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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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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
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institutions most especially banks preferred to disburse large credit to borrowers due to the
reduction in administrative costs, which was directly proportionate to the loan size. Studies
(Makorere, 2014; Laetitia, Shukla and Luvanda, 2015) reflected that MSEs considered micro and
small loans amount to meet immediate needs, since handling of large sums of funds could lead to
mismanagement thereby causing business collapse.
One of MFIs conditions for providing credits depended on the saving capacity of the customers
and tendency of not being a credit defaulter. The loans extended to customers relied on payment
flexibility and collection convenience.
TraderMoni and other Social Investment Schemes
Trader Moni
TraderMoni was a credit programme of Nigerian Government, established mainly for petty traders
and artisans all over the country. The federal government claimed that the scheme was a part of
the Government Enterprise and Empowerment Programme (GEEP) implemented with the
assistance of Bank of Industry (BOI). The scheme proved that interested participants who were
potential petty traders would enjoy period of moratorium ranging from ₦10,000 to ₦100,000 as
long as the participants did not default. Participants were expected to receive ₦10,000 as the first
credit. At maturity borrowers, who did not default in repaying the first loan, such borrower would
automatically qualify to receive next credit of ₦15,000 in sequence till the borrower received
₦100,000. Therefore, the inflow of credits would serve as a continuous source of funding for the
purpose of growing micro, petty and small businesses in Nigeria (www.tradermoni.com.ng). The
authors however believed that the average of ₦55,000 was expected to be paid to beneficiary, the
payment process would have been distorted seriously due to effect of virus outbreak –COVID-19,
exchange rate volatility and reduction in the price of crude oil on the economy, since major
revenue of government was crude oil. Therefore, some of the borrowers might found it extremely
difficult to pay back the capital, thereby disqualifying potential borrowers to have access to the
next phase of the loan.
Meanwhile, government does not have business in business but to create enabling environment
for institutions to thrive, (Osinbajo, 2020). Ayogu, Abasi and Ecoma (2019) and Arikewuyo &
Akanbi (2020) argued that tradermoni credit scheme was meant to target mini traders and did not
require collateral/ security before credit disbursement to the poor Nigerians. They commended
the government on the social investment initiatives but concluded that tradermoni credit
initiatives might ameliorate the problem of the petty traders. Murtala, (2016) and Ayogu et al,
(2019) and Odiase (2020) have explained that tradermoni was an empowerment scheme to
provide credits for petty traders and small business owners in order to become self –employed
and be moved-out from abject poverty. More so, the intervention of tradermoni as social
investment fund, would continue to improve the potential of accessing credits despite zero- collateral / security by borrowers in order to become self-employed as well as towards poverty
alleviation (Osibajo, 2019; Ifeanyi, 2019; Afolabi, 2019; Arikewuyo & Akanbi, 2020).
The authors were of the view that government has provided palliatives to citizens to serve as a
cushion to the effect of pandemic. Some of the incentives were reduction in pump price of
petroleum motor spirit (PMS), providing millions of Nigerians with prepaid meters, recent
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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 199
increase in salaries and wages of workers particularly teachers, conversion of some vehicles using
petrol to electric in order to reduce cost of transportation, non-increase in electricity tariff etc.
Some Recent Social Investment Schemes by Government
There were many social investment schemes to financially assist the low income earners, poorest
of the poor people, micro and small entrepreneurs, managers and petty traders. These schemes
included but not limited to;
i. Micro Credit Scheme: It was introduced by government to capture more than one million
artisans that comprised of carpentering, vulcanizing, painting and market traders. The
government however earmarked the sum of sixty billion naira for the project. Under the scheme,
the sum of five hundred thousand naira credits were provided by Bank of Industry to market
traders.
ii. N-Power: It involved both Teach Nigeria Scheme (TNS) and Youth Employment Agency (YEA).
The former scheme occurred where Federal Government specifically engaged in direct labour
where at least five hundred thousand university graduates were directly hired, trained and
deployed as primary and secondary schools teachers in order to improve the standard of
education in Nigeria; while the latter scheme captured average number of four hundred thousand
of ungraduated Nigerian youths to go through skill acquisition and vocational training for about
few months and stipends would be paid during the training.
iii. Conditional Cash Transfer (CCT): It was another programme of the government. The scheme
ensured that the sum of five thousand naira only was directly paid to one million extremely poor
people in Nigeria; since poor people’s children and wards were enrolled in public schools.
iv. Nigeria Youth Investment Fund. This was another social investment scheme introduced by
federal government via Central Bank of Nigeria. The total of seventy-five billionaire naira was
earmarked for the scheme, to target five hundred thousand youths annually. Furthermore, the
start-up sum for the remaining financial year of 2020 would be twelve billion, five hundred
thousand naira.
v. Micro, Small and Medium Enterprises (MSME) Survival Fund and Support Initiatives. This
scheme has also earmarked the sum of seventy-five billionaire naira to fund different scale
categories of enterprises (Micro, Small and Medium) and help to reduce poverty level. The
seventy-five billion naira was part of two trillion and three billion naira stimulus package of
Nigerian Economic Sustainability Plan (NESP).
Some of the reasons for the failure of previous schemes of government included the poor and
weak credit administration strategies used by government agencies and unduly political
interference on the part of government on the scheme.
Micro and Small Enterprises (MSEs) and Micro Credit
Enterprises differed with sizes, capitalization, assets, net worth, profit, returns and employment
categorization. Studies (Bolton Committee, 1971; CBN, 2003; IFC, 2012; SMEDAN, 2013) believed
that there was no specific definition for enterprises. Enterprise has since been moving along the
common spectrum of a scale, which was known as either, micro, small or medium. The spectrum
scale has persistently been identified to be informal system with general effect on wellbeing of the
people and society. The informality phenomenon was associated with absence of thorough
regulation of the sector compared to the formal sector. Though, the Micro and Small Enterprises
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(MSEs) formed the large number of businesses majorly in emerging markets and could be
regarded as ‘life –wire’ of most nations’ economies.
According to Ogunrinola and Alege (2007) and Taiwo, Onasanya, Agwu and Benson, (2015), micro
credits ranged in different sizes and could be used to fund mini-enterprises such as hairdressing
salon, tailoring, food vending and small level of agro-allied activities. Studies (Oni et al, 2012;
SMEDAN, 2013; Ugochukwu and Onochie, 2017) believed that microcredits were financial credits
provided to micro and small scale enterprises including cottage industries, mini business owners,
farmers (i.e. fishing, citrus plantation, piggery etc.,), petty traders and all other artisans to help
create wealth, to create employment and mitigate poverty.
The dynamism of funding MSEs in Nigeria through different government schemes was a good
sustainability initiative but less attention has since been giving to prudent credit administration
approach to be handled by financial institution (MFIs) saddled with responsibilities of efficiently
managing funds and financial intermediation statutory functions. This was because countries that
formed BRICS (Brazil, Russia, India, China and South Africa) knew that the source of any emerging
market would be the transformation of the industrial sector with informal sector constituting
larger proportion.
Enterprise Survival Analysis
According to Coleman, Cotei and Farhat, (2010) and Babajide (2012), micro and small enterprises
were expected to play a crucial role in the development process of a country through employment
creation, increasing income and poverty alleviation. However, if the growth and survival of the
newly established firms were not ensured, the expected positive results could be replaced with
negative outcomes of unemployment, wastage of resources and time in the part of the owner and
economic loss in general. Empirical literatures have shown that there were determining factors to
the emergence and success of enterprises.
According to studies (Storey, 1994; Disney, Haskel and Heden, 2003; Dayanandan, 2012) have
shown that owner and firm related characteristics were the basic factors that determined the
success of a firm, this assertion was further supported by these studies (Coleman et al. 2010;
Fadahunsi, 2012; Yu Cao, 2012). Mata and Portugal (2002) analyzed the survival of new domestic
and foreign owned firms. Moreover, Pérez, Amparo and Juan, (2004) concluded that a newly
established firm survival was more likely to depend on initial financial endowment, their human
capital, risk aversion, the wish for independence, and the support of their social and family
networks. Studies (Dada & Salisu, 2006; Coleman et al, 2010; Yu Cao, 2012) focused on developing
economies and emerging markets consistently highlighted, imperfection in the credit and financial
markets, a non-transparent regulatory environment, lack of infrastructure, and bureaucracy
burden as the pervasive challenges to enhance an improvement and survival of small firms in
emerging markets.
The survival of MSEs could be affected by economic recession, high inflation rate, high cost of
funds, cash crunch, financial market uncertainties, virus outbreak / COVID-19, dwindling stock
prices, exchange rate volatility, weak regulatory policy; others were porous infrastructure
development, education, entrepreneurial skill, training and experience, size of the firm,
information technology.
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Theoretical Literature
Microfinance Development Theory
The theory of microfinance development was propounded in 1976 in Bangladesh through
establishment of Grameen Bank by Mohammad Yunus. During the period, mini credits were
disbursed to low income earners in order to assist the people to become self-employed and to
reduce poverty among the people particularly without the provision of security / collateral
facilities in the rural areas. The creation of Grameen bank created platform for micro and small
businesses to easily source for micro credits from financial institution so that business and socio –
economic lives of the rural people could be meaningfully empowered and developed. To this
extent, financial institutional framework was adopted and accepted to provide micro credits for
the development of investment opportunities to be enjoyed be the people. Most of the countries
adopting microfinance development theory was more common in Africa, part of Asia and Latin
America. This was because these developing economies could be associated with poverty,
malnutrition and unavailability of credits, high unemployment and poor institutional structures.
In addition, the theory corroborated the needs for regulatory agencies to ensure conducive
environment to thrive and provision of loans to small business operators and owners.
Empirical Literature
According to Gumel (2012) in the studies of evaluation of credit availability in Microfinance
Institutions (MFIs): Evidence from Northern Nigeria; the study revealed that micro-financing
covered more than just providing credits to low income business operators and earners but
needed to assist more in insurance and payment transfers. The study concluded that MFIs have
continuously played a significant role in providing credits to business enterprises to survive.
Babajide (2012) studied the effects of micro financing on micro and small enterprises (MSEs) in
South-West Nigeria adopting Diagnostic Test Kaplan-Meier Estimate and Multiple Regression
Analysis. The study revealed that microfinance promoted survival of small business in South West
Nigeria; and concluded that microfinance did not enhance growth and expansion capacity of MSEs
in Nigeria. Some studies (Ojo, 2009; Ogujiuba, Fadila and Stiegler, 2013) in the field of
microfinance have approved the importance of non-financial services on the clients’ households
and their micro and small enterprises’ performance. The importance of non-financial services (e.g.
entrepreneurial training and business development) provided people with business knowledge.
Ojo, (2009) and Ogujiuba et al, (2013) further opined that the entrepreneurship training has a
potential to enhance the capacity of micro and small enterprises for jobs creation and growth.
They also asserted that the entrepreneurial trainings could be more effective when combined with
microcredit service.
Arikewuyo and Akanbi (2020) studied on the assessment of ‘tradermoni’ empowerment scheme
in Nigeria from the Islamic perspective; with a case study of women beneficiaries at the Mandate
market, Ilorin. Findings from their study revealed that tradermoni scheme empowered the petty
traders and micro business actors. But the study focused only on one state and failed to capture
the relevance between MFIs and provision of micro credits. Ayogu et al, (2019) examined
tradermoni micro-credit scheme and poverty reduction in Nigeria. They claimed that the
introduction of tradermoni scheme was timing, amidst the high rate of poverty among the citizens.
They concluded that tradermoni could also fail like previous schemes due to weak loan
administration process, poor records of beneficiaries of previous schemes and lack of institutional
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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 203
structures and frameworks. But the study failed to examine in-depth financial roles and effective
credit administration performance of MFIs.
This paper was the first to empirically assess the extent of influence of MFIs variables on MSEs
survival in South-west Nigeria from tradermoni scheme perspective. The study was able to affirm
that the introduction of social empowerment scheme like tradermoni was timing to create
employment and to alleviate poverty among lower and daily income earners. But emphasized that
the disbursement of credits to beneficiaries of various schemes of government should be managed
by MFIs (i.e. with sole responsibility of financial intermediation). The appointment of MFIs would
be by government via CBN not via individuals or group of people, who might mismanaged the
funds for the scheme. The exclusion of MFIs in credits disbursement, management and control has
arguably led to the collapse of some schemes in the past in Nigeria.
Conceptual Framework
Dependent Variables Independent Variables
Source: Adapted from Goldberg and White, (1999)
Fig 1: Conceptual model
DATA AND METHODOLOGY
Data
The secondary data was sourced from annual financial reports of MFIs. The MSEs owners would
have been operating bank accounts with MFIs, might have been a beneficiary of various schemes
of government including tradermoni scheme and could also provide financial records. The MFIs
and MSEs managers were purposively sampled due to the ability to access their annual financial
reports and transaction records respectively.
MSEs Survival Microfinance
Institutions
(MFIs)
Credit
Disbursement
Loan Size
Credit Usage
Profit Sales
Growth
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Theoretical Framework
The study employed Tedeschi model (2006) on the ability of borrowers to repay loans considering
proportion of available incentives in order to prevent credit default. Though, there was no highly
developed micro lending finance theory unlike the modern Mathematical Finance theory such as
Capital Asset Pricing Model (Diener, Diener & Khodar, 2009). In the Tedeschi model, every
borrower has the potential of seeking credit of a unit at a particular period of time, t. During this
time t, the borrower was expected to repay a unit including interest (1 + r). r was the interest rate
charged during the period of time t. The capital strongly depended on interest rate, r and period of
t time. Similarly, the borrower would be expected to invest in a feasible business with an amount
O for a period of time t. Suppose O > (1 + r), the borrower would be able to meet its debt
obligations and could be said to be a success. Consequently, there was an assumption that fixed
probability P was associated with a successful borrower. Therefore, the probability Q that the
project would succeed in a period of time t and fail with probability 1- P. The failure could be as a
result of economic recession, dwindling oil prices, exchange rate volatility, virus outbreak /
COVID-19 etc. However, the borrower would need to pay 1 + r to the lender and would enjoy the
benefit (certainty) of new loan of a unit as long as the borrower does not default.
In a situation where the borrower defaulted, he would not be able to benefit from the new loan at
another period of time t (credit exclusion stage). The borrower would only be allowed to apply for
a new loan after expiration of credit exclusion phase considering some factors such as number of
qualified borrowers, size of loan portfolios, liquidity position of the lenders, new policies
associated with loans by regulators etc. During this first period of time t, the borrower could only
become beneficiary with probability R after the expiration of credit exclusion stage and non- beneficiary of loan with probability 1– R. The probability 1 – R explained inability of borrower to
obtain loan and would need to wait for another one period of time t to either become a beneficiary
or not.
Therefore, to either become a beneficiary or not in order to access loan, could easily be
summarized in Markov chain (Xt)t∈N = Xt ∈ S;
E := {B, ET , ET-1 , ..., E1} --------------------- (i)
B is the state of a beneficiary, E1 was the state of an applicant with chances of becoming a
beneficiary for the next period of time; while Ei was i = 2,..., T, the state to be in credit exclusion
stage for the upcoming i periods. The set state in equation (i) has been adjusted to accommodate
the transition matrix of Markov chain, which was provided as
P 1-P 0 0 ⋯ 0 0
0 0 1 0 ⋯ 0 0
P = ⋮ ⋮ ⋱ ⋮ ........ (ii)
0 0 0 0 ⋯ 1 0
0 0 0 0 ... 0 1
R 0 0 0 ... 0 1 − R
It must be noted that Markov chain emphasized that Xt+1 depended more on Xt but not on Xt-1
because recent values in a trajectory, automatically influenced next occurrence. Hence,
Y (Xt+1 = E ⎸ Xt = E) = P (a beneficiary that was successful)
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employed OLS. FEM’s assumption of a model allowed constant intercept for every cross section
with an unrealistic time.
The fixed effects model was stated thus:
Yit = λ1i + λ2Xit + uit --------- (vii)
The equation (vii) explained that the ‘fixed effect’ was a result of differences in intercepts across
subjects, however, each of these entities did not vary over time (λ1i is time invariant).
Furthermore, equation (vii) assumed that coefficients of the explanatory variables did not vary
across subjects or over time (Greene, 2008; Gujarati, 2013).
Lastly, Random Effect Model (REM) allowed the difference among intercepts to be accommodated
by disturbance or error terms of each subjects. One of the benefits of adopting REM was the ability
to eliminate heteroscedasticity. The random effect model was:
Yit = λ1i + λ2Xit + uit --------- (viii)
From equation (viii), λ1i would not be treated as fixed but to be assumed as random variable with
mean value of λ1 (without subscript i). Therefore, an intercept value for each of MFI could be
illustrated as
λ1i = λ1 + ԑi ----------------- (ix)
According to Gujarati (2013), ԑi was random error term with the value of mean to be zero (0) and
variance of σ2ԑ. The eighteen MFIs in the sample were a drawing from larger population of MFIs
in the banking sub-sector with common value of the intercept of λ1. It must also be noted that
individuality differences as regards values associated with the intercept of each MFIs were
indicated in the disturbance or error term (ԑi). To substitute equation (ix) in equation (viii); we
obtained
Yit = λ1 + λ2Xit + ԑi + uit --------------------------- (x)
Equation (x) could further be written as
Yit = λ1 + λ2Xit + ⍵it --------------------------- (xi)
But ⍵it = ԑi + uit ------------------------------- (xii)
Where ⍵it was composite error term that consisted of ԑi and uit.
ԑi was cross-section or error component; while uit was the combination of cross section error
components and time series having varied over subjects and time. The random effect model
showed that composite disturbance term consisted of;
ԑi ∼ N (0, σ2ԑ)
uit ∼ N (0, σ2u) --------------------------- (xiii)
E (ԑi uit) = 0; E (ԑi ԑij) = 0; (i ≠ j)
E (ui uis) = E (uij ujs) = E (uit uis) = 0; (i ≠ j; t ≠ s)
Equation (xiii) explained that individual specific error components were uncorrelated with each
other and were not auto-correlated between time series and cross-section units. Hence, ⍵it was
not correlated with any of the regressor variables in the model. If this indeed occurred, therefore
REM result would remain an inconsistent estimation technique of regression coefficients. But with
the adoption of Hausman test in this study, the test would help to find out if ⍵it was correlated
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helped to examine the extent of influence of predictor variables on criterion variables; and to
reconcile the short-run and long-run dynamism that could occur in the behavior of variables.
RESULTS AND DISCUSSIONS
Descriptive Statistics of Study Variables
This was displayed in table 4.1 showing briefly the descriptive statistics of MFIs variables, proxy
by loan size, credit usage, loan disbursement and their influence on MSEs’ survival proxy by sales
growth and profit. The table 4.1 showed the summary of the descriptive statistics for variables.
The mean for loan size, credit usage, loan disbursement, sales growth and profitability were
1265404.0, 16.37025, 189, 13.49 and 10.05 respectively. This showed that the variables exhibited
insignificant variation in terms of magnitude, implying that estimation in levels might introduce
some bias in the results. The Jarque Bera statistics for the variables were not too high and as such,
the series were normally distributed. This therefore suggested the use of normal pool OLS or fixed
effect estimation in the analysis.
Table 4.1: Descriptive Statistics
Variables Loan Size Credit Usage Loan Disbursement Sales Growth Profit
Mean 1265404. 16.37025 189.0000 13.48719 10.05769
Median 56891.00 16.25000 205.0000 14.05540 9.903488
Maximum 9095801. 19.50000 205.0000 15.42224 14.50866
Minimum 9871.000 12.25000 165.0000 11.60824 7.600902
Std. Dev. 2161494. 1.745810 19.71955 1.224375 2.003325
Skewness 1.901860 -0.262434 -0.408248 -0.150264 0.865686
Kurtosis 5.818045 2.304664 1.166667 1.369136 3.438265
Jarque-Bera 73.76517 2.498301 13.42593 9.166779 10.49951
Probability 0.000000 0.286748 0.001215 0.000220 0.005249
Sum 99966902 1293.250 15120.00 1078.975 794.5579
Sum Sq. Dev. 3.64E+14 237.7326 30720.00 118.4285 313.0384
Observations 216 216 216 216 216
Cross sections 18 18 18 18 18
Source: Researchers’ Compilation, 2021
MFIs influence on MSEs’ Profitability.
This section explained the influence of MFIs predictor variables on MSEs’ profitability behaviour.
The displayed result in table 4.2 reflected the panel regression of the variables depicting the
degree of influence of loan size, loan disbursement and credit usage on profitability performance
of MSEs. The pooled OLS result depicted a positive impact of loan-size and loan disbursement with
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the part of MSEs owners in the informal market needs urgent attention from regulators. The
combined variables accounted for 0.551347 (55%) of the variation in sales growth performance
as depicted by R2. The value of adjusted R2 was 0.544351 (54%). Random effect model in second
column showed loan-size, 5.42 (p>0.05) and loan disbursement, 1.23 (p>0.1) positively influenced
sales growth. In contrast, credit usage was negative, -0.27 (p>0.05). 58% of the variation
experienced in the value of sales growth only accounted for by MFIs variables.
Table 4.3: MFIs influence on MSEs’ Sales Growth
ALL ALL
PLS RE
LOAN SIZE
4.76E-02*
5.42E-06**
(1.02E-03) (1.62E-06)
LOAN 0.181271** 1.232611*
DISBURSEMENT (0.052529) (0.043231)
CREDIT USAGE -2.120384** -0.272418**
(1.845011) (0.162883)
CONSTANT ............... 11.282344
R2 0.551347 0.578059
OBSERVATION 215 215
N 18 18
Source: Authors’ Compilation, 2021
Note: All explanatory variables were differenced to ensure stationarity and thereby avoiding
spurious regression while the criterion variables were in log form. The level of significance was
denoted as *P< 0.1, **P < 0.05 and ***P < 0.01. Figures in the parentheses were (standard error).
Unit Root Test
The unit root result was displayed in table 4.4. Table 4.4 depicted the unit root test variables that
were examined having adopted Levin, Lin & chu and Lm, Pesaran, test. The result had shown
variables I(0) and I(1) that were stationary at first difference only with the exception of credit
usage which was at levels.
Table 4.4: Unit Root Test
VARIABLES Statistics Values Sig Conclusion
Sales growth Levin ,Lin & chu -9.3180 0.0000 I(1)
Lm, Pesaran, -3.6223 0.0001
Profitability Levin ,Lin & chu -12.8926 0.0000 I(1)
Lm, Pesaran, -6.8647 0.0000
Loan-size Levin ,Lin & chu -2.7733 0.0028 I(1)
Lm, Pesaran, -0.4183 0.3379
Loan Disbursement Levin ,Lin & chu -5.37121 0.0000 I(1)
Lm, Pesaran, -0.34627 0.3650
Credit Usage Levin ,Lin & chu -5.60239 0.0000 (0)
Lm, Pesaran, 0.19243 0.5763
Source: Authors’ Compilation, 2021
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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 211
FINDINGS
Findings showed that MFIs had an influence on MSEs’ survival in South-West, Nigeria. It depicted a
positive impact of loan-size (7.24) and loan disbursement (0.38), while credit usage (-5.19) had
negative impact on profitability of MSEs operation. Each loan provided by MFIs considering its
size, 7.24 profits realized would assist the sustainability of MSEs business. Each loan disbursed
could further increase profitability by 0.4 to micro and small business owners and operators. The
gains could decline by -5.2 due to misappropriation of credits by these group of business
operators / owners. Approximately 63% showed that variations in the profitability were
explained by MFIs variables and all the variables were statistically significant (0.05>p<0.1).
Findings also showed that loan-size (4.76) and loan disbursement (0.18) positively impacted sales
growth, while credit usage negatively (-2.12) affected sales growth. Findings showed that every
loan size could generate 4.8 sales increase for MSEs managers. Also for every credit disbursed
enjoyed by the MSEs operators, 0.18 of sales increase would be attained, but problem of credit
misappropriation could compel decrease in the volume of sales growth. Findings from the OLS
showed that 55.13% accounted for the variations in sales growth by MFIs variables.
Findings from the literature showed that tradermoni scheme helped people to become self- employed, create empowerment and reduce poverty, but its relevance could only be in the short- run due to poor credit administration system adopted by some government agencies during loan
disbursement to beneficiaries under any scheme. This factor might have been responsible for the
failure of other previous schemes introduced by government, despite the fact that government
meant well for her citizens.
The weak credit administration approach adopted by the ministries and agencies of government
has led to the increase in the number of defaulters.
CONCLUSION AND POLICY RECOMMENDATIONS
Conclusion
The study assessed the impact of MFIs on the survival of MSEs in South-West Nigeria: Tradermoni
an alternative? In this study, petty and small traders, and other micro, small enterprise owners,
managers and operators in the South-West, Nigeria were beneficiaries of different government
schemes, particularly tradermoni as one of the schemes under the Government Enterprise
Empowerment Programme (GEEP). GEEP has successfully assisted traders to access soft loans to
invest in their petty businesses but not for a very long time, due to porous credits administration
process associated with the scheme. Also, there was a mixed impact of MFIs on the survival of
MSEs in South-West Nigeria. However, tradermoni could only achieve its objectives in the short- run, while in the long-run it could be difficult due to poor credit administration techniques
adopted under different government schemes; except policy makers and regulators review
existing institutional frameworks guiding operations in informal sector and MFIs banking sub- sector.
Policy Recommendations
The government should review its regulatory policies such that when disbursing loan to citizens
under any scheme, a financial institution (MFIs) should be appointed to administer and manage
the credits (i.e. to determine the number of individual citizen that has benefited from the scheme,
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number of defaulter and people who have successfully repaid the loan). By this, transparency and
accountability of the credits disbursed under the empowerment scheme could be effectively and
efficiently managed for future decision making process.
Government needed to create a sustainable structures and policy frameworks to protect the
tradermoni scheme so that it would not end like previous schemes.
Limitation of Study
There were many restrictions such as problem of funding, insufficient time and most especially
lack of co-operation on some of the MFIs and MSEs to provide annual reports and financial records
respectively. The MSEs claimed that their financial records were genuinely audited by an
accountant. But our concerned was towards the originality and degree of professionalism of the
accountant, who audited their records.
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