1.1 Introduction
Recapitalization of Microfinance Bank is the process of increasing the amount of long term finances used in financing the organization. It also entails increasing the debt stock of the company or issuing additional shares through existing shareholders or new shareholders or a combination of the two. Capitalization is an important component of reforms in the Nigeria banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities. Attaining capitalization requirements may be achieved through consolidation of existing banks or raising additional funds through the capital market.
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
The Nigerian banking system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. These changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards.
Asedionlen (2004) opined that "Recapitalization may raise liquidity in short term but will not guaranty a conducive macroeconomic environment required to ensure high asset quality and good profitability".
Jika (2004) as cited in Aminu and Aderinokun (2004) maintained that increasing the capital base of banks in Nigeria would strengthen them and, in the process, deepen activities within the industry. “Growing the Nigerian economy is about the number of banks that have the capacity to operate in all the states of the federation, fund agriculture and manufacturing concerns, and in the process generate employment for Nigerians.”
In Nigeria, credit has been recognized as an essential tool for promoting small and Micro Enterprises (SMEs), hence the need for recapitalization of Microfinance Banks in Nigeria. Microfinance Banks recapitalization which was effective from 2006 is aimed at making Nigerian banks stronger and better in-order to finance all sectors of the economy including the major drivers of the economy-Small and Medium Scale Enterprises. About 70 percent of the population is engaged in the informal sector or in agricultural production. The Federal and State governments have recognized that for sustainable growth and development, the financial empowerment of the people is vital. If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve rural and urban enterprise production capabilities (Olaitan 2006).
The central Bank of Nigeria on July 6th 2004, announced the recapitalization of banking sector from N2 billion to N25 billion with effect from 1st January 2006. This was with a view to make the sector internationally competitive, sound and improves its ability to provide credit to all the productive sectors of the economy. In order to meet this obligation, banks embarked on strategies of merger and acquisition, floating of new shares and so on. At the end of the exercise, 25 new banks emerged.
It was hoped that the consolidation will make the banks stronger to be able to provide large amount of funds to productive sectors of the economy which is largely dominated by Small and Medium Enterprises, thereby making them grow into large firms with enough resources to contribute to the economic development. Also, in December 2005, the CBN introduced new Micro-finance Policy (MFP) which was designed to be public and private sector driven. Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Central Bank of Nigeria on the Recapitalisation of Microfinance Banks.
1.3 Statement of Problems
The issue of recapitalization is a major reform objective; recapitalization literarily means increasing the amount of long term finances used in financing the organization. Recapitalization entails increasing the debt stock of the company or issuing additional shares through existing shareholders or new shareholders or a combination of the two. It could even take the form of merger and acquisition or foreign direct investment. Whichever form it takes the end result is that the long term capital stock of the organization is increased substantially to sustain the current economy trend in the global world.
1.4 Aim and Objectives of Study
The aim of the study is to scrutinize the Impact of Central Bank of Nigeria on the Recapitalisation of Microfinance Banks. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the effects of Microfinance Banks recapitalization on Microfinance Banks in Nigeria.
- To determine the relationship between Microfinance Banks and the performance Small Business Entrepreneurs in Nigeria.
- To determine whether Microfinance Banks recapitalization led to increase in funds for financing SMEs.
- To examine the accessibility of Small and Medium Enterprise Equity Investment Scheme (SMEEIS) funds to SMEs.
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:
- Is there any significant factor affecting the Microfinance Banks recapitalization on Microfinance Banks in Nigeria?
- What is the relationship between Microfinance Banks and the performance small business entrepreneurs in Nigeria?
- Does Microfinance Banks recapitalization increase funding for SMEs?
- How accessible are Small and Medium Enterprise Equity Investment Scheme Funds to SMEs?
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 is no significant impact of Central Bank of Nigeria Recapitalisation of Microfinance Bank towards Small Business Owners in Nigeria.
- H1: There is a significant impact of Central Bank of Nigeria Recapitalisation of Microfinance Bank towards Small Business Owners in Nigeria.
Hypothesis Two
- H0: Microfinance Bank Recapitalization has not led to the increase of funds to SMEs
- H1: Microfinance Banks recapitalization has led to the increase of Funds to SMEs
1.7 Significance of Study
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor entrepreneurs would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant; increase employment opportunities, enhance household income, and create wealth.
However, the lack of required financial support from the microfinance banks to Micro Business operators in Lagos state has become a major concern in Nigeria. Hence, this study shall be relevant to policy makers in the areas of finding out the impact of micro financing on the small scale investors. Also, this study shall enhance further research in the subject area.
1.8 Scope of the Study
The study focuses on the Impact of Central Bank of Nigeria on the Recapitalisation of Microfinance Banks. The scope of this research work is the recapitalized Central Bank of Nigeria and their SME customers in Nigeria.
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
Recapitalization: Recapitalization is a sort of a corporate reorganization involving substantial change in a company’s capital structure.
Economy: An economy is the total sum of product and service transactions of value between two agents in a region, be it individuals, organizations or states.
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