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Advances in Social Sciences Research Journal – Vol. 8, No. 3
Publication Date: March 25, 2021
DOI:10.14738/assrj.83.9723. Adamolekun, W., Obadeyi, J. A., Ogbeide, S. O., & Akande, A. A. (2021). Microfinance Institution (MFIs) and Survival of Micro and Small
Enterprises (MSEs): Empirical Evidence of TraderMoni Scheme Beneficiaries in South-Western Nigeria. Advances in Social Sciences
Research Journal, 8(3) 195-215.
Microfinance Institution (MFIs) and Survival of Micro and Small
Enterprises (MSEs): Empirical Evidence of TraderMoni Scheme
Beneficiaries in South-Western Nigeria
Wole Adamolekun
Department of Mass Communication, Elizade University, Ilara –Mokin, Ondo State.
J. A. Obadeyi
Department of Accounting & Finance, Elizade University, Ilara –Mokin, Ondo State.
Sunday Oseiweh Ogbeide
Department of Accounting & Finance, Elizade University, Ilara –Mokin, Ondo State.
A. A. Akande
Department of Accounting & Finance, Elizade University, Ilara –Mokin, Ondo State.
ABSTRACT
Deregulation in Microfinance Institution (MFIs) in accordance with
regulatory policy architecture since 2005 has not fully stimulated
sustainability towards the informal system due to the inability of MFIs
to access funds and government to judiciously administer credits to
beneficiaries of various schemes; this has led to the partial collapse of
some schemes in Nigeria; despite Government good intentions of
creating employment and alleviating poverty. In view of this, this study
assessed Microfinance Institution (MFIs) and Survival of Micro and
Small Enterprises (MSEs): Empirical evidence of tradermoni scheme
beneficiaries in South-Western Nigeria. The study adopted Tedeschi
model (2006) that examined incentives available for borrowers to
repay loans. Furthermore, reference was made to Markov Chain model
to investigate the response of individual borrower as an applicant and
beneficiary of tradermoni scheme in the context of this study. Eighteen
MFIs were sampled from 2009 – 2020. Panel data was adopted for the
study. The result showed mixed influences of MFIs on survival of MSEs.
We are hopeful that findings of this paper would help to fill the existing
gap on the influence of MFIs on the survival of MSEs.
Keywords: Micro-financing, Financial Institutions, Micro and Small
Enterprises, TraderMoni, Central Bank of Nigeria.
JEL Classification: C58; G2; M13; O17
INTRODUCTION
The MFIs used to be self-sustaining banking sub-sector institute; mostly managed and controlled
by people, identified as financial professionals for efficient deposit mobilization and financial
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 8, Issue 3, March-2021
services provisions to develop the informal sector. The informal system was largely represented
by Micro, Small and Medium Enterprises (MSMEs). Microcredits were either mini or small loans
provided by MFIs to impoverished people, to alleviate poverty rate, to fund mini businesses
survival and to assist low income earners to become self-employed (Akande, 2005).
Furthermore, Microcredits were tools which promoted economic development to the poor
people and could help reduce poverty and malnutrition in the society. The government has
introduced various schemes such as Subsidy Reinvestment and Empowerment Programme
(SURE-P), Family Support Programme, Conditional Cash Transfer, YouWin, N-Power, Tradermoni,
Nigeria Youth Investment Fund, MSME survival fund and so on. This research work captured
individuals who were beneficiaries under previous and present schemes and particularly
tradermoni. Meanwhile, tradermoni could be regarded as credits meant to assist in the funding of
artisans, mini and small business owners in Nigeria. Tradermoni was a credit scheme to assist
micro and small enterprises (MSEs) courtesy of the Government Enterprise and Empowerment
Programme (GEEP). The GEEP was a scheme of the Federal Government of Nigeria, via Bank of
Industry (www.tradermoni.com.ng). In lieu of the similarity in definitions, exiting structures and
financial roles of microcredits and tradermoni; therefore, microcredits were not less different
from tradermoni.
This study strongly believed that MFIs were responsible for provision of micro credits to petty
traders and small business owners and managers. Stakeholders in the MFIs banking subsector
were aware of the fact that one of the major challenges confronting the subsector was lack of
funds or capital to provide financial services and create savings mobilizations so as to ease the
financial intermediation process (channeling funds from the surplus unit to deficit unit). It was no
doubt that financial performance of MFIs would be affected if government through its regulatory
and supervisory agencies have not adequately provided enabling environment and stable policies
to achieve economic sustainability.
LITERATURE REVIEW
The Concept of Microfinance Finance Institutions (MFIs)
Microfinance Finance Institutions (MFIs) comprised of microfinance banks established to provide
financial services to mini, small and low-income clients, including petty traders, small business
managers and owners, consumers, customers, retired and active individuals and the self- employed (Babajide, 2012; Oladejo, 2013; Ogujiuba, Fadila, and Stiegler). Orodje (2012) claimed
that MFIs only specialized in providing petty credits to poor persons and low income group in
developing countries. Microfinance Institutions’ clients were often living along the poverty, which
was often characterized with tiny and small enterprises which consisted of petty retail shops,
small kiosks, street vendors, artisans, black smiting, carpentry, vulcanizing, hairdressing salon and
welding.
Micro-credits customers most of the time accepted micro loans to start businesses as claimed in
these studies, (Wanjohi & Mugure, 2008; Wellen and Mulder, 2008; and Wakaba, 2014). Some
studies (Oladejo, 2013; Wakaba, 2014) acclaimed that MFIs clients spent only half of the total loan
proceeds on business. It was believed that the accessed credits were spent on different
households’ needs such as expenses on education, shelter, clothing, food and possibly health – all
these were contrary to the purpose of the credit. Evidences from the endogenous literatures have
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Adamolekun, W., Obadeyi, J. A., Ogbeide, S. O., & Akande, A. A. (2021). Microfinance Institution (MFIs) and Survival of Micro and Small Enterprises
(MSEs): Empirical Evidence of TraderMoni Scheme Beneficiaries in South-Western Nigeria. Advances in Social Sciences Research Journal, 8(3) 195-215.
URL: http://dx.doi.org/10.14738/assrj.83.9723 197
shown that microfinance institutions (MFIs) remained one of the financial institutions next to the
people in the grassroots (Oladejo, 2013).
Microfinance Institutions (MFIs) Performance Indicators
i. Credit Usage
Credit was the money receipt exchanged for not immediate repayment of the principal, plus
interest but in the nearest future. Most often the principal could be the larger amount borrowed,
and the interest might be the amount (i.e. smaller compared to principal); charged for receiving
the credit. But diversion of credits from its primary purpose could endanger the sustenance of
firms (Wellen & Mulder, 2008). Ojo (2009) corroborated with the claim that the borrower’s
purpose for the credit must be justified and satisfactory to the lender. Lenders sometime took risk
that borrowers might not repay the credit, but credit savers would expectedly need to offset that
risk by charging a fee, which otherwise known as interest. The borrower’s ability to use credit as
promised by banks built confidence in the credit repayment process by the credit user.
According to Orodje (2012), credit usage was just a term that depicted the main reason an
applicant was seeking a loan or credit. The objective of the credit was used by the lender to make
decisions on the risk and might even impact the interest rate offered. Credit usage remained very
important to the process of accessing business loans because it was connected with a typical
business activities; to the extent that the reason for obtaining credit would automatically not be
contrary to its primary and expected intentions.
ii. Loan Disbursement
Loan disbursement constituted the act of paying out or disbursing money, but such money could
either be paid out to run a business or the amounts that might have to be paid out on behalf of a
person's in connection with a transaction; and such that interest rate would be charged on the
fund disbursed (Pearson and Greef, 2006). Furthermore, according to Ogujiuba, et al, (2013), one
of the fundamental objectives of MFIs was ability to absolutely disburse loans with minimum risk,
which relied heavily on MFIs’ credit policies. Consequently, Oni, Paiko and Ormin, (2012) asserted
that loan disbursement was a cash outflow or payment of money process to settle debt obligations
such as interest payments on loans and accounts receivables to complete business activities via
the use of electronic payment system (plastic money, electronic fund transfers) and other sources
of debt settlement. Slight contrast, Warue (2012) believed that there was need to abreast with
process associated with loan disbursement. He started by carefully evaluating the credit- worthiness of the customer vis-a-vis the business viability and feasibility. This was particularly
important if the company chooses to extend some type of credit line or revolving credit to certain
customers. More so, loan disbursement required setting either specific criteria or standard, which
a customer of bank must satisfy before receiving the proposed credit arrangement; and credit
lines would be extended to loan default-less customers (Shabbir, 2016).
In view of the aforementioned, there was need for MFI management to thoroughly supervise
credit officers by properly assessing risks associated with the credit disbursement.
iii. Loan size
The process of lending of money from one entity to another, such that the disbursement approach
varied could be regarded as loan size (Odongo, 2014). According to Rosenberg (2009), financial