ABSTRACT
This research work investigated the effects of micro-financing on Micro and Small Enterprises (MSEs) in South-west Nigeria. The study examined how micro-finance and non-financial micro-financing activities and features such as group membership, pre-loan training, cross guaranteeship, loan size, technical and managerial training, among others, impact on the survival, growth, productivity and performance of Micro and Small Enterprises in Southwest Nigeria. The hypotheses formulated were developed around the theories of financial growth model, pecking order theory, and contract theory. Variables were used to evolve a detailed analysis of the survival and growth models. The theoretical models were used in developing four different hypotheses that were investigated through the survey of four hundred and forty three (443) micro enterprises and one hundred and eighty (180) small enterprises which were randomly selected using multi-stage random sampling technique. Copies of well-structured questionnaire were administered to entrepreneurs sampled. The validity and reliability of the instrument were measured using Cronbach"Ÿs alpha which gave a result of 0.72, while predictive form validity was 0.84. Four hypotheses were raised and tested at 0.05 significant levels. The findings revealed that micro finance and micro-financing enhance survival of Micro and Small Enterprises (MSEs) but not sufficient for growth and expansion of such Micro and Small Enterprises. The result also revealed that microfinance has positive effects on productivity and performance of local entrepreneurs. The findings from the interview sessions revealed that micro financing is not effective and substantially being practiced in Nigeria as many MFBs grant more individual loans than group based loans, thereby increasing their running cost and putting their portfolio at risk. We therefore recommend a collective and cooperative support as a critical microfinance strategy in the form of solidarity groups at the local level; and at the national and regional level, a networking of groups among operators of MFBs. We also recommend that enterprises supported by MFBs should be linked up with larger financing window like the SMEEIS fund or Strategic Partners for expansion and growth funding after survival.
This research work investigated the effects of micro-financing on Micro and Small Enterprises (MSEs) in South-west Nigeria. The study examined how micro-finance and non-financial micro-financing activities and features such as group membership, pre-loan training, cross guaranteeship, loan size, technical and managerial training, among others, impact on the survival, growth, productivity and performance of Micro and Small Enterprises in Southwest Nigeria. The hypotheses formulated were developed around the theories of financial growth model, pecking order theory, and contract theory. Variables were used to evolve a detailed analysis of the survival and growth models. The theoretical models were used in developing four different hypotheses that were investigated through the survey of four hundred and forty three (443) micro enterprises and one hundred and eighty (180) small enterprises which were randomly selected using multi-stage random sampling technique. Copies of well-structured questionnaire were administered to entrepreneurs sampled. The validity and reliability of the instrument were measured using Cronbach"Ÿs alpha which gave a result of 0.72, while predictive form validity was 0.84. Four hypotheses were raised and tested at 0.05 significant levels. The findings revealed that micro finance and micro-financing enhance survival of Micro and Small Enterprises (MSEs) but not sufficient for growth and expansion of such Micro and Small Enterprises. The result also revealed that microfinance has positive effects on productivity and performance of local entrepreneurs. The findings from the interview sessions revealed that micro financing is not effective and substantially being practiced in Nigeria as many MFBs grant more individual loans than group based loans, thereby increasing their running cost and putting their portfolio at risk. We therefore recommend a collective and cooperative support as a critical microfinance strategy in the form of solidarity groups at the local level; and at the national and regional level, a networking of groups among operators of MFBs. We also recommend that enterprises supported by MFBs should be linked up with larger financing window like the SMEEIS fund or Strategic Partners for expansion and growth funding after survival.
TABLE OF CONTENTS Page (s)
Title page ................ .... (i)
Certification .............. (ii)
Declaration ............ ...... (iii)
Dedication...................(iv)
Acknowledgements ........... ... (v)
Abstract ............ .....(x)
Table of Contents................(xi)
List of Tables................(xvi)
List of Figures..................(xix)
List of Abbreviations..... .........(xx)
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study...............1
1.2 Statement of the Problems..................6
1.3 Research Questions...................7
1.4 Objectives of the Study..................8
1.5 Statement of Hypotheses................8
1.6 Significance of the study................ .....9
1.7 Scope of the study.................. ...10
1.8 Limitation of the study...................10
1.9 Definition of Terms ..................11
CHAPTER TWO LITERATURE REVIEW
2.1 Introduction.....................12
2.2 Review of Conceptual Issues..............12
2.2.1 Concepts of Micro, Small and Medium Enterprises and Microfinance......12
2.2.2 Impact Assessment of Microfinance..............20
2.2.3 Methods of Data Analysis Found In Literature........25
2.2.4 Measurement of Microfinance Impact...........28
2.2.5 Enterprises Survival Prediction and Survival Analysis........ ..30
2.2.6 Model Generation for Microfinance and MSMEs Survival........34
2.3 Theoretical Framework..............38
2.3.1 Financial Growth Theory................38
2.3.2 Pecking Order Theory................39
2.3.3 Contract Theory................41
2.4 Entrepreneurship and Growth..............41
2.4.1 The Firm and the Entrepreneur.............41
2.4.2 Firm Life Cycle.................42
2.4.3 Organizational Capabilities..............43
2.4.4 Stages of Small Business Development..........43
2.4.5 Small Business Development...............49
2.4.6 Role of Enterpreneur in Business Formation and Growth......55
2.4.7 SMEs & Growth... ................57
2.4.8 MSMEs and Economic Development in Nigeria..........58
2.4.9 Microcredit and Microenterprise..............60
2.4.10 Political & Social dimension to Entrepreneurship in Nigeria.....68
2.5 Theoretical Findings.................71
CHAPTER THREE - RESEARCH METHODOLOGY
3.1 Introduction....................74
3.2 Research Methods...............74
3.3 Research Design......... .............75
3.4 Population of the Study.................75
3.5 Sample Frame.................77
3.6 Sampling Technique.................78
3.7 Sample Size Determination ...............79
3.8 Distribution of Questionnaire and Response Rate.......81
3.9 Sources of Data Collection.............83
3.10 Data Collection Method.................84
3.11 Data Collection Instrument.............84
3.11.1 The Questionnaire.................84
3.11.2 Pre-Testing of Instrument................. ...84
3.12 Method of Data Analysis ...............85
3.12.1 Survival Analysis .................87
3.12. 2 Regression Based Estimation...............88
3.12.3 Methods for Empirical Analysis...............88
3.12.4 Multiple Regressions Analysis.............90
3.13 Model Specification...................93
3.14 Theoretical Justification of Variables Used in Study.......103
3.15 Validity of Research Instrument..............106
3.16 Reliability of Research Instrument.......... .....108
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS, AND INTERPRETATION
4.1 Introduction.............109
4.2 Profile of Respondents...........109
4.3 Business Characteristics of Respondents...........114
4.4 Business Characteristics of Respondents by Location (Urban)....116
4.5 Business Characteristics of Respondents by Location (Rural).....119
4.6 Cross Tabulation of Some Variables.........120
4.7 Survival Analysis..............127
4.7.1 Result Analysis................130
4.8 Multiple Regression Analysis.............138
4.9 Operations, Process and Practice of Microfinance in Nigeria....173
Chapter Five: DISCUSSION, CONCLUSION AND RECOMMENDATION
5.1 Introduction.................178
5.2 Summary...............178
5.3 Findings................179
5.3.1 Microfinance and MSE Survival.............179
5.3.2 Microfinance and MSE Growth.........180
5.3.3 Microfinance and Entrepreneur"Ÿs Productivity.......181
5.3.4 Non-Financial Services of Microfinance Banks and Business Performance....181
5.4 Hypothesis Testing..............183
5.5 Other Findings...............183
5.6 Conclusion of Studies...........184
5.7 Recommendations................185
5.8 Contribution to Knowledge ..............187
5.9 Suggestions for Further Studies............187
Bibliography................189
Appendix A
1 Distribution of MFB by geographical zone as at March 2009..207
Appendix B
2. Business Characteristics of Respondents by Location ......208
Appendix C
3. Questionnaire .............210
LIST OF TABLES Page(s)
Table 2.1: Definitions of SMEs by Nigerian Institutions 12
Table 2.2: Classification adopted by National Policy On MSMEs 15
Table 2.3: Financial Growth Cycle Model 38
Table 3.4: License & Unlicense MFBs in Southwest Zone of Nigeria
as at March 2009 76
Table 3.5: Distribution of MSMEs in Southwest Zone 77
Table 3.6: Distribution of SMEs operators users of Microfinance Bank 78
Table 3.7: Minimum Returned Sample Size table for Continuous/Categorical
data 80
Table 3.8: Questionnaire distribution by State / Response rate of Micro &
Small Enterprises Operator 82
Table 3.9: Measurement of Variables " Hypothesis 1 95
Table 3.10: Measurement of Variables " Hypothesis 2 97
Table 3.11: Measurement of Variables " Hypothesis 3 100
Table 3.12: Measurement of Variables " Hypothesis 4 102
Table 4.13: Profile of Respondents 110
Table 4.14: Business Characteristics of Respondents 113
Table 4.15: Business Characteristics of Respondents by Location "Urban
Table 4.16: Business characteristics of Respondents by Location " Rural
Table 4.17: Business Resident and Kind of Business 120
Table 4.18: Education and Business Resident 121
Table 4.19: kind of Business and Form of Business 122
Table 4.20: Level of Education and Source of Initial Capital 123
Table 4.21: Level of Education and Category of Business 124
Table 4.22: Kind of Business and Category of Business 125
Table 4.23: Sources of Capital and Composition of Capital 126
Table 4.24: Business Group and Enterpreneurial Training 127
Table 4.25: Group Proportion with Regard to Long-term Survival 132
Table 4.26: Kaplan Meier Survival Estimate by Category 133
Table 4.27: Diagonistic Test Kaplan Meier Estimate 133
Table 4.28: Kaplan Meier Survival Estimate by Kind of Business 134
Table 4.29: Diagonistic Test Kaplan Meier Estimate 135
Table 4.30: Adjusted Hazard Ratio for Cox Proportional Hazard Model 135
Table 4.31: Omnibus Test of Model Coefficient 1 38
Table 4.32: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Category of Business 144
Table 4.33: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Legal Status of Business 148
Table 4.34: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Category of Kind of business
Business Activities 151
Table 4.35: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Category 155
Table 4.36: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Legal Status of
Business 159
Table 4.37: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Kind of Business 162
Table 4.38: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Category 165
Table 4.39: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Legal Status of Business 169
Table 4.40: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Kind of business 172
LIST OF FIGURES
Page(s)
Figure 2.1: Conceptual Model for Microfinance
and SMEs Survival...........37
Figure 2.2: Stages of Small Business Growth Characteristics.....48
Figure 2.3: Stages of Small Business Growth Characteristics and Failure & Exit Modes......................48
Figure 2.4: Conceptual Framework and Hypotheses.........73
LIST OF ABBREVIATIONS
CBs - Community Banks
CBN " Central Bank of Nigeria
GDP " Gross Domestic Product
MDF - Microfinance Development Fund
MDGs " Millennium Development Goals
MFBs " Microfinance Banks
MSMEDEF - Micro, Small and Medium Enterprises Development Fund
MSMEs " Micro, Small and Medium Enterprises
NACCIMA " National Association of Chambers of Commerce, Industry, Mines
and Agriculture
NACRDB " Nigerian Agricultural, Cooperative and Rural Development Bank
NAFDAC " National Agency for Food and Drug Administration and Control
NAPEP " National Poverty Eradication Programme
NASME " National Association of Small and Medium Enterprise
NASENI " National Agency for Science and Engineering Infrastructure
NASSI " National Association of Small Scale Industrialists
NCIS - National Council on Industrial Standard
NDE " National Directorate of Employment
NEEDS - National Economic Empowerment and Development Strategy
NERFUND " National Economic Reconstruction Fund
NEPAD " National Economic Partnership for African Development
NGO " Non-Governmental Organisation
NIPC " Nigerian Investment Promotion Commission
MAN - Manufacturers"Ÿ Association of Nigeria.
SA - Survival Analysis
SEEDS - State Economic Empowerment and Development Strategy
SSI - Small Scale Industries
SSE " Small Scale Enterprise
SMEDAN " Small and Medium Enterprise Development Agency of Nigeria
Appendices
1. Distribution of Microfinance Banks by Geopolitical Zone in Nigeria
2. Business Characteristics of Respondents by location Tables 4.14 and 4.15
3. Questionnaire
Title page ................ .... (i)
Certification .............. (ii)
Declaration ............ ...... (iii)
Dedication...................(iv)
Acknowledgements ........... ... (v)
Abstract ............ .....(x)
Table of Contents................(xi)
List of Tables................(xvi)
List of Figures..................(xix)
List of Abbreviations..... .........(xx)
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study...............1
1.2 Statement of the Problems..................6
1.3 Research Questions...................7
1.4 Objectives of the Study..................8
1.5 Statement of Hypotheses................8
1.6 Significance of the study................ .....9
1.7 Scope of the study.................. ...10
1.8 Limitation of the study...................10
1.9 Definition of Terms ..................11
CHAPTER TWO LITERATURE REVIEW
2.1 Introduction.....................12
2.2 Review of Conceptual Issues..............12
2.2.1 Concepts of Micro, Small and Medium Enterprises and Microfinance......12
2.2.2 Impact Assessment of Microfinance..............20
2.2.3 Methods of Data Analysis Found In Literature........25
2.2.4 Measurement of Microfinance Impact...........28
2.2.5 Enterprises Survival Prediction and Survival Analysis........ ..30
2.2.6 Model Generation for Microfinance and MSMEs Survival........34
2.3 Theoretical Framework..............38
2.3.1 Financial Growth Theory................38
2.3.2 Pecking Order Theory................39
2.3.3 Contract Theory................41
2.4 Entrepreneurship and Growth..............41
2.4.1 The Firm and the Entrepreneur.............41
2.4.2 Firm Life Cycle.................42
2.4.3 Organizational Capabilities..............43
2.4.4 Stages of Small Business Development..........43
2.4.5 Small Business Development...............49
2.4.6 Role of Enterpreneur in Business Formation and Growth......55
2.4.7 SMEs & Growth... ................57
2.4.8 MSMEs and Economic Development in Nigeria..........58
2.4.9 Microcredit and Microenterprise..............60
2.4.10 Political & Social dimension to Entrepreneurship in Nigeria.....68
2.5 Theoretical Findings.................71
CHAPTER THREE - RESEARCH METHODOLOGY
3.1 Introduction....................74
3.2 Research Methods...............74
3.3 Research Design......... .............75
3.4 Population of the Study.................75
3.5 Sample Frame.................77
3.6 Sampling Technique.................78
3.7 Sample Size Determination ...............79
3.8 Distribution of Questionnaire and Response Rate.......81
3.9 Sources of Data Collection.............83
3.10 Data Collection Method.................84
3.11 Data Collection Instrument.............84
3.11.1 The Questionnaire.................84
3.11.2 Pre-Testing of Instrument................. ...84
3.12 Method of Data Analysis ...............85
3.12.1 Survival Analysis .................87
3.12. 2 Regression Based Estimation...............88
3.12.3 Methods for Empirical Analysis...............88
3.12.4 Multiple Regressions Analysis.............90
3.13 Model Specification...................93
3.14 Theoretical Justification of Variables Used in Study.......103
3.15 Validity of Research Instrument..............106
3.16 Reliability of Research Instrument.......... .....108
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS, AND INTERPRETATION
4.1 Introduction.............109
4.2 Profile of Respondents...........109
4.3 Business Characteristics of Respondents...........114
4.4 Business Characteristics of Respondents by Location (Urban)....116
4.5 Business Characteristics of Respondents by Location (Rural).....119
4.6 Cross Tabulation of Some Variables.........120
4.7 Survival Analysis..............127
4.7.1 Result Analysis................130
4.8 Multiple Regression Analysis.............138
4.9 Operations, Process and Practice of Microfinance in Nigeria....173
Chapter Five: DISCUSSION, CONCLUSION AND RECOMMENDATION
5.1 Introduction.................178
5.2 Summary...............178
5.3 Findings................179
5.3.1 Microfinance and MSE Survival.............179
5.3.2 Microfinance and MSE Growth.........180
5.3.3 Microfinance and Entrepreneur"Ÿs Productivity.......181
5.3.4 Non-Financial Services of Microfinance Banks and Business Performance....181
5.4 Hypothesis Testing..............183
5.5 Other Findings...............183
5.6 Conclusion of Studies...........184
5.7 Recommendations................185
5.8 Contribution to Knowledge ..............187
5.9 Suggestions for Further Studies............187
Bibliography................189
Appendix A
1 Distribution of MFB by geographical zone as at March 2009..207
Appendix B
2. Business Characteristics of Respondents by Location ......208
Appendix C
3. Questionnaire .............210
LIST OF TABLES Page(s)
Table 2.1: Definitions of SMEs by Nigerian Institutions 12
Table 2.2: Classification adopted by National Policy On MSMEs 15
Table 2.3: Financial Growth Cycle Model 38
Table 3.4: License & Unlicense MFBs in Southwest Zone of Nigeria
as at March 2009 76
Table 3.5: Distribution of MSMEs in Southwest Zone 77
Table 3.6: Distribution of SMEs operators users of Microfinance Bank 78
Table 3.7: Minimum Returned Sample Size table for Continuous/Categorical
data 80
Table 3.8: Questionnaire distribution by State / Response rate of Micro &
Small Enterprises Operator 82
Table 3.9: Measurement of Variables " Hypothesis 1 95
Table 3.10: Measurement of Variables " Hypothesis 2 97
Table 3.11: Measurement of Variables " Hypothesis 3 100
Table 3.12: Measurement of Variables " Hypothesis 4 102
Table 4.13: Profile of Respondents 110
Table 4.14: Business Characteristics of Respondents 113
Table 4.15: Business Characteristics of Respondents by Location "Urban
Table 4.16: Business characteristics of Respondents by Location " Rural
Table 4.17: Business Resident and Kind of Business 120
Table 4.18: Education and Business Resident 121
Table 4.19: kind of Business and Form of Business 122
Table 4.20: Level of Education and Source of Initial Capital 123
Table 4.21: Level of Education and Category of Business 124
Table 4.22: Kind of Business and Category of Business 125
Table 4.23: Sources of Capital and Composition of Capital 126
Table 4.24: Business Group and Enterpreneurial Training 127
Table 4.25: Group Proportion with Regard to Long-term Survival 132
Table 4.26: Kaplan Meier Survival Estimate by Category 133
Table 4.27: Diagonistic Test Kaplan Meier Estimate 133
Table 4.28: Kaplan Meier Survival Estimate by Kind of Business 134
Table 4.29: Diagonistic Test Kaplan Meier Estimate 135
Table 4.30: Adjusted Hazard Ratio for Cox Proportional Hazard Model 135
Table 4.31: Omnibus Test of Model Coefficient 1 38
Table 4.32: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Category of Business 144
Table 4.33: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Legal Status of Business 148
Table 4.34: Multiple Regression Analysis of Effect of Microfinance on
Small Business Growth by Category of Kind of business
Business Activities 151
Table 4.35: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Category 155
Table 4.36: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Legal Status of
Business 159
Table 4.37: Multiple Regression Analysis of Effect of Microfinance on
Small Business Operators Productivity by Kind of Business 162
Table 4.38: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Category 165
Table 4.39: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Legal Status of Business 169
Table 4.40: Multiple Regression Analysis of Effect of Non- Statutory
Activities of Microfinance Bank on Small Business Performance
by Kind of business 172
LIST OF FIGURES
Page(s)
Figure 2.1: Conceptual Model for Microfinance
and SMEs Survival...........37
Figure 2.2: Stages of Small Business Growth Characteristics.....48
Figure 2.3: Stages of Small Business Growth Characteristics and Failure & Exit Modes......................48
Figure 2.4: Conceptual Framework and Hypotheses.........73
LIST OF ABBREVIATIONS
CBs - Community Banks
CBN " Central Bank of Nigeria
GDP " Gross Domestic Product
MDF - Microfinance Development Fund
MDGs " Millennium Development Goals
MFBs " Microfinance Banks
MSMEDEF - Micro, Small and Medium Enterprises Development Fund
MSMEs " Micro, Small and Medium Enterprises
NACCIMA " National Association of Chambers of Commerce, Industry, Mines
and Agriculture
NACRDB " Nigerian Agricultural, Cooperative and Rural Development Bank
NAFDAC " National Agency for Food and Drug Administration and Control
NAPEP " National Poverty Eradication Programme
NASME " National Association of Small and Medium Enterprise
NASENI " National Agency for Science and Engineering Infrastructure
NASSI " National Association of Small Scale Industrialists
NCIS - National Council on Industrial Standard
NDE " National Directorate of Employment
NEEDS - National Economic Empowerment and Development Strategy
NERFUND " National Economic Reconstruction Fund
NEPAD " National Economic Partnership for African Development
NGO " Non-Governmental Organisation
NIPC " Nigerian Investment Promotion Commission
MAN - Manufacturers"Ÿ Association of Nigeria.
SA - Survival Analysis
SEEDS - State Economic Empowerment and Development Strategy
SSI - Small Scale Industries
SSE " Small Scale Enterprise
SMEDAN " Small and Medium Enterprise Development Agency of Nigeria
Appendices
1. Distribution of Microfinance Banks by Geopolitical Zone in Nigeria
2. Business Characteristics of Respondents by location Tables 4.14 and 4.15
3. Questionnaire
