ROLES OF MICRO FINANCE BANK IN BUSINESS DEVELOPMENT IN MANGU LGA OF PLATEAU STATE. CASE OF MWAGHAVUL MICRO FINANCE BANK

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Micro financial bank plays a vital role in the economic growth and development of any Nation, especially developing country like Nigeria. As explained by Muritala, Awolaja and Yusuf (2012) there is the greater likelihood that business will utilize labour-intensive technologies thereby reducing unemployment particularly in developing countries and thus have an immediate impact on employment generation and poverty alleviation. The problems bedeviling the business in Nigeria are multi-faceted. Ekpenyong (2017) identified inadequate capital, managerial inefficiency and inaccessible credit facilities from formal financial institution among others as key problems. Long term development institutional credit was known not to be available to small scale business because they are generally considered high credit risks by financial institutions.

The Central Bank of Nigeria (2008) defined small-scale businesses as those businesses whose annual turnover was not more than N500, 000. The Federal Government of Nigeria (2018) defined small-scale businesses for purposes of commercial bank loans as those with an annual turnover not exceeding N500, 000, and for Merchant Bank Loans, with capital investments not exceeding 2 million naira (excluding cost of land) or a maximum of N 5 million. The National Economic Reconstruction Fund, NERFUND (2003) put the ceiling for small-scale industries at N10 million. While the Central Bank of Nigeria (2004) agreed with the definition given by Small and Medium Industries and Equity Investment Scheme, SMIEIS (2004) on SSEs as any enterprise with a maximum asset base of less than N50 million (equivalent of about $0.43 million) excluding land and working capital, and with the number of staff employed not less than 10 (otherwise will be a cottage or micro-enterprise).

The role of Micro Finance Banks in Promoting Businesses in Nigeria is more than to be over emphasised. A major characteristic of business worldwide is that they are generally managed by their owners either as sole proprietorship or partnership (Adamu, 2005). Small scale businesses are also largely local in their areas of operation. They depend on internal sources of capital and are relatively small in size within the industry. Small scale businesses are predominant in the private sector of the Nigeria economy, but almost all of them are starved of funds.

Economic growth cannot be achieved without putting in place well focused and organized programmes to reduce poverty through empowering the people by increasing their access to factors of production especially credit facilities. The latent capacity of the poor for entrepreneurship would be significantly enhanced through provision of micro finance services to enable them engage in economic activities (such as small and medium enterprises) and be more self-reliant, increase employment opportunities, enhance household income and create wealth (CBN, 2005).

The establishment of Micro-finance banks as an effort by the government to improve the access to loans and savings services for poor people is currently being promoted as a key development strategy to enhancing poverty eradication and economic development (Shreiner, 2005). Micro finance policy depends heavily on the availability and provision of financial assistance. Abimiku (2000) asserted that finance is the main pre-occupation of banking industry that brings together the factors of production such as land, labour and entrepreneur into action. The role of micro finance banking organizing productive activities is no longer conjectural as it has the unique advantage of facilitating economic development. Many today believe that, finance is vital and crucial to the process of economic development. Development Economist posits that, the existence and evolution of banking constitute an important dimension of the process of economic growth and development. The provision of affordable financial services to the small scale businesses according to Mohammed (2015) has been a key component of development strategy for the past decades.

There are thousands of businesses, which fall into the category of small scale business. They include weaving, business centers, restaurants, tailoring, carpentry, farming, and transport, setting up and managing it to fruition can be rewarding both financially and psychologically, many of such small-scale business when established to succeed. However, small-scale business in Nigeria today faces a literary of problems occasioned by global economic recession.

1.2 Statement of the Problem

Businesses are very important in any society but the rate of failure of such business in Mangu LGA, in Nigeria particularly is becoming a matter of serious concern. Experiences show that the poor attitude of the Micro Finance Bank to offer loan for the small scale business have reduced the chances of survival of some of the businesses. The inability of businesses to implement the financial policies just as experiences have shown, might have contributed to failure of most businesses in Mangu. That is, greater numbers of people who enter into business operation in Mangu local government area of Nigeria every year fail, rather than succeed. Above all, the poor marketing strategies of most small scale businesses just as experience can show may not have helped matters. It is in view of this problem that this research work is conducted.

1.3 Objectives of the Study

            The general purpose of this study was to investigate into role micro finance bank in business development in Mangu LGA. A case study of Mwaghavul Micro-finance Bank. Specifically, the study will sought to:

1. To determine the extent micro finance bank improve the growth and development of businesses in Mangu LGA.
2. To investigate the extent to which poor micro-finance practices impede the growth and development of small scale businesses
3. To investigate the problems encountered in financing small scale businesses by Mwaghavul Micro-finance Bank
4. To proffer a lasting solution to challenges facing businesses in Mangu LGA

1.4 Research questions

To guide this study the following were the research question:

1. To what extent do micro finance bank improve the growth and development of businesses in Mangu?
2. To what extent to which poor micro-finance practices impede the growth and development of small scale entrepreneurs?
3. What are the problems encountered in financing businesses by Mwaghavul Micro-finance Bank?
4. How can the challenge facing small scale businesses are solve?

1.5 Significance of the Study

            This research has great importance for all enterprises such that:

            It will enable businesses operator to know their impact on the socio-economic well-being of the people.

            The result of this work would provide useful information to existing and potential entrepreneurs (business owners) on the possible ways of sourcing funds to business organization at a low interest, thereby overcoming their financial challenges and bringing about growth and development. Owners of businesses will get to understand some financial practices and how their deficiencies are counter-production to their business.

            Youths in the state can easily become aware of possible sources of capital to start or expand their businesses, because the study will expose possible ways of accessing funds from both government and non-governmental agencies. Findings from this study will enable the youths to be more focused, self-employed and as well reduce the rate of crime and unemployment in the area.

            The Management of businesses will benefit by addressing financial impediments such as source of credit facilities and policies that often hinder the growth of their businesses. This will enable the management to boost their financial strength. Managers and accountants and accountants of SSEs can easily access valuable information, such as accurate and timely information on market opportunity, technology, business practices, and regulations and also assist them to take a full advantage of these.

            Policy makers of Plateau State will become aware of the financial inhibitors such as insecurity, weak policies, inadequate collateral, and non-timely information to small scale businesses.

            The research work will also serves as reference materials for future research,

1.6 Scope of the Study

            The scope of this research work centre on roles of micro-finance bank in business development in Mangu LGA of plateau state. A case study of Mwaghavul Micro-finance bank

1.7 Definition of Terms

Business: this are entrepreneur own by an individual or group of individual with view of profit making and human development

Entrepreneur: this is seen as business man who carefully study the need of his society and come-up with a suitable business to cater for the need of the society

Micro finance Bank: this is a financial institution bestowed with the responsibility of providing financial assistance to small scale businesses.