THE IMPACT OF MICRO FINANCIAL INSTITUTIONS ON THE GROWTH OF SMALL AND MEDIUM SCALE BUSINESS

THE IMPACT OF MICRO FINANCIAL INSTITUTIONS ON THE GROWTH OF SMALL AND MEDIUM SCALE BUSINESS

ABSTRACT

This study discusses the impact of Microfinance Institution (MFIs) on the growth of Small and Medium Scale Enterprises (SMEs) in Illorin Metropolis. The study examined the detailed profile of SMEs in Illorin Metropolis, the contribution of MFIs to entrepreneurial growth, the challenges encountered by SMEs in accessing credit and the rate of credit utilization by SMEs. An analysis of the profile of SMEs show that most SMEs are at their Micro stages since they employ less than six people and the sector is hugely dominated by the commerce sub-sector. The research also indicates that MFIs have had a positive effect on the growth of SMEs. Some of the critical contributions of MFIs include; greater access to credit, savings enhancement and provision of business, financial and managerial training. Irrespective of the contributions of MFIs to SMEs, there are challenges that affect their operations of both SMEs and MFIs. The major challenge faced by SMEs is the cumbersome process associated with accessing credit of which collateral security and high interest rate are major setback. The MFIs on the other hand, face some challenges relating to credit misappropriation and non-disclosure of the relevant facts of their businesses. In the final analysis, the research clearly reveals that MFIs have a positive effect on the growth SMEs. In other to enhance a sustained and accelerated growth in the operations of SMEs credits should be client-oriented and not product- oriented. Proper and extensive monitoring activities should be provided for clients who are granted loans.

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