1.1 Introduction
Micro scale businesses in developing nations exist with low rates of business survival. This is due to poor financing of micro enterprises in those countries. Financing micro enterprises to boost their development is therefore considered part of the necessary pathways to poverty reduction and the overall economic development in evolving countries. Cooperative financing is notable for the role played by patrons in the acquisition and use of capital in the micro scale enterprises. It spans the credit amount obtainable for businesses (Boland and Barton, 2013). With non-existence of strict access to finance by members, availability of funds through cooperative financing is crucial for both short and long run purpose of micro scale businesses (Onaolapo and Oladejo, 2011).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Micro Scale Enterprises (MSEs) in developing countries have been seen as engines through which the growth objectives can be achieved (kayanula and Quartey, 2000). These enterprises have been identified as the means through which the rapid industrialization and other developmental goals of these countries can be realized. Within the context of this research undertaking, small and medium scale enterprises are generally identified with the following variables; capital investment, annual turnover, gross output and employment (Osuala, 2000). He stated that the classification of enterprises as ‘medium’ and ‘small’ varies from one economy to another and from one period to another in the same economy.
The growth of MSEs has been hampered by the lack of adequate knowledge and a well-structured financial market for the mobilization of capital. The role of finance has been viewed as a critical element for the development of MSEs (Cook and Nixson, 2000). Recently, various funds have been set up to benefit MSEs but statistics provided by fund managers show that a disproportionate number of applicants have not been successful at accessing funding (Boateng, 2010).
The objective is to generate sufficient long-term capital gains from the investors and the venture capitalists. Venture capital assists investors to access equity capital to finance the expansion of business while maintaining control. The expertise and extensive relationships of the venture capitalist through its network add value to the company and increase credibility with customers, and finally, the company gains access to the venture capitalist knowledge in accounting, budgeting, computer systems, and back-office operations (Amissah, 2009).
Most micro scale businesses in developing nations exist with low rates of business survival. This is due to poor financing of micro enterprises in those countries. Financing micro enterprises to boost their development is therefore considered part of the necessary pathways to poverty reduction and the overall economic development in evolving countries. In the presence of dwindling financing opportunities from options like formal bank loans, grants and family sources, the prospects of cooperative financing to develop micro scale businesses is therefore very germane. However, existing studies, research and policy outlook have paid limited attention to the possible contribution of cooperative financing to micro scale enterprises. Focus has largely been shifted to micro finance institutions of banks with stringent financial conditions, and debt financing that could be inimical to the growth of micro business enterprises.
As stressed by Kirimi, Simiyu and Dennis (2017) the existing financial windows are largely opened to larger business enterprises through a formal system and with credit conditions that are too rigid for the immediate growth of small business firms. This makes the micro business enterprises largely dominated by individuals with high level of economic exclusion. The notable burden of other sources of finance positioned cooperative financing which thrives largely on equity financing (Keri, 2015) as a viable option.
Therefore, in Ondo State where the research was carried out, the activities that was conducted is to know the Cooperative Societies Financing and Performance of Micro Scale Enterprises.
1.3 Statement of Problems
Investigation revealed that the problem of inadequate and proper keeping of information by some MSEs will also place limitations on the research area. Although the framework is grounded in the data, it does not necessarily hold true for all MSEs. The MSE sector constitutes in excess of 90% of the economy of the country. The need to provide affordable credit over a reasonable period for this sector cannot be over-emphasized. MSEs, if properly structured and capitalized have the potential to grow and spearhead accelerated growth of this economy into a middle-income status (Venture Capital Nigeria, 2008). MSEs still in Nigeria have been faced with liquidity and financing challenges leading to business failures under production Industrial disputes and sometimes closures by regulatory authorities.
Additionally many non-financial constraints inhibit the success of such enterprises. MSE owners are reluctant to be transparent or open up involvement of their businesses to outsiders. They seem to be unaware of or oblivious to the obligations and responsibilities they have toward capital providers, and the need to acquire or seek support for technical services like accounting, management, marketing, strategy development and establishment of business linkages.
Unfortunately since there is a dearth of long term investment funds for MSEs (as a consequence of the banks and securities markets shying away from the high risk investments in these sectors, it has became imperative for the Government to set up a scheme that will provide long term funding for the high risk investment needs of the MSE sector. This has led to the establishment of Venture capital fund under the Venture Capital Trust Fund Act, 2004 (Act 680), to provide capital to Micro Scale Enterprises (MSEs) and to promote Venture Capital industry in Nigeria (Venture Capital Nigeria, 2008)
1.4 Aim and Objectives of Study
The aim of the study is to examine the Cooperative Societies Financing and Performance of Micro Scale Enterprises in Ondo State. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the characteristics of micro scale firms in the midst of existing economic challenges in Ondo State;
- To determine the Micro Scale Enterprises Owner Manager’s perception of funding;
- To determine the impact of Cooperative Societies financing in small business activities.
- To determine Micro Scale Enterprises alternative sources of funding; and
- To determining how cooperative financing of micro scale firms relates to the development of desirable outcomes of micro scale enterprises in Ondo State, Nigeria.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What is the Micro Scale Enterprises Owner Manager’s perception of funding?
- What are the alternative sources of funding to Micro Scale Enterprises?
- What is the impact of cooperative societies financing on small business activities?
- How does cooperative financing of micro scale firm relates to the development of desirable outcomes of micro scale enterprises in Ondo State?
- What are the characteristics of micro scale firms in the midst of existing economic challenges in Ondo State?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There are no significant factors affecting of cooperative societies financing on small business activities in Ondo State
- H1: There are significant factors affecting of cooperative societies financing on small business activities in Ondo State
1.7 Significance of Study
The study is justified for a number of reasons. Little studies have empirically examined venture capital as a source of finance within the Nigerian context. The study is relevant will also identify venture capital as an emerging funding source for MSEs development in Nigeria. This study has been motivated by the premise that in order to formulate a coherent strategy vis a vis the MSE sector, it is necessary to:
- Comprehend financing problems and different ways of sourcing funds, and
- Be able to identify venture capital as a financing option to MSEs.
The findings of this research could offer an opportunity for MSEs to appreciate venture capital funding. The study would further seek to encourage government to expand the operations of the venture capital funding to drive MSEs contribute to economic growth, employment and the nation’s development.
Finally for Government and other stakeholders to always provide another source of funding to replenish the coffers of the scheme.
1.8 Scope of Study
The scope of the research is focused on the Cooperative Societies Financing and Performance of Micro Scale Enterprises (MSEs) in Ondo State.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Cooperative Based Business: It is unique owing to its emphasis on the peculiar role of patrons (members) and the associated relationship with ownership, membership and customer attributes.
Credit: Way of delayed payment of goods and service which allows for regular payment over a period of time.
