CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND TO STUDY

Small and Medium-Sized Enterprises (SMEs) have been instrumental in creating jobs and advancing global economic development. In emerging nations, small and medium-sized enterprises (SMEs) constitute an essential component of the economic landscape, contributing significantly to growth, innovation, and wealth. SMEs have historically dominated domestic economic activity, particularly in terms of creating jobs. As a result, they have produced primary or secondary sources of income for a large number of households and served as catalysts for economic growth and development (Imoughele and Ismaila 2014). However, Olowe, Moradeyo and Babalola (2013) observed that a number of SMEs in Nigeria were unable to advance to the growth stage of their life cycle because of an unfavourable business climate, inadequate capital, a lack of management expertise, and a lack of access to contemporary technology. All of these can be linked to inadequate bank funding because of expensive administrative expenses, stringent collateral requirements, and insufficient background in financial intermediaries (Agbim, 2020). Nigeria's financial sector has grown somewhat, but more work has to be done. As a result, several reform initiatives have been unveiled with the goal of liberalising the banking sector and fostering an atmosphere that will encourage greater involvement. Specifically, the elimination of obstacles to entry encouraged new players to enter the market, expanding the quantity and variety of financial institutions in the nation. From 40 in 1985 to roughly 1200 in 2020, there were more financial institutions; yet, a sizable section of the population is still underserved. In the early 2000s, financial inclusion gained attention due to a study that highlighted poverty as a direct result of financial exclusion (Babajide, Adegboye & Omankhanlen, 2015).

Therefore, the goal of financial inclusion is to guarantee that every adult member of society has easy access to a wide variety of financial products that are tailored to their individual needs and offered at reasonable prices. Payments, savings, credit, insurance, and pensions are some of these items. Since financial inclusion is seen to be a major contributor to economic growth, the concept has acquired more traction in recent years. Enabling the hundreds of millions of men and women who do not now have access to financial services would create prospects for the growth of a substantial savings, investable money, and investment base, and eventually lead to the creation of global wealth. Stated differently, financial services available to low-income people promote significant credit creation, capital accumulation, and investment boom. Financial inclusion, in the opinion of numerous experts, is one strategy to address the worldwide development of SMEs (Imoughele and Ismaila 2014).

The Central Bank of Nigeria is spearheading the country's endeavour to attain financial inclusion. The bank's policy acknowledges the function of microfinance in offering services to small and medium-sized business owners who are typically left out of or underserved by traditional financial institutions. Some SMEs have not been able to access financial products offered by banks and other financial institutions, despite the government's best efforts to make them available. This has created a significant obstacle for the expansion of SMEs in Nigeria and the facilitation of financial inclusion. It is to this the study centres on Financial Inclusion And Smes: Catalyst For Economic Development

1.2 Statement of the Problem

Small and medium-sized businesses and financial inclusion have been hot topics for discussion and attention among finance and development professionals in recent decades. Numerous research on small and medium-sized businesses and financial inclusion have been conducted, yet the results have been conflicting. Studies carried out outside Nigeria by authors such as Afful, Hejkrlík, and Doucha, (2015) in Ghana reveal that there is a positive relationship between financial inclusion and small and medium scale enterprises. While Etemesi (2017) in Nairobi show a negative relationship between financial inclusion and small and medium scale enterprises. The studies in Nigeria by authors such as Nwosa and Oseni (2013) show that there exist a negative relationship between financial inclusion and small and medium scale enterprises. Arodoye, (2017) show that there exist a positive relationship between financial inclusion and small and medium scale enterprises. After considering the aforementioned explanation, it is clear that empirical research on the relationship between financial inclusion and small and medium-sized businesses yields inconsistent findings. It is to this the study centres on Financial Inclusion And Smes: Catalyst For Economic Development

1.3 OBJECTIVES OF THE STUDY

In line with the statement of research problems the objectives of the study is financial inclusion and smes: catalyst for economic development . Other specific objective includes:

1.      To examine the impact of micro finance credit facilities rendered to small medium scale enterprises towards achieving economic growth in Nigeria

2.      To outline the roles of small medium scale enterprises towards economic growth in Nigeria

3.      To analyze the challenges that limits financial inclusion such as access to  micro credit facilities to small medium scale enterprises in achieving economic growth

4.       To recommend ways of promoting financial inclusion to small medium scale enterprises in achieving economic growth

1.4 RESEARCH QUESTIONS

1.What is the impact of micro finance credit facilities rendered to small medium scale enterprises towards achieving economic growth in Nigeria?

2.What are the roles of small medium scale enterprises towards economic growth in Nigeria?

3.What are the challenges that limits financial inclusion such as access to  micro credit facilities to small medium scale enterprises in achieving economic growth?

4. What are the recommend ways of promoting financial inclusion to small medium scale enterprises in achieving economic growth?

1.5 HYPOTHESIS OF THE STUDY

In line with the statement of research problems and the objectives of this thesis, the following hypothesis will be tested:

HO1: micro finance credit facilities rendered to small medium scale enterprises does not promote economic growth in Nigeria

1.6 SIGNIFICANCE OF STUDY

This study would enable the researcher to pass their experience on the subject matter to commercial centers, banks, government ministries, schools, students to serve as a medium for further research.

1.7 SCOPE OF THE STUDY 

The study would cover the effect of microfinance credit on growth of small and medium scale enterprise.

1.8 LIMITATION OF THE STUDY

The researcher was faced with the following constraints in carrying out this study:

Time: The time within the researcher is too short to carry on the detail study on this topic.

Resources: Another constraint of the researcher is financial resources to carry on the detail study of this topic.

Data: Another limitation to this study will be lack of data to make valid study on the research problem.

1.9 OPERATIONAL DEFINITION OF KEY TERMS

MICRO FINANCE: Microfinance is a category of financial services targeting individuals and small businesses that lack access to conventional banking and related services

MICRO FINANCIAL INSTITTUTIONS: A microfinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. A great scale of organizations is regarded as microfinance institutes.

CREDITS: Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date.

SMALL AND MEDIUM SCALE ENTREPRISE: Small and medium-sized enterprises or small and medium-sized businesses are businesses whose personnel numbers fall below certain limits

FINANCIAL INCLUSION: Financial inclusion is the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services which include banking, loan, equity, and insurance products