This research study investigates the impact of Microfinance Banks on small scale business in Nigeria which results in entrepreneurship development. The issue of sustainable development in the Third World countries like Nigeria has been a growing concern to both the government and private sector. Poverty is a characteristic of Nigerian households or individuals. It has been realized in the recent years that there are limits to which government can promote development. In the light of the recent economic realities, government has come to realize that large scale enterprises alone cannot perform the major roles in the development of any nation's economy. Thus it now accords reference to Small Scale Enterprises. The importance is based mainly on the fact that such enterprises are likely to bring about a higher value added to domestic industrial production and also to facilitate the development of the economy. This research work adopts a methodology that helps reveal the impact of Micro Finance Banks on Small Scale Businesses in Nigeria. The data for the research work are sourced primarily from respondents to questionnaire. This helps to reveal the impact of Micro Finance Banks on Small Scale Businesses in Nigeria. Diverse books, publications, journals and magazines of International LabourOrganization (ILO), Lagos Chamber of Commerce Industries (LCCI), Nigerian-American Chamber of Commerce (NACC), United Nations Development Programme (UNDP). Independent Reporters and Newspapers. For the purpose of this research work, 20 questionnaires were administered. The research work adopts the use of Chi-Square as its statistical tool for data analysis. In summary, the research work establishes that Micro Finance Banks have made impact on Small Scale Businesses in Nigeria. Recommendations are made to ensure greater impact of Micro Finance Banks on financing of small scale Businesses in Nigeria.


Content                                            Page

Title page    -    -    -    -    -    -    -    -    -    -    i

Approval    -    -    -    -    -    -    -    -    -    -    ii

Dedication    -    -    -    -    -    -    -    -    -    -    iii

Acknowledgement    -    -    -    -    -    -    -    -    -    iv

Abstract    -    -    -    -    -    -    -    -    -    -    v

CHAPTER ONE:    Introduction

1.1     Background of the study

1.2     Statement of the Problem

1.3     Objectives of the study

1.4     Research Questions

1.5     Research Hypothesis

1.6     Significance of the study

1.7     Scope and Limitation of the Study

1.8     Organizational of the study

1.9    Operational Definition of Terms

CHAPTER TWO:    Literature Review

2.1     Conceptual framework

2.2     Microfinance and Small Scale Enterprises (SMEs)

2.3    Small and Medium Scale Industries Sub-Sector

2.4     Operational characteristics of micro-finance Bank

2.5     Capitalization of Micro-Finance Banks

2.6     Theoretical framework

2.7     Empirical Results

2.8     Variance in literature

CHAPTER THREE:    Research Methodology

3.1     Introduction

3.2     The description of study population

3.3     Sampling Technique and sample size

3.4     Description of data collection method

3.5     Validity and reliability of the instrument

3.6     Data Analysis method

CHAPTER FOUR:    Data Presentation, Analysis and Interpretation

4.1     Introduction

4.2     Data Presentation

4.3     Presentation and interpretation of result

CHAPTER FIVE:    Summary, Conclusions and Recommendations

5.1     Summary or the Findings

5.2     Conclusion

5.3     Recommendation






The recent economic situations in the country have proven to the government beyond doubt, that the large scale enterprises cannot perform the major roles of economic development. This is true for Nigeria being a developing country. Hence, priority has been placed on the small scale Businesses in Nigeria. Government steps in achieving this include ban on importation of goods and commodities, encouragement of local industries, establishment of the small and medium enterprise Equity Investment Scheme (SMEEIS). In 1989, the World Bank projected an increasing size of small and indigenous sector in Sub-Saharan Africa. The small scale Businesses in Nigeria have a reputation as the 'Seed bed' for economic development.

The impact of Micro Finance Banks on small scale business cannot be over emphasized. The world today is inhabited by an estimated 6.6 billion people, 2.5 billion of which are believed to be living on less than US $ 2 (N300) a day. This group constitutes much .of World's unbanked population. They have no access to financial services with which to create wealth. This is because they lack necessary collateral often requested by conventional banking institutions for credit facilities. This goes further to impoverish and worsen national and even global poverty levels. (Anyanwu C. M. (2004).

In confronting this challenge, the federal government through Central Bank of Nigeria (CBN) had carried out different reforms in the banking industries. The reforms culminate in the adoption of Micro Financing. This combat the negligence of the small scale enterprises, by the conventional banking institutions. Micro Finance as oppose to conventional banking is defined as "the provision of credit and lower income group". It usually involves very small of less than US $200 (N30,000), without any form of 'formal' collateral as defined by the Nigeria Micro Finance Newsletter, volume 5, July- December 2007. Central Bank of Nigeria (CBN) defines Micro Finance as providing financial services to the poor who are traditionally not served by the conventional financial institutions. According to CBN three things distinguish micro Finance from other financial products: These are:

(i)    Small loans advanced and or saving collected.

(ii)    The absence of asset- based- collateral and.

(iii)    Simplicity of operations.

The conventional financial system provides services to only 35% of the economically active population in Nigeria, while the remaining 650/0 are excluded. The Micro Finance Banks were brought under the supervision of the CBN. A micro Finance Policy was put in place to recognize, enhance and their existence formalized. This secures their monetary stability, expand their financial infrastructure and development. This policy injects vibrancy, stimuli for growth, harmonized operating standards and provides platform for economic revolution through the Small Scale Enterprises (SMEs), low investment in the small scale enterprises in the past led to low entrepreneurial drive spirit among citizens. It silences business acumen, business ideas development among youths and encourages redundancy. The resultant factors of these are unemployment, poverty, social vices like robbery, forgery etc. all these led to low productivity and economic backwardness.

These backdrops justify the introduction of Micro Finance Policy. This helps to develop a long term, sustainable Micro Finance sub-sector that will enhance the Small Scale Enterprises (SMEs) towards economic growth and development.

Micro Finance plays an important role in the fight against poverty, by providing sustainable access to financial services. For instance, Micro Fi4nance helps the poor to increase their income, build viable business and in essence help in reducing their vulnerability .to external shocks (social and economic). It can also serve as a powerful instrument for self -employment to women (CBN 2005).

Nigeria, being a developing country is faced with financial problem low for small scale enterprises (SMEs). This result in low par capital income, poor standard of living, abject poverty, malnutrition, poor health status and a host of poverty related problems.

Micro Finance is about provision of financial services to the economically active poor who are traditionally not served by the conventional financial institutions. Micro Finance focuses its spot light on the Small Scale Enterprises (SMEs). Micro Finance appreciates small business initiatives and ideals. It supports and raises necessary non-collateral based credit facility.


Over the years, there has been noticeable laxities in the government effort through the CBN in financing small scale business In Nigeria. This makes it difficult for small scale business to thrive. The government however later initiated credit programmes, sectorial Credit Allocation, Concessionary Interest Rate and Agricultural credit Guarantee Scheme (ACGS).

In addition to these were the establishment of Nigerian Agriculture and Cooperative Bank (NACB), the National Agricultural Insurance Corporation (NAJC) , others are the People's Bank of Nigeria (PBN), the community Banks (CBs) and the Family Economic Advancement Programme (FEAP). In year 2000, government merged the NACB with the PBN and FEAP to form The Nigerian Agricultural Cooperative and Rural development Bank Limited (NACRDB) to enhance the provision of finance to the Agricultural sector. The National Poverty Alleviation Programme (NAPEP), was also created and was given a mandate to provide financial service to alleviate poverty.

All these reforms in the banking sector is to redirect focus on the small scale businesses. This however are confronted with several setbacks. They were with little or no. success. The programmes or initiatives are Micro finance service majorly sponsored by the government. Something significant about the programmes is that they are focused mainly on agricultural and other activities such as tailoring, hairdressing, trading, weaving, agro-processing, black smiting, barbing, transportation e.t.c. These programmes were equipped with huge funds but the effects were not visible and were short- lived where visible. The initiatives were not sustained due to mis-management, fraud and change in government.

It was thus imperative for the government organizations and donor agencies to recognize the need for the establishment of Micro Finance Bank. It provide funds for the small scale industries towards economic growth and development.


The set objectives of the study is to ascertain a quantitative and qualitative analyses of the impact of the Micro Finance Banks on small scale Businesses in Nigeria. The specific set of objectives of these study are:

⦁    To examine the capacity of the small scale businesses in Nigeria.

⦁    To ascertain the impact of the small scale businesses in Nigeria.

⦁    To determine the impact of the Micro Finance Banks (MFBs) on the small scale businesses in Nigeria.

⦁     To ascertain the level of job/ employment provision In Nigeria.

⦁    To ascertain the level of wealth creation through the credit facilities provided by the Micro Finance Banks(MFBs) to small scale businesses in Nigeria, and also see if the credit facilities are enough.

Through the Micro Finance Bank, low income earners will have access to small loans which are non -collateral based to finance their businesses.


The research hypothesis will be deduced from some of the following research questions. These will serve as a guide to this present line of reasoning.

⦁    What is the capacity of the small businesses in Nigeria?

⦁    What is the impact of the small scale businesses in Nigeria?

⦁    What has being the impact of the Micro Finance Banks (MFBs) on the small scale businesses in Nigeria?

⦁    Has there been any noticeable Increase in job/ employment provision in Nigeria?

⦁    Has the Micro Finance Banks (MFBs) provided enough credit facilities for small scale businesses in Nigeria?

⦁    Has there been commensurate creation of wealth through credit facilities provided to small scale businesses in Nigeria?

⦁    Has the Micro Finance Banks have any influence on social services in Nigeria?


In order to find solution to the research problem identified and to achieve the goal of this research work, the following hypothesis shall be tested with the use of statistical tools.

Ho: Null Hypothesis

H1: Alternative Hypothesis


Ho:    Micro Finance Banks have impact on small scale businesses in Nigeria.

H1:     Micro Finance Bank do not have impact on small scale businesses in Nigeria.


Ho:     Micro Finance Banks create positive effect on small scale businesses in Nigeria.

H1:     Micro Finance Bank create negative effect on small scale businesses in Nigeria.

The research hypothesis is done with the view of examining the impact of Micro Finance Banks on small scale businesses in Nigeria, the effect could be positive as in the case of null Hypothesis (Ho) or negative as in the case of alternative hypothesis (HI).


The fact that this study sheds light on the significance and relevance of Micro Finance Banks in Nigeria, as it relates to the small scale businesses gives credence to the justification of this study. It draws attention to the problems and solutions of the small scale businesses finance. This with its consequential results of unemployment, poverty, economic decadence e.t.c.

This study is necessary as it gives an avenue of understanding and appreciating the roles played by Micro Finance Banks so far in strengthening the Nigeria's economy, by empowering small scale businesses.

The importance of Micro Finance Banks cannot be over emphasized in any economy. Micro Finance Banks channel their funds to the economically active poor. This group would have been left economically idle as they were not served by the 'formal financial institutions'. The economically active poor would not have played a role in Nigeria's economic growth and development, if not for the Micro Finance Banks (MFBs).


The period under review will cover significant episodes of Micro Finance Banks transformation in Nigeria. This study will exploit relevant information and resource materials on the impact of Micro Finance Banks (MFBs) on small scale Businesses in Nigeria, focusing on olive microfinance bank, Ikeja Lagos.

Consequently, the study focuses attention on small scale businesses in Nigeria and the degree to which Micro Finance Banks (MFBs) have fared in enhancing its performance. It will shed light on the prospect of the Micro Finance Banks (MFBs) in the future.

During the field survey, most of the respondents were reluctant to answer the researchers questions when they later agree to answer it takes a while to retrieve the questionnaires.

Also, delay in data collection constitutes a major limitation to this research work as most of the questionnaire are delayed but all at the end retrieved, fully answered.


This study comprises five chapter. Chapter one introduces the background to the study, statement of research problem, research questions, research objectives, justification of the study, statement of the hypothesis and organization of the study.

The second chapter concentrates on the 'review of relevant literature' on the impact of Micro Finance Banks on small scale Businesses in Nigeria.

The third chapter' provides the methodology for the research work. It discusses the subject of the research work, sample size, sampling procedure and instrument for data collection and the method of data analysis.

Chapter four shows the presentation and analysis of data while chapter five provides a summary and conclusion to the project work, and makes recommendation for further research work.


SME'S- Small and Medium scale Enterprises is a type of business which requires small capital for its operations.

MICRO FINANCE- Is a finance structure which deals with financing of business on a small and medium level.

MICRO FINANCE BANK- Is a type of bank which intermediate funds on a micro level in the economy to cater for survival and operation of small and medium enterprises.

BUSINESS- Any activities that involve a transaction of exchange of ideas for the sole aim of making profit and generating Income.

ECONOMIC GROWTH- Is the sustained increase in GNP and per-capita GNP which is the desirable rate of increase in the economic variables.

ECONOMIC DEVELOPMENT- Is the sustained increase in GNP and per-capita GNP plus a desirable social change.



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