The effect of microfinance institutions on small-scale businesses in Ijebu-Ode Local Government Area, Ogun State
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Background of the study
Microfinance institutions (MFIs) have emerged as pivotal players in supporting small-scale businesses, particularly in regions where access to formal banking services is limited. In Ijebu-Ode Local Government Area, Ogun State, MFIs provide essential financial services that enable entrepreneurs to start and expand their businesses. These institutions offer micro-loans, savings accounts, and financial training, which are crucial for fostering economic growth and reducing poverty (Oduola, 2023). Studies suggest that the availability of microfinance has a positive correlation with business growth, as it helps small-scale enterprises overcome the challenges of capital constraints and market uncertainties (Afolabi, 2024). However, challenges such as high interest rates, limited outreach, and inadequate regulatory oversight may hinder the full potential of MFIs. This study explores the effect of MFIs on the performance and sustainability of small-scale businesses in Ijebu-Ode, analyzing both quantitative performance indicators and qualitative feedback from business owners. By integrating theories of financial inclusion with empirical data, the research aims to provide a comprehensive evaluation of the role of MFIs in promoting economic empowerment and business development (Babatunde, 2025). The findings are expected to offer insights into how microfinance can be optimized to support entrepreneurial ventures in the region.
Statement of the problem
Small-scale businesses in Ijebu-Ode face significant challenges due to limited access to formal credit facilities. Although microfinance institutions have been introduced to alleviate these challenges, issues such as high interest rates, inadequate loan sizes, and restricted geographical outreach continue to limit their effectiveness. Many entrepreneurs struggle to meet repayment obligations, and the sustainability of their businesses is often compromised by these financial constraints (Folarin, 2023). The gap between the potential benefits of microfinance and the actual outcomes observed in Ijebu-Ode raises questions about the operational efficiency and impact of these institutions. This study seeks to identify the factors that hinder the effectiveness of microfinance interventions and propose measures for improvement (Kolawole, 2024).
Objectives of the study:
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To assess the impact of microfinance institutions on the growth of small-scale businesses in Ijebu-Ode.
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To identify the challenges faced by entrepreneurs in accessing microfinance services.
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To recommend strategies to enhance the effectiveness of MFIs.
Research questions:
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How do MFIs influence the growth of small-scale businesses?
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What challenges do entrepreneurs face in accessing microfinance?
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What measures can improve the outreach and impact of MFIs?
Research Hypotheses:
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MFIs have a positive impact on small-scale business growth.
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High interest rates limit the effectiveness of microfinance.
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Enhanced regulatory oversight can improve microfinance outcomes.
Significance of the study
This study is significant as it evaluates the critical role of microfinance institutions in supporting small-scale businesses in Ijebu-Ode. The findings will provide actionable insights for policymakers and financial institutions to improve microfinance services and promote economic empowerment among entrepreneurs. By addressing the challenges faced by small-scale businesses, the study contributes to sustainable economic development and financial inclusion (Olawole, 2023).
Scope and limitations of the study:
The study is limited to examining the impact of microfinance institutions on small-scale businesses within Ijebu-Ode Local Government Area, Ogun State, and does not extend to other regions.
Definitions of terms:
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Microfinance institutions: Organizations providing financial services to low-income clients.
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Small-scale businesses: Enterprises with limited capital and operations.
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Financial inclusion: The process of ensuring access to financial services for all segments of society.
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