ABSTRACT

This study investigated on the impact of microfinance banks on the growth of SMEs sector in Lagos State. The study adopted descriptive research design. A total number of 83 copies of questionnaire were administered to the research respondents during the Field Survey, while 78 copies were properly filled and returned to the researcher. Non-parametric test statistics of Spearman’s Rank Correlations with the aid of the Statistical Package for Social Sciences (SPSS 20.0) was employed to test the hypotheses in order to ascertain the relationship between the dependent and independent variables in each hypothesis. Test of hypotheses was undertaken at five percent (5%) level of significance. Among other things the result of the study revealed that the operations of microfinance banks support the growth of the SMEs sector in Lagos State. Similarly, the result of the second test showed that micro credits financing has significant impact on poverty reduction, and that there is a significant impact of interest rate charged by micro finance banks on loan repayment by SMEs in Lagos State. The study recommended that microfinance banks (MFBs) should further develop a policy of easy accessibility of loans meant for SMEs to encourage existing and prospective entrepreneurs' activities in Lagos State.

1.1   Background of the Study

The bedrock of any nation's industrial development is entrepreneurial activities this can be attested with economic breakthroughs in the Asian tigers. The economic boom recorded in some of the Asian countries which is not unconnected to SMEs have lifted hundreds of millions of people out of poverty and created tens of millions of new middle class consumers (Wang et al, 2011). The role of financial institutions in development of a country is demonstrated through the crucial role that savings and credit play in economic growth. Unfortunately, traditional banks in Nigeria are restrained in offering financial services to the poor and small businesses because they are usually unable to meet their requirements. It is worrisome that despite the potential importance of SMEs in any economy, high mortality rate among established SMEs is becoming a reoccurring phenomenon in Nigeria.

Aremu and Adeyemi (2011) have reported that most SMEs in Nigeria fold up within their first 5 years of existence, a smaller percentage goes into extinction between the sixth and tenth year while only about five to ten percent survive, thrive and grow to maturity. Many factors have been identified as contributing to this premature death of SMEs. Key among them includes insufficient capital, lack of funds and inadequate market research with its attendant effect on the larger economy.

In Nigeria, most of the available studies on microfinance banks on the growth of SMEs sector, such as by Ozioko (2010), Aremu and Adeyemi (2011), Ofoegbu, Akanbi and Joseph (2013) were theoretical studies in nature whose findings were subjectively based on leading logic. It is noted that the past studies did not give adequate attention to the link between microfinance banks and the growth of SMEs sector, as well as highlighting effective strategies for enhancing the growth of the SMEs sector in Nigeria. Hence, the undertaking of this research work will fill in the gap by critically exploring the impact of microfinance banks on the growth of SMEs sector in Lagos State with a particular to Peniel Microfinance Bank, Ojo.

1.3    Objectives of the Study

The main objective of the study is to investigate the impact of microfinance banks on the growth of SMEs sector in Lagos State. Other specific aims are to:

1.                  assess the impact of micro credits financing on SMEs business performance,

2.                  examine the effect of interest rate charge by micro finance banks on loan repayment by SMEs,

3.                  determine the contribution of microfinance banks on poverty reduction in Lagos State,

4.                  investigate the challenges faced by micro finance banks in financing SMEs.

1.4    Research Questions

The study will be guided by the following research questions:

1.      What is the impact of microfinance banks on the growth of SMEs sector in Lagos State?

2.      What is the impact of micro credits financing on poverty reduction?

3.      How does interest rate charge by micro finance banks affect loan repayment by SMEs?

1.5    Research Hypotheses

The researcher intends to test the following hypotheses:

Hypothesis I

H_o:      The operation of microfinance banks does not support the growth of the SMEs      sector in Lagos State

Hi:      The operation of microfinance banks support the growth of the SMEs sector in      Lagos State.

Hypothesis II

H_o:      There is no significant impact of micro credits financing on poverty reduction.

H_i:       There is a significant impact of micro credits financing on poverty reduction.

Hypothesis III

H_o:      There is no significant impact of interest rate charged by micro finance banks on loan repayment by SMEs in Lagos State.

Hi:      There is a significant impact of interest rate charged by micro finance banks on    loan repayment by SMEs in Lagos State.

1.6     Significance of the Study