CHAPTER ONE

1.1 Background of The Study

Microfinance Bank is a semiformal organization. It can be non-governmental or community

development initiative. It is a subset of flexible structure and system which provide a wide range

of financial and savings needs of small scale enterprises. In developing countries where top

town, formal financial institution bank failed to address the credit need off to the real sector of

the economy.

The Nigerian microfinance bank have come a long way, a central study has identified at (2017),

160 registered microfinance bank in Nigeria with aggregate savings worth N99.4m and

outstanding credit of 649. 1m, indicating huge business transaction in the business (Ayanwu,

2016). Institutional structure for the provision of microfinance bank credit vary and may be

government, NGO Supported, traditional or mixture of two or more of these, there those that

operate on the line of informal model. There are credit and saving association which are based on

the traditionally experience they provide saving and credit to their members.

Despite the availability of microfinance institute and establishment of microfinance in Nigeria

there are yet not established government policies and mechanisms for regulating and supervising

activities in the sector (Ayanwu, 2016).

In (2015) National Conference on microfinance was organized by the Federal Government of

Nigeria and the world bank recommended that the central bank of Nigeria to take up the

responsibility of developing an appropriate policy as well as regulator and supervisory frame

work for the operation of microfinance institution the workshop recognized that the development

of appropriate microfinance institution and by implicated through micro enterprises in Nigeria.

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It would be observing that despite the presumed development in the Nigerian economy the

country is still largely being regarded as a developing country (Onyema, 2006). More so, it’s

industrial growth is not quite impressive. Before the emergence of formal microfinance

institutions, informal microfinance in Nigeria entails traditional informal credit and saving

practices, credit from friend and relative, government owned institutional arrangement, poverty

reduction program etc.

1.2 Statement of The Problem

The financing in most cases is normally provide to owners of business. The owners fail to

release, and realize the importance of external sources of capital in order to affect expansion in

the business, in most cases.

The establishment of microfinance bank in Nigeria provide an additional finding source to small

and medium scale business on lending basis. This is so because the microfinance banks have

grassroots orientation and greater expertise in financing small and medium scale enterprises. But

in spite of the prospect of microfinance bank in financing small scale and medium enterprises,

but there a constraint to myriad of problems ranging from managerial to their in ability to

properly evaluate wan application and improper credit risk management which has a resulted to a

high degree of unpaid debt and consequently the closure of so many microfinance in the recent

past it is against this that subject matter is seen as a empirical problem north of being.in Wudil

micro finance bank

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1.3 Research Questions

• What are the causes of unpaid debt in Wudil Local Government Microfinance?

• To what extend has Microfinance Bank assisted in providing credit facilities to small

scale business and problem hindering?

• What are the prospect of Wudil Microfinance in financing small scale and medium

enterprises?

• What are the problems encountered by businessmen in obtaining credit facilities from

microfinance bank?

1.4 Aim and Objectives of the Study

The aim of the research project is to investigate the challenges and prospect of microfinance

bank in financing small scale and medium enterprises in Wudil local government microfinance

bank, Kano state with a view to achieve the following objectives.

• To find out the causes of unpaid debt in Wudil Local Government Microfinance Bank.

• To ascertain extent at which the microfinance bank has been assisting in proving credit

facilities for rural development and problem hindering the assistance.

• To examine the prospect of Wudil Microfinance Bank in financing small scale and

medium microfinance bank.

1.5 Significance of The Study

The study would be beneficial to microfinance bank and government agency in charge or

microfinance institution and capacity building for small scale enterprises. The finding can be

used as a basis for policy formulation. The study would also contribute to the existing literature

3
on the challenges and prospect of microfinance bank in financing small scale and medium

enterprises. The study will also be a spring boarder for further research.

Secondly, this study will be relevant to other researchers because it will enable them to look into

other related areas of study, which this could not be cover. The significance of this study enable

the researcher widens their scope of knowledge in microfinance banks to financing small scale

business.

1.6 Scope and Limitation of the Study

The study covers the examination of the challenges and prospect of microfinance bank in

financing small scale and medium enterprises. The study shall cover a time from 2015 to 2017.

Due to current emphasize on industrialization of the country by the government and in order to

reduce the country’s import bills and solving the problem of unemployment that the study

focused attention on the needs for small and medium scale business and its financing the

limitation of the study for the fact that the is restricted in Microfinance and survey designed as

well as instrument of the study, it is no certain of the study is conducted on other area or other

designed and instrument is used would yield the same result other constraint from uncooperative

attitude of some respondent and other limitation include data accessibility, time etc.

1.7 Definition of The Terms

• Microfinance Bank: These are small scale banks that specialize in giving loans and

mobilizing savings from small scale and medium enterprises as well as low income

earners.

• Small Scale Enterprises: A firm that in independently owned and operated on a small

scale which is not dominant in it’s field of operation.

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• Medium Scale: A firms that is higher than small scale but not up to large scale

enterprises. A firm with a total capital employed of a not more than N50 Million

including working capital.

• Loan: These are advances giving to individual or lenders by financial institution.

• Bad Debt: This is a debt that cannot be discovered.

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 CHAPTER TWO

Literature Review

2.1 Concept of Micro Finance Bank

According to the research conducted by Rajan (2013) states that the definition of micro,

small and medium scale in enterprises may vary from country to country, year to year, from

period to period and from time to time and according to the level of economic development

reached in a country. Sometimes it is defined in terms of number of workers employed and on

the use of electric power and also in terms of investment made. Despite of this, micro, small and

medium Scale Enterprise when established varies in its mode of formation, its sizes, its

organizational setup, and in its activity. The reason for this is because the type chosen by each

individual operator will depend on the financial capability to manage such enterprise. Micro,

Small Scale Enterprise forms the bedrock of the economic growth of every nation. This is

because no nation can achieve a viable economic growth and development without the

establishment of micro, Small and medium Scale Enterprise. Small Scale Enterprise has always

been in the forefront of development strategies of every nation.

The role of micro finance has been explicitly explained in economics literature especially those

that has to do with small scale businesses. Therefore, no one can pretend to analyze the topic as

new without being influence other work. Thus, perception of the literature that the researcher

possess on the subject matter and practical experience in the field of interest is paramount

important, the preconception should be accounted for and critically review as a way of

understanding how they might affect the study. This might give the researchers an idea about

how the investigated topic, appears in reality and enable him to conduct his study accordingly.

6
Microfinance according to Ehigiamusoe (2006) is the supply of loans saving and other financial

services to the poor. The central bank of Nigeria (CBN) microfinance policy regulatory and

supervisory frame work for Nigeria (CBN,2005) explains microfinance as a means of providing

financial institutions; Oroye (2005) sees microfinance bank as the banking for the poor.

The center for industries research and development (CIRD) at the Obafemi Awolawo

university ILeife in 1983 define small enterprises as those enterprises with total assets in capital

not exceeding N 250,000.00 and employ not more than fifty (50) full time workers.

Okoye (2005) define small scale enterprise as those enterprises with fixed assets other

than land but inclusive of the cost of investment not exceeding 500,000.00. More over for the

purpose of this study the research would view or sees small scale enterprises as those micro or

cottage enterprises which have a total investment cost of above or equal to 100,000.00 working

capital. Excluding land labor were included and annual turnover of 250,000 and above. Micro

finance bank was in unguaranteed in line with banks and others financial institution. The central

of Nigeria designed the micro finance policy regulatory and supervisory frame work for Nigeria

2005 and revised in April, 2016. Under the frame work, micro finance banking of three

categories: MFB licensed to operate as a Unit bank, and with a minimum of 20million paid up

capital for each branch. MFBs licensed to operate in a state are to operate with minimum paid up

capital of 2 billion. Other regulatory provision in clucle even spread agenda, single ownership

co-operates government and full disclosure in line with laundering act.

One analyst insisted the industry had been largely unregulated and operate fairly independent of

the formal financial market adding that although the CBN has improved an oversight function, it

is still far from adequate in effectively ensuring that micro finance banks operate as expected.

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in Wudil micro finance. Thought MFBS have great potential and hold the key to economic

development and poverty eradication especially at the grassroots level. Micro finance subsector

is performance has been disappointing based on the over arding objective of introducing the

banking scheme in the first instances: providing financial services to the poor who are

traditionally not served by the conventional financial institution. One factor that informed the

fact the micro finance banks performance 10 below average is their concentration in Kano rather

than in up countries where their markets to be located he added. But a managing director of a

Lagos based micro finance bank said “micro finance banks will go to where business is”.

2.2 Historical Development of Micro Finance Bank (Mfb)

Micro finance bank was developed by fried rich will high Raiffeisen and his supporters. Their

altruistic action was motivated by concern to assist the rural population to break out of their

dependence on money lenders and to improve their welfare from 1870, the union expended

rapidly over a large sector of the rhine province and other region of German state. The co-

operative movement quickly spread to other countries in Europe and north America, and

eventually supported by the co-operative movement in developed countries and donors, also to

developing countries in wudil micro finance bank. Between the 1950S governments and donors

focused on providing agricultural credit to small and marginal farmers, in hopes of reising

productivity and incomes. These effort to expend access to agricultural credit emphasized supply

feel government.

2.3 Challenges and Problems

Financial Problems: About 80% of Small and medium enterprises are stifled because of poor

financing and other associated problems. The problem of financing small and median enterprices

8
small and median enterprices is not so much the sources of funds but its accessibility. Factors

identified inhibiting funds accessibility are the stringent conditions set by financial institutions,

lack of adequate collateral and credit information and cost of accessing funds.

Harper (2013) believes that the capital shortage problem in the small firm sector is partly one,

which stems for the uneconomic deployment of available resources by the owner-managers. This

view was shared by Ihyembe (2013) who claimed to have seen businessmen take loan for

expansion projects only to turnaround to marry new wives, acquire chieftaincy titles or buy

houses abroad. Bruch and Hiemenz (2010) in a study of SMEs in Asia observed that financing

working capital needs was the most frequently mentioned problem. Banks and Ennew expressed

the view that the funding problem of SMEs is primarily due to the behavior of banks and

imperfection of the capital markets small and median enterprices.

Management Problems: Lack of trained manpower and management skills also constitute a

major challenge to the survival of SMEs in Nigeria. According to West and Wood, “…90% of all

these business failures result from lack of experience and competence.” Rogers, also added that

inefficiency in overall business management and poor record keeping is also a major feature of

most SMEs; technical problems/competence and lack of essential and required expertise in

production, procurement, maintenance, marketing and finances have always led to funds

misapplication, wrong and costly decision making small and median enterprices

Inadequate Basic Infrastructure: Government has not done enough to create the best

conducive environment for the striving of SMEs, the problem of infrastructures ranges from

shortage of water supply, inadequate transport systems, lack of electricity to improper solid

waste management. Nigeria’s underdeveloped physical and social infrastructures create a

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binding constraint to SMEs growth, since; they heavily rely on the inefficiently provided state

infrastructures and cannot afford the cost of developing alternatives. Socio-Cultural Problems:

Most Nigerian Entrepreneurs do not have the investment culture of ploughing back profits. Bala

stressed that the attitude of a typical Nigerian entrepreneur is to invest today and reap tomorrow.

Also, the socio-political ambitions of some entrepreneurs may lead to the diversion of valuable

funds and energy from business to social waste. The problem of bias against made in Nigeria

goods is significant. Most Nigerians have developed a high propensity for the consumption of

foreign goods as against their locally made substitutes. Strategic Planning Problems: SMEs often

do not carry out proper strategic planning in their operations. Ojiako stated that one problem of

SMEs is lack of strategic planning. Sound planning is a necessary input to a sound decision-

making small and median enterprices.

Location/Economic Problems: Market stores are dominated by absentee landlords who charge

exorbitant rates. The ownership of market stores by politicians is crowding real small-scale

operators out of the market. The high rents charged by store owners on good locations have

forced real small-scale operators into the streets or at best into accessible places. Also, domestic

economic problems of deregulation and removal of protection as well as the global financial

crisis have been detrimental to SMEs. Poor Accounting System: The accounting system of most

SMEs lack standards hence, no proper assessment of their performances. This creates

opportunity for mismanagement and eventually leads to the downfall of the establishment.

Multiple taxation: This has become a major problem especially given the role of tax

consultants and agents hired by local governments. They are often crude in their operation,

excessive in their assessment and destructive in their relationship with the production process.

They tax everything in their bid to generate revenue without considering the net effect to

10
household incomes and employment. Unstable policy environment: Instability in government

policies have caused some SMEs to collapse. One of such policies is that of the 1980s when

government specified that cocoa should not be exported in raw or unprocessed form after a

specified deadline. Many SMEs had to import machineries only for government to reverse this

policy. This negatively affected so many SMEs in the cocoa industry. The present high mortality

rate of SMEs in Nigeria is awful to contemplate and constitute danger to the entire economic

system. It represents serious financial pressure on the nation’s economy as well as a waste of

valuable resources. The business owner should always consider challenging situations and be

prepared to meet them with pre- planned strategies. The survival of SMEs is only possible

through a systematic analysis of the problems they are facing and mapping out appropriate

strategies of overcoming them, through a proper understanding of the business environment. For

a business to survive in unfriendly environmental conditions it should adopt a strategy that

utilizes its strengths to exploit opportunities while avoiding its weakness. Nwoye (2014), argued

that strategic changes might take place in a firm without initial formulations, such decision could

be informed by expansion strategy, preference to cash sales policy, innovation strategy, change

in production techniques, local sourcing or use of alternative materials, backward integration and

merger. Thus, any entrepreneur who wants to succeed must identify business opportunities, be

creative, visionary, daring, risk taking, courageous and sensitive to changes in the business

environment.

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2.4 Features of Scale Business

Small scale business like any other business that is medium and large scale enterprises

has it is on features, these are:

 Labour Intensive Method

Small scale business are formally labour intensive method of associations and are created by the

member of the target communities wish to improve their living standard and to generate

employed/incomes small and median enterprices.

 Flexibility

Small scale industries or business are flexible in their operation they adopt quickly to various

factors that play a large part in daily management, their flexibility make then suited to constantly

changing business environment in wudil micro finance bank.

 Use of indigenous raw materials.

Most of the small scale businesses uses indigenous raw materials and promote intermediate and

capital goods in wudil micro finance bank

 Localized operation: small scale enterprises generally restrict their operation to local

areas in order to meet their local demand, and provide services that best fit their

consumption and desires in wudil micro finance bank.

 Lesser generation period: Generation is the period after which the return on investment

started it is the time between setting the business and commencement of production,

small scale business usually has a lesser generation’s period in wudil micro finance bank.

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2.5 Role of Small Scale Business

Not every small business eventually grows to the size of large corporation. Some businesses are

ideally suited to operate on a small scale for years, often serving a local community and

generating just enough profit to take care of company owners. Small-scale businesses display a

distinct set of identifying characteristics that set them apart from their larger competitors in wudil

micro finance bank.

Revenue and Profitability: Small-scale business revenue is generally lower than companies

that operate on a larger scale. The Small Business Administration classifies small businesses as

companies that bring in less than a specific amount of revenue, depending on the business type.

The maximum revenue allowance for the small business designation is set at $21.5 million per

year for service businesses. Lower revenue does not necessarily translate into lower profitability.

Established small-scale businesses often own their facilities and equipment outright, which, in

addition to other factors, helps to keep costs lower than more leveraged businesses in Wudil

micro finance bank.

Employees: Small-scale businesses employ smaller teams of employees than companies that

operate on larger scales. The smallest businesses are run entirely by single individuals or small

teams. A larger small-scale business can often get away with employing mothern than one

hundred employees, depending on the business type

Market Area: Small-scale businesses serve a much smaller area than corporations or larger

private businesses. The smallest-scale businesses serve single communities, such as a

convenience store in a rural township. The very definition of small-scale prevents these

companies from serving areas much larger than a local area, since growing beyond that would

13
increase the scale of a small business's operations and push it into a new classification in wudil

micro finance bank.

Ownership and Taxes: The corporate form of business organization is not well-suited to small-

scale operations. Instead, small-scale businesses prefer to organize as sole proprietorships,

partnerships or limited liability companies. These forms of organization provide the greatest

degree of managerial control for company owners, while minimizing the hassle and expense of

business registration. These businesses generally do not file their own taxes; instead, company

owners report business income and expenses on their personal tax returns in wudil micro finance

bank.

Locations: A small-scale business, by definition, can be found only in a limited area. These

companies are not likely to have sales outlets in multiple states or countries, for example. A large

number of small-scale businesses operate from a single office, retail store or service outlet. It is

even possible to run a small business directly out of your home, without any company facilities

in wudil micro finance bank.

2.6 Alternative Sources Funds

There are very many sources of finance for small scale entrepreneurs. some of these sources are

explained below.

• Self-funding: This is the most common sources of funds available for small scale

entrepreneurs. Most small businesses are financed from the personal savings of the

entrepreneur. Not everybody, including the lending institutions would share the vision of

the entrepreneur about his business right from inception. As such it is usually difficult for

14
 a potential small business owner to get loans from any external sources. This makes self-

funding about the most viable option open to him in wudil micro finance bank.

• Credit cards: The use of credit cards to finance business activities has become a regular

thing in small businesses. This involves all sort of business transactions including capital

financing and paying off suppliers. But it is obvious that this means of financing is more

common in developed economies in Wudil micro finance bank.

• Family: Soft loan from family members is a common source of funds for entrepreneurs.

It does not require interest charges to the entrepreneur in most cases. Where interested

payment is made, it is usually far below what is obtained when the loan is collected from

external sources such as commercial banks. In some cases, the members of the family

contribute part of the business equity. This is more often when the business is at its early

stage in Wudil micro finance bank.

• Friends: Loan from friend is just another informal source of finance for the small

business owner. The attributes of the family source of finance also applies here.

• Business angels: This term is used to refer to existing business owners or entrepreneurs

that invest in a potential small business start-up or even a going concern. Business angels

mostly consist of experienced entrepreneurs that see a chance in an upcoming business.

They invest in the equity of the business and earned part of the ownership of the business.

Small scale business is very important in every economy for the significant role they are playing

and serving as a key player towards economic growth of nation and poverty alleviation. Some of

the roles includes:

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 • Income generation

• Employment generation

• Improve living standard of the people

• It raised the economic growth and development potentialities of the country.

• It increases productivity and output.

2.7 Problem of Small Scale Business

With all the important role that small scale business play in the improvement of Nation Levels of

living, there are a lot of problems or obstacle militating against, its performance in Nigeria, these

include among others: -

• Poor capital

• Lack of credit facilities

• Multiple taxation

• Failure to adapt to changing business environment

• Poor state of the country infrastructure

• In consistence government policy.

• Corruption and mismanagement.

Most of the problems enumerated above were related to money or credit, and this is the reason

why the research was designed to investigate the impact of micro services on the improvement of

16
small scale businesses in Kano and to come up with some suggestions and recommendation in

order to solve the problems of the sector to perform the functions, it is meant to perform so that

the economy of Kano State will grow.

2.8 Microfinance Bank and How It Affects Small Scale Businesses in Nigeria.

Micro finance banks are important just as outlined by central bank of Nigeria (CBN) regulatory

policy for micro finance institution (2005) as they consider majority of Nigerian population to

live in the rural areas and are generally characterized by low income, poor standard of living and

they generally engage in agricultural activities, artisan-ship and other form of small businesses

that need finding, technical and professional assistance. Micro finance bank provides credit

facilities to small scale businesses them at cheaper rate to the poor and small scale enterprises, so

as to improve their standard of living. The following MFB activities prove more importance to

small scale businesses development.

Micro Finance Lending: Micro finance as a form of financial institution primarily focused on

alleviating poverty through providing financial services to the poor, most people think of micro

financial if at all as being about micro credit that is lending small amount of money to the poor.

Micro finance also has border perspective which includes insurance transactional service and

impotently saving majority of the b Micro finance institution offers and provides credit on a

solidarity group lending basis with no collateral in wudil micro finance bank.

Group Lending: Group based lending is one of the most novels approaches of lending small

amount of money to a larger number of clients who cannot offer collateral. This size of the group

can vary but most of the group start from (4) to eight (8) members. The group is secured by the

member before acquiring the loan. Loans are grated to selected members of the group. Most

17
Micro finance required a percentage of the loan that is supposed to be saved in advance which

point out the ability to make regular payments and serve as collateral. Group members are jointly

accountable for the repayment of each other’s loan and usually meet weekly to collect

repayment. Group will be disqualifying and will not be eligible for further loan even if it is one

member of the group that become a defaulter. The credit wornness of the borrowers is therefore

determined by the members rather than by the Micro finance bank in wudil micro finance bank.

Individual Lending: There are few conventional financial institutions that provide individual

loans to low income people because poorer clients are considered higher risk clients, due to their

lack of collateral plus the Labour intensive method and the nature of the credit hence the lack of

profitability of the small credit. However, Micro finance bank always consider given individual

loan to poor clients that own small business in Wudil micro finance bank.

Credit Association: Credit associations are the organizations that are formed on the basis of

financial relationships of saving and loans between its members. They accumulate saving from

its members and provide short term loan to the needed members. The demand for loan in general

exceeds the supply of saving in most rural areas credit union or association and they are still the

solitary source of deposit and credit to a group of people unlike single individuals. Those credit

unions play an important role in the form of Micro credit in the sense that Micro finance bank

usually provide credit facilities to those group because they are mostly in group since with the

credit union it is more convenient to give out credit to individuals in wudil micro finance bank.

Social Collateral: Micro finance group lending with joint liability allow asses poor individuals

to replace physical collateral by social collateral system. The nature of Micro finance lack

18
framework for analyzing the consequences of using social collateral for borrowing behavior and

repayment in wudil micro finance bank.

Soft Loan: This is a loan with a low market interest rate; it is also known as soft financing. Soft

loan provide concession such as long. Repayment period or interest holidays and for most of the

time micro finance loan are mostly Soft loans. Soft loan is usually provided by the government

to project that they think are worthwhile sometimes in conjunction with micro finance.

2.9 Theorical Frame Work Review

Micro finance bank theory on small scale and medium enterprises was developed by Berger and

Udell (1998) and was used by Bahajide (2011) and Akande (2012). This theory was anchored on

the small business as where the financial needs and financing option change as the business grow

and it became more experience and less informative. They further suggested that forms rely on a

size/age most rely on initial insider finance, trade credit and development financial institution.

This theory predicts that as firms grows, it will gain more access to venture capital as a source of

intermediate equity and mid-term loans as a source of intermediate debt. At the final state of the

financing theory as the firms become older, more experienced and more informative transparent,

it will likely gain access to long term debt.

This study anchored on financial growth theory because the theory predicts as firms grow it will

gain more access to investment capital as a source of intermediate equity, the implication of this

theory is that micro finance bank to small and medium enterprises need internal source of

finance before looked for the external found from the development and financial institution

especially bank of industry.

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This is because the size of the loan and lack of information on the quality of the micro small and

medium enterprise force lenders to protect their inltestiment by demanding higher rates of return,

which come in the form interest rate, and high cost of capital of the small firm.

In an attempt of avoid higher cost of capital, smaller firm are then forced to used short-term loan,

which

2.10 Empirical Literature

This section is concern with a review of empirical literature by different scholar on the impact of

micro finance bank service toward the improvement of small scale businesses the aims are to

gain more knowledge on the topic that will assist us in knowing the significant variables to be

employed in examining the impact of micro finance bank service in improving of small scale

businesses. The empirical literature would also guide in the analysis and interpretation of the

results.

Let’s begin with thee research of Abiola and salami (2011) conducted in Oyo State which

specifically investigated the impact of micro finance bank on standard of living of hair dressers

using questionnaire in collecting data. The study reveals that there is a significant relationship

between micro finance bank efforts and standard of living of hair dressers.

Another research carried out by suberu et. al. (2011) in Nigeria using simple random techniques

in selecting the small scale enterprises, the finding reveals that significant number of small scale

enterprises benefited from the micro finance institution loan even though only few of them were

suitable to secure the required amount needed. However, it was also found that the micro finance

institution has grown phenomenally in the last ten years. Majority of the small scale enterprises

acknowledge positive contribution of micro finance institutions loan towards promoting their

20
market excellence and overall economic company competitive advantage, rather than tax

incentives and financial support.

Similarly, a research conducted by Edatijae (2011) in Delta State financial small scale enterprises

using purpose sampling proved that micro finance services particularly those sponsored by

government have resulted in an increased level of credit disbursement and gains in agricultural

production and other activities, the effect were short-lived, due to the unsustainable nature of the

program.

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 CHAPTER THREE

Research Methodology

3.0 Introduction

This chapter highlights the method and procedure employed in the collection of data and analyze

the data obtained for this study. These procedures and step are organized under the following

subheading research designed, study area, population of the study sample size and sample

techniques, method of data collection and method of data analyze.

3.1 Research Design

A research design is a plane of investigation that specifies the approach to be used for gathering

and analyzing data in the design of this work in wudil micro finance bank, the research adopt

descriptive and survey types of research which enable the use of primary and secondary data.

Consequently, data were used to form aggregate which were processed and the result developed

in to inferential statistical utilization form for the measurement of the effectiveness of finding

challenges and prospects of microfinance bank in financing small scale and medium enterprises

in watch local government area Kano state.

3.2 Area of Study

The study is carried out in Wudil local government area of Kano state with its headquarters in

Wudil. The reason of for chosen Wudil specifically is essentially because of the increase in the

rate business that is taking place there both small scale and medium enterprises. Wudil is one of

the oldest local government areas in Kano state, created in 1979 along side Gaya and Rano local

government areas.

22
Wudil local government is one of the sixteen local governments in southern Kano, senatorial

district. Wudil is located on the express way to Maiduguri along its way and also wudil consist of

many wards. Wudil experience source of water Channel Sea from Tiga and pass away to Wudil

this give an opportunity to the most of the people of Wudil become a farmers. Farming is a

dominant occupation in Wudil in the rainy session and irrigation.

The popular of Wudil was about 221,367 according 2006 census. The predominant occupation in

the state are farming and trading as there is large number of people in the area who are engages

in small scale business like bakery, pure water factory business center, carpentry, tailoring,

hairdressing and among other in wudil micro finance bank.

3.3. Population of The Study

The population of the study made up of small scale business and microfinance a bank in Kano

state specifically in wudil local government area. Both staff of microfinance bank and business

owners will make up the population in the selected area.

In Wudil local government there about 200 registered small scale business (Kano state ministry

of commerce 2015) in all small scale business 200 approximately different small enterprises

sited throughout the local government performing their various economic activities.

However the population of this study will concentrate only on the registrant small scale business

in Wudil.

3.4 Sample Size and Sample Techniques

Sample is a part of population drawn to observe and analyze data scientifically in order to cover

the entire population. It is difficult to observe the entire population of both staff and business

23
owners since one can never determine the challenge and prospects of microfinance bank in

Wudil local government microfinance bank, without the statistical data and to get the fraction of

the population to represent the whole. As such a sample size of 200 respondents will be selected

out of the population from 5 different enterprises and small scale business in which local

government area of Kano state in wudil micro finance bank

Therefore 20 respondents would be selected from each business to this effect. In each business

20 businessmen are able to respond and each giving the total of (200) the reason behind this

sample size is to ensure that the sample use for the study spread across the (20) business

enterprises chosen for the study. This equally gives a good and unbiased representation and at the

same time ensures reasonable representation of the target population.

3.5 Method of Data Collection

The method of data collection employed for this study is questionnaire. A questionnaire is a

research instrument consisting of a series of question for the purpose of gathering information

from respondents and it’s the most commonly tools. Used in survey research method. A

questionnaire is chosen as preferred techniques of data collection for this study because it is

relatively quick to collect information, and it does not require much capital, no much effort

require from the research as verbal and standardize questionnaire made it simple to collect and

compile data.

3.6 Instrument of Data Collection

The main instruments used to gather data for the research is field survey as well as oral interview

which supplemented the use of questionnaire that mean for small scale business owner and

interview for the staff of microfinance bank in Wudil local government area in order to buttress

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and confirm the information recorded in the questionnaire by the business owner and also to

confirm the kind of service they are rendered.

The questionnaires were simple and easily understood they included structure questions capable

of eliciting reform answer were necessary and Un structure question which express individual

opinion as the case may warrant.

3.7 Method of Data Analysis

The data collection through questionnaire for this study will be quantitavely and qualitatively

analyzed using tables with frequencies and percentage. Also various tables will be constructed to

clearly constructed and illustrate the percentage distribution on a set of variable obtained from

the responses of the respondents.

This will create for the researcher the potency to analyze the respondent of microfinance views

concerning the challenges and prospects of microfinance bank in financing small scale business

in Wudil local government microfinance bank.

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 CHAPTER FOUR

4.1. Data Presentation and Analysis

The main objective of this chapter is to analyze of data collected from the field using the

appropriate statistical measure. The research work is devoted to find out the challenges and

prospect of microfinance bank in financing small scale and medium enter in Wudil local

government. Frequency and table and percentage also are used in the analysis. The first section

deal with introduction, the second section deal with demographic data attribute of the

respondents, the third section deal with them of the study “challenges and prospect of micro

finance a small scale business in Wudil local government micro finance and lastly discussion of

finding and conclusion.

4.2. Demographic Data

4.2.1 Distribution of the respondents by sex some important demographic variable as regarded to

this study include sex, marital status, religion, age, educational qualification and income. These

variable are analyzed and presented in table containing frequency and percentage table 4.2.1

SEX FREQUENCY PERCENTAGE (%)

Male 122 61

Female 70 39

TOTAL 200 100%

The table (4.2.1) show the sex distribution of the respondents the result indicate that the majority

of the respondent are male with 122 or 61 percent and female with 39 or percent.

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Table 4.2.2 distribution of the respondent by marital status.

MARITAL STATUS FREQUENCY PERCENTAGE (%)

Single 126 63

Married 50 25

Divorced 13 6.5

Widow 11 5.5

TOTAL 200 100%

Table 4.2.2 Show that majority are single with 63 percent and 25 percent are married, 6.5 percent

are divorced and 5.5 are widowed. Since the majority of respondent is single, thus given them

the knowledge of financing small scale business in a microfinance bank.

Table 4.2.3 distribution of the respondent religion.

RELIGION FREQUENCY PERCENTAGE (%)

Islam 125 62.5

Christianity 70 35

Traditional 5 2.5

Other NIL 0

TOTAL 200 100%

Table 4.2.3 shows that Islam religion takes the highest percentage of 62.5 or 125 followed by

Christianity with 70 or 35 percent with traditional religion with 2.5 percent in the area. It can be

observed that Islam is the dominant religion in the area.

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Table 4.2.3 distribution of the respondent’s age.

AGE FREQUENCY PERCENTAGE (%)

16 – 26 30 15

27 – 35 54 27

36 – 45 82 41

46 – 55 23 11.5

56 – above 11 5.5

TOTAL 200 100%

The above table 4.2.3 shows that the highest responses percentage is 41 percent which is within

the range 36 – 45 years of age who create and own the business followed by 27 percent consist

of assistance in the running of a business and 15 percent are teenager who are coming to teach

11.5 and 5.5 percent are manager of business who are control and monitoring they show that the

majority of the respondent are adult who are engaged in business and enterprises and they have

more in the business and the process of finding a loan from microfinance in order to expand their

business.

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Table 4.2.5 distribution of the respondent by qualification.

QUALIFICATION FREQUENCY PERCENTAGE (%)

Primary school certificate 20 10

Senior secondary school 22 11

N.C.E/Diploma 78 39

Degree/HND 70 35

Masters 10 5

TOTAL 200 100%

Table 4.2.5 shows the distributions of respondent’s qualification it is obvious that N.C.E/diploma

consist the highest number of the business men with 78 or 39, HND/degree consist of 78 or 39

percent of the population followed by senior secondary school leaver with 22 or 11 percent and

primary school 20 or 10 and masters with 10 or 5 these indicate that the majority of the

respondents are N.C.E/diploma.

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Table 4.2.6 income distribution of the respondents.

INCOME FREQUENCY PERCENTAGE (%)

Below 10,0.000 10 5

10,0000 – 125,000 75 37.5

125,001 – 150,000 112 56

150.001 – and above 3 1.5

TOTAL 200 100%

The above represent the monthly income of the respondents the largest population takes income

of 125001 – 150,000 which the present 56 percent while those within 100, 0001 – 125000

seconded with 37.5 percent. Those earning below 100, 000 are 5 percent and those with on 150,

0001 and above have 1.5 percent from the above table it can be seen that those within 56 percent

are more in population then the rest of the categories.

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Table 4.2.7 Respondent’s opinion on the causes of unpaid debt in Wudil microfinance

bank.

VARIABLE FREQUENCY PERCENTAGE

Low profit 126 63

Small size of market 11 5.5

High cost of production 50 25

In adequate skilled manpower 13 6.5

TOTAL 200 100%

The table shows that the responses from the respondent on low profit that a business man gain in

his business takes a higher frequency and percentage of 63 and 126 frequencies on courses of

unpaid debt to microfinance bank this is followed by high cost of production which is 25 percent

and 6.5 for in adequate skilled manpower and lastly the nature or small size of market with 5.5.

From the above data it is clear that variable such as low profit of the business man and high cost

of production are having more frequency and percentage than the nest variable as the causes of

unpaid debt to microfinance bank.

31
Table 4.2.8 respondent’s opinion on does microfinance assist in providing credit facilities to

small scale business and problem hindering.

RESPONSES FREQUENCY PERCENTAGE (%)

Yes 200 100

No Nil 0

TOTAL 200 100%

From the above table all the respondents agree that microfinance bank assist in providing credit

facilities to small scale business in Wudil local government micro finance bank and the problem

hindering. Since the primary work of micro finance bank is to give a loan to small scale business

and still the problem encountered for the repay of debt. By this we understand that microfinance

faces more challenges from his customer during the period of repaying the loan.

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Table 4.2.9 respondent opinion on the problems encountered by businessmen in obtaining

credit facilities from microfinance.

VARIABLE FREQUENCY PERCENTAGE (%)

High interest 30 15

Corruption and miss management 50 25

Failure to adopt changing business. 20 10

Poor infrastructure 11 5.5

Poor sufficient capital 24 12

Inconsistency of government policy 45 22.5

Multiple taxation 20 10

TOTAL 200 100%

From the above table we understand that the opinion of the respondent is that corruption and

miss management of microfinance bank staff become the most challenging problem of small

scale and medium enterprises when they apply for a loan with (25) percent and inconsistency of

government policy become a second with (22.5) followed by high interest of banking with (15)

percent than failure to adopt changing business and multiple taxation with rate opinion of

respondent (10) respectively and poor infrastructure with 5.5 respectively.

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Table 4.2.10 respondent on requirement of the microfinance bank before giving a loan

VARIABLE FREQUENCY PERCENTAGE (%)

Must be a customer 82 41

Not necessary a customer 11 5.5

Collateral 54 27

Group leading 30 15

Other 23 11.5

TOTAL 200 100%

From the above table 4.2.10 respondent said that you must have an account before giving a loan,

(54) for collateral followed by group leading with (30) and (23) for other that none specify and

(11) for opinion on not necessary to be a customer.

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4.3 DISCUSSION OF FINDINGS

This section focus mainly on the discussion of findings presented and analyzed in this chapter.

The discussion will be strictly on the main objective of this research which is to investigate the

challenges and prospect of microfinance bank in financing small scale and medium enterprises in

Wudil local government microfinance bank area Kano state. The challenges of microfinance on

the first opinion can be caused by bad debt which affect by low profit gaining by business men

secondly from the research conducted it prove that microfinance bank assist in providing credit

facilities to small scale business and problem hindering on the repay bank of loan the research

work found that interest rate charged by microfinance bank is very high this it makes it very

difficult for small scale business to easily access the loan the study also found that some

conditions to be followed before access to the loan which is the applicant must be a costumer in a

bank in addition to landed properties and among other in order to grant them any service.

The implication of the study above is that small scale business owners and microfinance bank

faces a major challenges and problem it allowed to continued may leads to many of them

choosing their investment or business unless something very urgent is done by the government to

address the problem through government intervention from federal, State and Local government.

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 CHAPTER FIVE

Summary, Conclusion, Recommendations

5.1 Summary

The study aimed at investigating the challenges and prospects of microfinance bank in financing

small scale and medium enterprises in Wudil local government micro finance bank area of Kano

state the finding of the research was summarized in order to draw meaning full research:-

The respondent age where examine to be mostly between the age of 36 – 45 years this mean that

the occupation and obtaining loan is mostly gained by the youth. And the research is mostly

respondent by male with 122% and 78% for female this indicate that the business and acquiring a

loan is mostly by male.

Furthermore, most of the respondent view that they have low level of education. This suggested

that the business does not require educational status.

The research reveal that the business and the bank experience problems identified the business

owners high cost of power and lack of financial advice and also in accessing the bank service

they are:-

• High interest rate

• Difficulties in accessing the bank loan

• Small size of market

• In adequate skilled manpower

36
 • Low profit

However, the study shows that the respondent agreed that microfinance bank assist in providing

credit facilities to small scale business people a loan in a bank as loan they are customers of that

bank. 82% agree with that.

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5.2 Conclusion

This study aimed finding the challenges and prospects of microfinance bank in financing small

scale and medium enterprises in Wudil local government area of Kano state. It was concluded

that the first opinion can be caused by bad debt which affect by low profit gaining by business

men. Secondly, from the research conducted it proves that microfinance bank assist in providing

credit facilities to small scale business and problem hindering on the repay bank of loan, the

research work found that interest rate charged by microfinance bank is very high, this makes it

very difficult for small scale business to easily access the loan and it also found that some

conditions to be followed before accessing the loan which is the applicant must be a costumer to

the bank and landed all properties in order to grant them any service.

38
5.3 Recommendation

Based on the finding of the study discussion and conclusion presented above the following

recommendation are put in place for discharging the challenges of microfinance bank in

financing small scale and medium enterprises.

• Record of each people who collect the bank loan should be kept in the bank safely federal

government state and local government should provide the adequate infrastructural

facilities and social amenities, this will assist the small scale business to improve better.

• The management and administration of microfinance bank should reduce the interest rate

on their loan able facilities.

• Government should provide a granting tax holiday or tax period to new established firms

and small scale enterprises government both state and federal should provide an incentive

to small scale business

• The federal and state government should sustainably increase their capital expenditure for

development of industrial layout

• The government should make thing possible for small scale business to assist them to

advertize and display their product to different market in the country and outside in order

to protect them against foreign competition.

• Government should provide a special industrial development and financial institution for

small scale business e.g Bank of industry (BOI)

• Entrepreneur courses should be made available at any form of business so that improve

their skill and knowledge on a business e.g. seminar, workshop. e.t.

39
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