THE IMPACT OF MICROFINANCE ON ENTREPRENEURIAL DEVELOPMENT
Abstract
This research study investigates the impact of microfinance on entrepreneurial development of small scale enterprises in Nigeria and its global significance. Microfinance institutions world over and especially in Nigeria are identified to be one of the key players in the financial industry that have positively affected individuals, business organizations, other financial institutions, the government and the economy at large through the services they offer and the functions they perform in the economy
INTRODUCTION
Empowering the poor and small scale enterprises economically and liberating them from poverty
is the major reasons for the establishment of micro finance institutions. According to
Ehigiamusoe (2005), access to financial services enables the poor households to move from
everyday surviving to planning for the future, investing in better nutrition, their children’s
education and health and empowering women socially.
Historically, access to credit for the Nigerian rural and urban poor was problematized by
incorrect pacing and sequencing of the financial system reform (Soyibo 1996). The financial
crisis that resulted from this reform, the reversals in several policy measures and general
instability in the political and economic environment had very adverse impact on the functioning
of the financial system, includes difficulty in obtaining credits for poor credit users (Tomori etal
2009). The formal banking system still faces constraints in reaching dispersed poor clients and
small scale enterprise due to lack of improved services infrastructure. Collateral requirements
help formal institutions in determining the credit worthiness of potential borrowers, since they
often know very little about the would be borrowers. But they make financial services
inaccessible to the growing entrepreneurs. Improved access to credit for the entrepreneur is
central to sustainable poverty alleviation because it enables them to invest in and improve
productivity in agriculture, small businesses and small scale manufacturing thereby empowering
them to break out of poverty in a sustained and self determined way. Guaranteeing rural people’s
access to credit for meaningful economic activities required specific financial schemes that
mobilized savings and intermediate financial services.
Micro credit schemes emerged to fill this gap in the financial services delivery system. Modeled
after the Gremeen bank poverty reduction initiatives in Bangladesh, micro-credit schemes
mediate the delivery of small, low interest and non collateralized credit to the rural and urban
poor, relying on social collateral and joint liability (Aryeteey 1995; Olomola 2000).
Microfinance has proven to be effective and powerful tool for poverty reduction and
empowerment of the poor (Morduch and Harley 2001). It is the most proven institutions that can
liberate the poor who have consumption level of less than 2 US dollar per day (Kurti 2009).
Microfinance is a key strategy in reaching the MDGs and in building global financial systems
that meet the needs of the entrepreneurs (Simanowitz and Brody 2004).
STATEMENT OF THE PROBLEM
As stated earlier, economic empowerment enables the poor to reach his or her God given
potentials (Cheston and Kuhn 2010). It enables the poor households and small scale industries to
move from everyday survival to planning for the future. The microfinance institution, from
studies especially in Bangladesh, has proved to be the only recognized institution strategically
positioned to eradicate poverty. Although Jaiyeola (2012) posited that microfinance can only
help the unbanked have access to credit but it has been discovered that the monies made
available to them are merely for sustenance and may not necessarily have effect on bringing
them out of the shackles of poverty, but microfinance still remain the only institution that
facilitates financial inclusion, poverty alleviation, promote universal education, promote gender
equality, reduce child mortality, improve maternal health, empower women, combat HIV/AIDS,
malaria and other diseases, ensure environmental sustainability, develop a global partnership for
development and achieve a millennium development goals (Simanowitz and Brody 2004; little
field, Murduch and Hashemi 2003; IMF 2005).
There are researches conducted on the impact of microfinance on the development of
entrepreneurs, but none of these researchers provided sufficient justification for the impact of
microfinance on how the impact of credit has enhanced the income and profit of the
entrepreneurs. These therefore constitute the central problem of the study.
PURPOSE OF THE STUDY
This study has as its main objective; to investigate how microfinance impacts on
entrepreneurship development.
The specific objectives are:
i To determine the impact of microfinance credit facility on the income of the entrepreneur
ii To determine the impact of microfinance credit facility on the profit of the entrepreneur
STATEMENT OF HYPOTHESES
H1: There is no significant relationship between microfinance credit facilities and the income of
the entrepreneur
H2: There is no significant relationship between microfinance credit facilities and the profit of
the entrepreneur
THEORETICAL FRAMEWORK
Managerial Theory: According to Akinbola, Ogunnaike, Tijani (2013), this perspective focuses
on the perception of market opportunities. In addition emphasizes the operational skills required
to run a successful enterprise (Kilby,1971; Meredith, Nelson and Neck, 1991, and Osuagwu,
2001). Kilby (1971) listed thirteen managerial functions, which the entrepreneurs might have to
perform for the successful operation of their enterprises. Garland, Holy Boulton and Garland
(1984) regarded the employment of strategic management practices as the function of
entrepreneurs. Therefore, managerial skills will have direct positive effect on the
entrepreneurship processes of emergence, behavior and performance. The environment that
provides opportunities for relevant skills acquisition will tend to promote entrepreneurship.
Innovation Theory: Akinbola, Ogunnaike, Tijani (2013), further stated that entrepreneurs are
considered as innovators whose task is creative. This results from bringing about novel
combination of products and ideas, thus rendering obsolete previously existing products or ideas.
Consequently, the process of endowing resource with new wealth producing capacity is central
to any conceptualization of entrepreneurship (Schumpeter, 1934, Tushman and Anderson, 1997,
Amit Glosten and Muller, 1993). Kilby (1971) considered adaptation as innovative function of
entrepreneurship in a developing economy. Amit, Glosten and Muller (1993) and Hobday (1995)
considered innovation as a distinguishing feature of entrepreneurship. It is, they noted, the
process of extracting profit from new, unique and variable combination of resources in uncertain
and ambiguous environment by exploiting opportunities. Innovation, therefore, is about
exploiting opportunities.
CONCEPTUAL CLARIFICATIONS
According to Glueck, 1980 defined an entrepreneur as an individual who creates a new firm and
continues to manage it until it is successful. To Peter Drunker, an entrepreneur is the only one
who always searches for change, responds to it and exploits it as an opportunity.
Amit et al., (1993) define entrepreneur as an individual who innovates, identifies and creates
business opportunities, assembles and coordinates new combination of resources and extracting
the most profit from his innovation in uncertain environment.