ROLE OF COMMUNITY -BASED MICROCREDIT FINANCING ORGANIZATIONS TO SMALL SCALE ENTREPRENEURSHIP DEVELOPMENT IN EKITI STATE

ABSTRACT

The study was carried out to determine the role of community-based microcredit financing organizations to small scale entrepreneurship development in Ekiti State. Survey research design was adopted for the study. Five research questions were developed and answered in line with the purpose of the study. Five null hypotheses were formulated and tested at the probability of 0.05 level  of  significance.  A  structured  questionnaire  was  developed  from the  related  literature reviewed for the study. The questionnaire was face validated by three experts.  The questionnaire was tested for reliability using cronbach alpha method and the result showed a coefficient of

0.88. Copies of the questionnaire were administered on 228 respondents. The data were analyzed using mean and standard deviation to answer the research questions and z-test statistics to test the  null  hypotheses.  The  major  findings  of  this  study  indicated  that  community-based microcredit financing organizations in 12 ways help small scale entrepreneurs to raise seed money for development, in 6 ways help to mobilize savings among small scale entrepreneurs for development, in 10 ways granted loans to small scale entrepreneurs, in 10 ways help to enhance the income of small scale entrepreneurs for development and in 10 ways help to alleviate poverty among small scale entrepreneurs in Ekiti State. The result of null hypotheses tested revealed that there  was  no  significant  difference  between  the  mean  responses  of  male  and  female entrepreneurs on the extent community-based microcredit financing organizations help to raise seed money of small scale entrepreneurs for development and on the extent community-based microcredit financing organizations help to mobilize savings among small scale entrepreneurs for development. The result also revealed that there was no significant difference between the mean responses of urban and rural entrepreneurs on the extent loans granted by micro-credit financing organizations to small scale entrepreneurs lead to their development, on the extent community-based micro-credit financing organizations help to enhance the income of small scale entrepreneurs for development and on the extent community-based microcredit financing organizations help to alleviate poverty among small scale entrepreneurs in Ekiti State. It was recommended that the Credit and thrift societies should sensitize people in the community about the roles and functions of community-based micro credit financing organization to small scale entrepreneurship development. Suggestions were made for further studies.

Background of the Study

CHAPTER ONE INTRODUCTION

People engage in joint activities and discussions, help each other and share information. They build relationships that enable them to learn from each other. These attributes and others made them being referred to as community.

Olaitan (2008) defined community as a group of people interacting among themselves in a geographically defined area. These people may share certain similar cultural attributes like norms, belief and value system. They form themselves into smaller group with similar objectives. These smaller groups are in form of clubs and associations with relevant objectives and activities. Most of their activities are rooted deep in cultures and  values of their  community to  assist  individuals make a  living  within  the  large community. Community based microcredit financing organizations could be described as a rotating saving association operating between group of people. They are made up of different racial background with similar micro credit needs for project development.

Srinivas, (1997) defined micro credit as the extension of very small loans (micro loans) to  poor entrepreneurs, unemployed and  others living  in poverty who  are not considered bankable. He further said that micro credit financing organizations have the power to change the lives of the poor and low income people by granting them access to loans. This helps them to meet their needs and also enables borrowers finance business enterprise.

Baxter and Rees, (1977) explained finance as the money provided when and where required. It may be short term, medium term or long-term. He said that finance provided for investment in business serves as the capital. Finance is equally defined by

Olaitan (2005) as a basic tool to success in any development project. He stated that finance can be expressed as cash or material resources that could be exchanged for money and made available for a particular project. Nwude, (2004) asserted that finance is one of the key factors of production and it is the life-blood of any enterprise. Omotosho, (1991) said that financing organizations are designated authorities, persons and small companies that provide financial services targeted at the entrepreneur in form of cash or material resources. Individual that operates small scale enterprise is known as small scale entrepreneur.

Osuala, (1993) defined small scale entrepreneur as a person who owns, manages and controls business enterprise with a capital of less than N 4 million with relatively small share of market and does not have more than 50 employees. Jerry (1993) defined entrepreneur as a person who has the ability to identify, evaluate business opportunities and also  initiate appropriate actions to successfully execute the financial risk of the initiation, operation and management of the given business. In the opinion of Osuala (1993) entrepreneurs are the embodiment of a nation’s “meeting pot” population. They are found in all spheres of human endeavours such as hairdressers, traders, welder, tailors, vulcanizers and others that are involved in entrepreneurship development that earn them a living.

Yerk, (1994) defined development as a state of being in progress or being carried through a course of action toward an end result. He further stated that entrepreneurship development is the process of wealth and job creation. Ofuebe and Jerome (1991) opined that entrepreneurship is the organization of the factors of production (Land, labour and capital). Lankford  in Aluwong (2004) said entrepreneurship development is about self –

reliance, which involves identification of a market and mobilizing necessary resources to serve that market through business outfits. These business outfits will generate wealth for one’s economic survival with necessary initial seed money. Saleh, (2004) explained seed money to mean the cash an entrepreneur needs to begin a business      mwith. Osuala, (2004) called seed money an adventure or injection capital. He defined it as the cash an entrepreneur needs to begin a business. He further said that where such seed money could be found would depend on the nature of the proposed business, the amount required and the purpose for which is to be used.

In Ekiti state obtaining seed money by small scale entrepreneurs is a critical aspect of starting a new business. Schilit (1990) asserted that many small scale businesses failed in many communities due to lack of money. He further said that access to finance by these small scale entrepreneurs had been difficult. Other individuals who want to establish new ventures were forced to withdraw their mission because they lack seed money to take off.

Schilit (1990) opined further that seed money may come from financial bootstrapping rather than offering. Bootstrapping in this context means making use of cash flow of an existing enterprise. He further identified various sources which entrepreneurs can raise money such include; approach to families, friends, colleagues. Others are purchasing second – hand equipment rather than new or leasing rather than buying, paying sales people or agents on commission rather than having people on the payroll.

Seed money enables micro credit financing organization members create job and employment. This made them known as entrepreneurs. They may start new ventures with

little seed money which even include savings. Todaro, (1982) defined savings as that part of income which is not consumed. He said that when money is saved people abstain from using a certain quantity of goods and services. Ekong, (2001) defined savings as an accumulating wealth through the postponement of consumption. Individuals maintain saving so that they can use it to start business or acquire other assets at any time they consider it more profitable.

Well, (1977) observed that developing countries are characterized by low rates of domestic savings. Most community people in the area of study have low rate of saving because of their low income and they are faced with little saving capacity. Miller, (1979) suggested the possibility of using selected savings group to effectively mobilize rural savings for productive investment. In the same vein Eboh (1993) identified motivating principles that enhance savings mobilization in Nigeria as mutual help or reciprocity principle. That people operate micro credit financing in form of thrift and credit, age grade, market organization to raise money for members. The pooled money becomes loan to collectors.

Asaolu,  (1998)  defined  loan  as  a  fixed  amount  of  money  granted  to  an entrepreneur  for  a  fixed  period  of time  by  which  the  loan  is  repaid  with  interest. Saleh, (2004)   agreed that micro credit financing organizations provide a good source of money or capital for small scale entrepreneur provided the required conditions are met by such entrepreneur. Srinivas (1997) asserted that loan granted are spent to acquire assets such as; land, building, meeting of running cost e.g salaries of workers, taxes, payment for good purchased from members.

Microcredit loans are the main source of finance to small scale entrepreneur in Ekiti State. This made Asaolu (2004) asserted that microcredit is the dominant source of external financing for small scale business firms. This has been found to be the case of both the early stage as well as the latter stage of the small scale enterprise existence. Such loan is needed as seed capital (start-up capital) procures assets, for working capital, preliminary and pre-operating expenses and a host of others. In Ekiti State small scale entrepreneurs seem to patronize one form of microcredit financing in order to boost their income.

Hornby, (2000) defined income as money that a person, a religion, a country etc earns from work, from investing money from business. The author further said that it is money received over a certain period as payment for work or as interest on investment. Nweze, (1995) asserted that  micro  credit  financing organization developed from the union of family members, friends, dwellers in the same location, members of age-grade, tribe and so on with desire to mutually and financially help each other.

In the opinion of Ekong (2001) members of micro credit financing organization contribute fixed sums of money at regular intervals in a rotating manner. Each member receives  the  pooled  sum at  a  time  to  meet  desired  needs.  The  rotating  obtainment concludes when each member has taken his/her own turn. Ekong (2001) further, stated prominent features of this type of arrangement that, the members who take turns earlier are indebted to members yet to have their turns; interest rate may not be charged; on mutual agreement a member could swap his position and opportunity is provided for the members to practice the habit of saving. This serves as income in one way and as

measure to increase economic activities in order to fight some social vices caused by poverty.

Poverty is defined by Olaitan, Ali, Onyemachi and Nwachukwu (2000) as the scarcity of human basic needs or the inability of an individual or society to acquire human basic  needs for existence. Micro credit financing organizations serve as cost effective tool to  fight  against poverty (Srinivas 1997). They are capable to  develop sustainable institutional arrangements to serve a large number of clients. Sen (1980) agreed that poverty is the failure of an individual to meet basic requirement of a “decent” life. The basic requirements are not restricted to the economic spheres but also extend to social and spiritual spheres of life.

Olaitan et  al (2000) identified the following as the characteristic features of poverty; low income. Large family size, low level of productivity, political instability and high dependence. These characteristics of poverty are common in both rural and urban poverty in modern times. It is hoped that if practical measures are put in place micro- credit financing organizations in Ekiti State will meet economic needs of the poor people and transform their life style. .

Statement of the Problem

Ekiti State has been endowed with business activities because of its environment which favours entrepreneurship development. Individuals exploit this favourable commercial situation to improve upon their scope of entrepreneurial without constraints. Improved business development is primarily a function of sustainable financial support of seed  money to  allow  for  effective  operation of a  small scale  business. Despite the

favourable geographical location of Ekiti State, attempts to improve on   business and economic activities are hindered by restricted access to seed money.

Accessibility to seed money becomes difficult, this made Schilit (1990) remarked that obtaining money is one of the most difficult aspects of starting a small business even many businesses fail or are prevented from starting due to lack of money or capital. Also it is observed that the long existence of community-based microcredit financing organizations against the modern banks, there has not been enough documented information and empirical data to show whether they are beneficiaries. To others microcredit financing organisations are seen as being sustaining but not improving the capital base of people. Non members do not recognize community-based microcredit financing organizations as being viable like their commercial bank counterparts hence this study.

Most entrepreneurs in the state are not literate enough to the extent of boldly sensitizing the government or other agencies for financial assistance. They are observed as having less entrepreneurial training in the management of money and business financing; these contribute to their limited involvement to finance intensive enterprise. With the above constraints, it  is evident that it will be difficult for entrepreneurs to change the trend of their business activities beyond present peasantry level. It becomes justified therefore that efforts should be made to remove most of the constraints that limit entrepreneurs progressive initiatives especially inaccessibility to finance which is a major negative factor in business cycle.

Purpose of the Study

The major purpose of the study is to determine the role of community – based micro-credit financing organizations to small scale entrepreneurship development in Ekiti State. Specifically the study is to;

1.  Determine the extent community-based microcredit financing organizations help the small scale entrepreneurs in Ekiti State raise seed money for development.

2.  Determine the extent community-based micro-credit financing organizations help to mobilize savings among small scale entrepreneurs for development.

3.  Determine the extent community- based micro-credit financing organizations grant loans to small scale entrepreneurs for development.

4.  Determine the extent community-based micro-credit financing organizations enhance the income of small scale entrepreneurs for development.

5.  Determine the extent community-based micro-credit financing organizations help to alleviate poverty among small scale entrepreneurs for development.

Significance of the Study

The findings of the study will be of great assistance to both existing and would – be small scale entrepreneurs in Ekiti State. The study will create awareness and knowledge of better ways to raise initial capital or beginning money in order to enhance success and growth of business enterprises. It will also help the entrepreneurs of small scale enterprises to form micro-credit financing organizations in order to have access to seed money for business use which will lead to job creation and enhance economic growth of the State.

The ministry of commerce and Industry/Policy makers will find the result useful because it will make them to establish seminar or training programmes for small scale entrepreneurs. More business opportunities will be high lighted which will enable entrepreneurs to open more business ventures. Thus ministry of commerce and industry stands to enjoy more taxes from the entrepreneurs.

The curriculum planners will find the result useful and see the need for a total entrenchment of entrepreneurship education into the Nigerian educational system. This is because entrepreneurship education has the capacity to reform individuals and create in them positive,  flexible  and  adaptable disposition to  change; equip  the  individual to become wealth creators and job providers; and can also serve as a basis and prospect for increased economic growth.

The general public will also benefit from the findings of this study. It will enjoy enough better quality service and satisfaction in goods and services produced by small scale entrepreneurs. The public will also be motivated by the growth that would be experienced in the small scale enterprise sector, to start their small businesses. This will lead to self – reliance of individuals, poverty and unemployment reduction, and abation in the rate of crime and moral decadence in the society.

The findings of this study will also contribute significantly to the knowledge and understanding of the public on the role performance of micro-credit financing organizations. Business education and management students will find the results of this study beneficial for further and future research, since the literature will be useful.

Research Questions

The study will answer the following research questions.

1.  To what extent do community-based microcredit financing organizations help the small scale entrepreneurs to raise seed money for their development?

2.  To  what  extent  do  community-based microcredit  financing organizations help to mobilize savings among small scale entrepreneurs for development?

3.  To what extent do community-based microcredit financing organizations grant loans to small scale entrepreneurs for development?

4.  To what extent do community-based micro-credit financing organizations help to enhance the income of small scale entrepreneurs for development?

5.  To what extent do community-based micro-credit financing organizations help to alleviate the level of poverty among small scale entrepreneurs in Ekiti State?

Hypotheses

The following null hypotheses will be tested at 0.05 level of significance.

H01: There is no significant difference in the Mean ratings of the responses of male and female entrepreneurs on the extent community-based micro-credit financing organizations   help   to   raise   seed   money  of   small   scale   entrepreneurs   for development.

H02: There is no significant difference in the Mean ratings of the responses of male and female entrepreneurs on the extent community-based micro-credit financing organizations help to mobilize savings among small scale entrepreneurs for development.

HO3: There is no significant difference in the Mean ratings of the responses of urban and rural entrepreneurs on the extent loans granted by micro-credit financing organizations to small scale entrepreneurs lead to their development.

HO4: There is no significant difference in the Mean ratings of the responses of urban and rural entrepreneurs on the extent community-based micro-credit financing organizations help to enhance the income of small scale entrepreneurs for development.

HO5: There is no significant difference in the Mean ratings of the responses of urban and rural entrepreneurs on the extent community-based micro-credit financing organizations help to alleviate poverty among small scale entrepreneurs in Ekiti State.

Delimitation

The study was delimited to the role of community-based micro-credit financing organizations to  small  scale  entrepreneurship development  in  Ekiti State.  It  is  also restricted to registered small scale entrepreneurs operating in Ekiti State.

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