Role of Micro Finance Banks in Promoting Small and Medium Scale Enterprises in the Federal Capital Territory, Abuja, Nigeria

Abstract

The practice of microfinance banks is not new. It has been in existence from time immemorial providing the needed finances through informal microfinance approaches such as self-help groups, credit associations, accumulating credit, savings association and direct borrowing from friends and relations and community banks. In modern times, the major function of MFBs globally is that they engage in simple operations for their activities by giving of small loans and collections of small savings; and removal of collateral security as a condition for loan advances. In developing countries, MFBs are deposits mobilization, finance schemes or loans of up to $3,000, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises. SMEs are considered the backbone of economic growth in all countries of the world. They play an important role in Nigeria’s economic growth, as they constitute 97.2% of companies in Nigeria and also contribute to national development by positively influencing the distribution of income in both functional and nominal terms. The study seeks to examine the extent MFBs have been able to finance the SMEs in Nigeria’s FCT, Abuja. The theory that guided the research is elite theory while data were sought from secondary sources. It was discovered that MFBs operators in the FCT have inadequate experienced credit staff. As a young and growing industry, there is a dearth of experienced staff in planning, product development and effective engagement with clients. Most credit staff of MFIs in Nigeria and indeed FCT are on their first jobs. Inadequate experienced staff limits expansion and institutional performance. Another finding is repayment problems. Loan delinquency is a major threat to institutional sustainability. It is one of the limitations that afflicts Microfinance Banks. Delinquency demoralizes the staff and deprives beneficiaries of valuable services. Delinquency is a symptom of poor leadership. It is hereby recommended that there should be a policy that will help the Microfinance Banks have a focused professional management as well as experienced credit staff, diverse and professional board that will have the policy at heart. There is also the need to have an impartial; quick and simple approval and disbursement procedures that will support innovation and ensure the achievement of financial self-sufficiency. Economic environment should be made conducive; government should improve the present state of infrastructure.