Abstract
Small and Medium Enterprises (SMEs) are increasingly being accepted as valuable platforms to create jobs and improve livelihoods. The Nigerian government has enacted favorable laws and regulations on contracts, leasing, and corporate tax to encourage the development of SMEs. Nonetheless, many entrepreneurs in Nigeria cannot access loans given the high levels of poverty. The paper argues that microenterprise finance cannot be financially viable because small loans are too costly to administer and the profits from such lending too meager to permit profitability. Based on content analysis of available literature, it is found that microfinance institutions have collapsed in Nigeria due to poor loan quality, default in loan repayment, high transaction costs, widespread delinquency, and management deficiencies. Given these challenges, the paper recommends savings by microfinance institutions and measures from successful initiatives from countries such as Indonesia and Bangladesh. These will enable microfinance institutions to be self-sustaining and to increase outreach. DOI: 10.5901/mjss.2013.v4n6p611
Highlights
The unemployment problem in Nigeria has remained persistent resulting in deterioration of welfare of people and little prospect for measurable development in the country
Based on data provided by the Nigerian Bureau of Statistics (NBS) (2011), the unemployment rate in Nigeria has increased to 23.9% in 2011 compared to 21.1% in 2010 and 19.7% in 2009
In order to boost employment in Nigeria, the government has focused on the area of Credit Delivery to the Poor and Small and Medium Enterprises (SMEs)
Summary
The unemployment problem in Nigeria has remained persistent resulting in deterioration of welfare of people and little prospect for measurable development in the country. Microfinance has emerged as an effective strategy for employment creation and poverty reduction and across developing countries, micro, small and medium enterprises are turning to Microfinance Institutions (MFIs) for an array of financial services. The Nigerian government has institutionalized microfinance as the practice of collaborative provision of financial services such as credits (loans), savings, micro-leasing, micro-insurance and payment transfers to economically active poor and low income households This is to enable them engage in income generating activities or expand their small. Despite commitment by the Nigerian government in the abovementioned approaches, majority of the SMEs are unable to access loans from MFIs failing to obtain start-up capital for business purposes This is because the microfinance sector is fraught with many challenges, with evidence showing that the MFIs experience problems relating to information asymmetry and risk perceptions 1.
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