10th International Entrepreneurship Forum, Tamkeen, Bahrain, 9-11 January 2011 Page 1 of 4

Effect of Microfinance Organisation on Small and Me dium Scale Enterprises in Nigeria

Okunlol a James Olaniyi Ph.D The Federal University of Technology

Akure. Nigeria Tel: +2348036248446 E-mail: niyiyel@yahoo.com

Objectives: examine the activities of Micro-Finance Organisations in assisting the SMEs, determine the effect of Micro-Finance activities on the Entrepreneurs level of production, examine the effect of the organisation on the SME’s profit level and growth of the organisations. Prior Practices: Nigeria Economic Planners depended on transformation of Small and Medium Enterprises (SME’s) to drive economic growth in the country. However, most of the programmes that evolved did not provide efficient and effective financial services to the SME’s. The Financial Institutions do not provide diversified, affordable and dependable Financial services to the active poor in a timely and competitive manner, that would enable them to undertake and develop long term sustainable entrepreneurial activities. Therefore, most of the Enterprises operate on a very small scale due to lack of financial assistance, business acumen and collateral or security to obtain various credit facilities. Approach/Methods: The study was carried out in Osun State Nigeria. Thirty-five SME’s were randomly selected from the list of SMEs who utilize microfinance organisation. Primary data were obtained through the use of validated and pre-listed structured questionnaire while the secondary data were obtained from textbooks, journal and other relevant sources. Descriptive statistics were used to analyse the collected Primary data. Results/Insights: The study revealed that 14 percent of the SMEs were classified as Micro-business because they have Ten (10) or less employee with total asset of one hundred thousand dollars ₦ ($100,000) or less while 86 percent are small and medium enterprises because they have total assets of about three million dollars and turnover of three million ($3,000,000) to five million dollars ($5,000,000) as shown below:

Figure 1: Classification of business enterprise Type of Business

10th International Entrepreneurship Forum, Tamkeen, Bahrain, 9-11 January 2011 Page 2 of 4

The result shows that 63 percent of the respondents were into Agro allied related business and 14 percent in service related business. Table 1: Type of respondents business Enterprise

Type of Business Frequenc y Percentage Agro Allied Livestock Forest based Soil Mineral based Provision of services

22 5 2 2 4

62.9 14.3 5.7 5.7 11.4

35 100 Number of Years in Business

About 63 percent have been in business for 6 – 10 years showing that they have adequate experience for a successful business enterprise development.

figure 2. : number of years in business Amount of Loan Granted to Enterprise Sixty percent of the SME’s received $1,000 – $1,5000 while 28.6 percent received above $5,000 as loans as shown in Table 2. Table 2: Amount of loan granted to the Enterprises

10th International Entrepreneurship Forum, Tamkeen, Bahrain, 9-11 January 2011 Page 3 of 4

Amount Frequency Percentage Less than $1000 $1,000 - $5,000 $5001 and above

4 21 10

11.4 60.0 28.6

Total 35 100 Sources of Financial Assistance to SME’s Table 3 reveals that the Micro-Finance organisations such as Microfinance Bank MFBs provides 57 percent of the beneficiaries the required assistance to promote their enterprises. This could be because the Micro finance institutions do not have stringent conditions like provision of collateral and high interest rates attached to the facilities being made available to the Entrepreneur. The MFI’s Also provide services such as capacity building for some of the Entrepreneurs. Fourteen percent of the beneficiaries obtain loan from the commercial banks while 2 percent obtain financial assistance from the insurance companies. It is to be noted that commercial banks require collateral security from the entrepreneurs and also charge high interest rates. Table 3: Sources of financial assistance to SME’s

S/N SOURCES FREQUENCY PERCENTAGE 1. Mirco-Finance Institution 20 57.0 2. Commercial Banks 5 14.0 3. Finance Houses 3 8.0 4. Bank of Industry 1 2.0 5. Insurance Companies 1 2.0 6. Others such as Micro-Finance agencies 5 14.0 35 100.0

Facilities Derived from Micro-Finance Organisation It is to be noted that apart from the financial support by the Micro-Finance Institutions the respondents derived other benefits such as capacity building, managerial advisory services and technical assistance as shown in Table 4. Table 4: Benefits derived from MFIs by respondents

Facilities Frequency Percentage Managerial/advisory services 3 8.5 Training 6 17 Technical Assistance 4 11.5 Research and Information 2 6 Combination of all the above 20 57 35 100

Effect of Micro-finance Institution Activities on t he Entrepreneur Level of Production Micro Finance banks were established to provide Micro-Credit for the entrepreneurs to enhance economic activities and enhance their profit levels (Anyam 2004). From the study, 73 percent of the respondents strongly agreed that the loan given to them by the MFIs increased their level of production. This could be because 71 percent of the entrepreneurs strongly agreed that it enhanced their current assets/working capital. Eighty percent also strongly agreed that it enable their organisation to purchase the required machinery and accomplished their business expansion programme. This supports the assertion of Charistonenko 2004 that the MFIs are to enhance flow of financial services to business enterprise so as to expand their business long on.

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Table 5:Effect of MFIs facilities on SMEs.

S/N Statement SA A U D SD i. The facilities enhance organisations level of

production 22(73) 10(28) 3(8) 0(0) 0(0.00)

ii. The loan facilities improved the organisations working capital

25(71) 5(14) 5(14) 0(0) 0(0)

iii. The loan has no effect on the organisations expansion program

28(80) 1(002) 6(17.1) 0(0) 0(0.0)

iv. The facilities increased the profit level of the organisation

25(83) 4(11.4) 6(17.1) 0(0.1) 0(0.1)

v. It does not have effect on the organisations promotion of production

1(0.7) 4(11.4) 0(0) 7(20) 23(65.7)

Community/Industry: Involvement of the MFIs has helped broaden the scope of activities of the SMEs through the provision of required working capital and fixed assets. This will subsequently improve the standard of living of the people, providing employment for youth in particular and make available essential commodities. Value to the Theme: The paper will add to the knowledge of effect of Micro-Financial Institutions in Entrepreneurship development and provide opportunity to exchange ideas from different parts of the world on how SMEs activities are enhanced. Keywords: Micro finance, Small and Medium Scale, Organisation, Growth and Development.