A Study of the Microfinance Institutions and Their Effects on Funding of Small Scale Enterprises in Edo State

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A STUDY OF THE MICROFINANCE INSTITUTIONS AND THEIR EFFECTS ON FUNDING OF SMALL SCALE ENTERPRISES IN EDO STATE BY AMADASUN ESE INTRODUCTION One factor inhibiting the attainment of development goals in less developed countries is the populace’s general inability to access factors of production, especially finance. This limits the entrepreneurial ability of the people, especially the poor. Consequently, potential employment opportunities and household prospects for creating wealth and improving income are lost. Microcredit has been one framework adopted to address this problem. Its evolution reflects acknowledgement of credit market failures especially in the formal financial sector. There has been, therefore, a shift from the formal financial sector to microfinance Micro finance practice has had a long history in Nigeria and Africa as a whole, long before economist and world financial analyst recognized it as weapon against poverty. The practice of micro finance in Nigeria is as old as man; it has been a long-term practice in our context. It is mostly practiced in less developed countries, where per capita income is very low. In the mid twentieth, theorists were concerned over the poverty and process of development with specific attention on “under developed nations” as developing countries were then tagged. According to the World Bank’s World

Development Report 1999/2000: Entering the 21st century, in 1998, about 1.2 billion people 24 percent of the population in developing and transition economies lived on less than $1 a day. In 1999, 4.5 billion people of 75 percent of the world’s population lived in low-and-lower-middle income economies. Of these, 2.4 billion were from low income economies with an average annual Gross National Product (GNP) per capita of $410, while 2.1 billion lived in lower middle income economies with an average annual GNP per capital of $1,200 (World Bank, 2000/2001). W.W. Rostows, a leading proponent on state of progression or growth, noted that the critical “take off stage” recognize certain minimal rate of investment to take place, to foster development and better the standard of living of individuals. In an attempt to improve the live of the poor and to raise the standard of living in the country, the United states Agency and Implementation Development (USAID), 1995), recognizes while Government are involved in different programs because most government want to encourage the development of business, to supplement general, policy goals that apply to business, with specific policies and programs aimed at micro and small enterprises. More also, policies that minimize the costs of licensing and registering a business, provide easy access to information about laws and regulations, and facilitates commercial codes, which establish rules to minimize

the cost of doing business by defining the rights and responsibilities of all parties to a transaction. Hence the involvement of Federal Government, and other international agencies in the program of reducing the poverty level amongst Nigerians. Such programs as Directorate for Food, Roads and Rural Infrastructure (DEFRRI), Nigeria Agricultural Cooperative Bank (NACB) and Peoples Bank of Nigeria e.t.c. The aim of the program was to assist and deliver financial services and development to rural communities. The purpose of this paper is to take a cursory look at microfinance institutions and their effects on funding of small scale enterprises in Edo State. Concept of Micro Finance Micro finance can be defined as a development tool used to create access for the economically active poor to financial services at a sustainably affordable price (CBN, 2005). Eluhaiwe (2005) opined that micro finance is the provision of thrift, credit and other financial services and products in very small amounts to the poor to enable them to raise their income levels and improve their standard of living. Micro finance has also been defined as the provision of very small...
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