CHAPTER ONE INTRODUCTION 1.1 Background to the Study

Studies on industrial developed countries have shown that small and medium enterprises constitute a fundamental part of the industrial sector and play an active role and bring development to these countries. Over the year, the Nigeria economy has been dominated by large industries which are mostly multinational. This is obviously due to the government policies which encouraged and emphasized the development of these large industries at the at the expense of the small scale industries. Eventually, the Nigerian government recognized the development of small scale industrial as an imperative prerequisite for sustaining a well balanced industrial sector. Faust (2000) submits that four basic interrelated inputs are required to give impetus to their development. They included;

1. Favorable government policies and incentives
2. Technical assistance

• Managerial assistance

1. Finance assistance

Due to the uncertainties, the lower rate of return, the expense of administration and the mediocre expense of previous government lending programs, Faust added, financial assistance for the small entrepreneur has been lacking from both government and commercial source.

Consequently this heralded the institution dedicated to assisting small enterprises, the poor and households who have access to financial services. Institutions offering microfinance institutions are designed financial institutions dedicated to assisting small enterprises, the poor and households who have no access to financial services. Institutions offering microfinance services are very diverse,  including commercial banks, community banks and state-owned development banks.

The formal/traditional microfinance institutions include: the Self help Groups (SHGS), or the rotating saving and Credit Associations (ROSCAs), and cooperative societies, while the formal/modern Microfinance institutions include universal banks, community Banks (Micro-MFIs), non-Government Organizations Microfinance Institutions (NGO-MFIs), public sector poverty alleviation agencies, special microfinance schemes and Donor Agencies. (Iganiga, 2008).

The central Bank of Nigeria survey (2001) indicated that the operations of formal microfinance institutions in Nigeria are relatively new, as most of them were registered after 1981. They operate in both urban to rural areas, the roles played by these institutions are diverse according to the scope of their operations which vary from social to economic roles, in other words, from financial intermediation to technical and managerial assistance.

According to Anyawu (2004), the bulk of credit beneficiaries were women, as most of the microfinance institutions began as NGO that had the promotion of female welfare as the basis for their establishment. Apart from the general belief that women are marginalized in terms of economic opportunities and should therefore have separate promotional agenda, the MFIs are of the view that women perform better than men in managing meager resources and promoting micro-enterprises.

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