Anambra state, Nigeria. A gender analysis. Nigerian Journal of
research and production, 15 (2), 1 – 15.
Okpara, G.C. (2009). A synthesis of the critical factors affecting performance of the Nigeria
banking system. European Journal of economics, Finance and administrative sciences,
17, 34 – 44.
Olaitan, M.A. (2017). Finance of small and medium scale enterprises in Nigeria. Journal of
international farm management, 3(2).
Oleka, C.D., Maduagwu, N.S., & Igwenagu, M.C. (2014). Analysis of the impact of micro
Finance Banks on the performance of small and medium scale enterprises in Nigeria.
International Journal of management and social sciences, 1(2), 45 – 63.
Quansah, P., Amankwah, E., & Aikins, E. (2012). Influence of Micro Finance and Small Load
Centre (MASLOC) on the development of small scale enterprises in the municipality,
Ghana. European Journal of Business Management, 4(1), 1-10.
Suberu, O.J., Aremu, O.S., & Popoola, E.G. (2011). The impact of micro finance banks on the
development of small scale enterprises in Nigeria. Journal of research in international
business management,1(8), 251-257.
Sriram, V., & Mesha, T. (2010). Stimulating entrepreneurship in Africa. World Journal of
Entrepreneurship Management and Sustainable Development, 6(4), 257-272.
Taiwo, J.N., Onasanya, A.Y., Agwu, M.E., & Benson, K.N. (2016). The roles of microfinance
banks in financing small businesses. Journal of Internet Banking and Commence, 21 (1),
1-20.
Tombo, F., Kurokawa, K., & William, T. (2008). Donor support to private sector development in
sub – Sahara Africa; understanding the Japanese oval programme. Jica Odi working
paper London and JBIC.
United Nation Economic Commission for Africa (2008). SMEs actors for sustainable
development in North Africa office of North Africa.
Varkata M. (2004). greening small and medium sized enterprises. Evaluating environmental
policy in vietnami. International Journal of Economics, 2(8), 112 – 122.
Waithanji, S.W. (2011). Effect of microfinance credit on the financial performance of SMES in
Kuambu country, Kenya. Journal of business and entrepreneur, 4(2), 234-346.
Wang, X. (2013). The impact of microfinance banks on the development of small and medium
enterprises; the case of Taizhour, China. Journals of entrepreneurship development, 1-24.
White, S., & Juan, C. (2002). Enabling small enterprise through a better business environment.
Donor experiences in supporting reforms in the business environment. Committee of
Donor ageners for small enterprise development, working group on enabling
27
European Journal of Accounting, Auditing and Finance Research
Vol.8, No.3, pp.13-28, March 2020
Published by ECRTD-UK
Print ISSN: 2053-4086(Print), Online ISSN: 2053-4094(Online)
environment, London. Washington D C
Yahaya, K.A., Osemene, O.F., & Abdulraheem, A. (2011). Effectiveness of micro finance banks
in alleviating poverty in Kwara State Nigeria. Global Journal of Management and
Business Research, 11(4), 13-19.
Yusuf, S. A., Amao, J.O., & Olawale, O. T. (2014). Effect of micro credit on small scale
enterprises in Osun State, Nigeria. American International Journal of Contemporary
Research, 4(6), 190-200.
Zhiri, D.D. (2017). Impact of micro finance banks services on performance of small and medium
scale enterprises in Zaria metropolis. International Journal of Scientific Research in
Social Sciences and Management Studies, 2(1), 49-64.
28