An investigation of the effects of microfinance institutions on small business growth: A study of entrepreneurs in Ikorodu Local Government Area, Lagos State
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Background of the study:
Microfinance institutions (MFIs) have become vital catalysts for small business growth, particularly in emerging economies. In Ikorodu, Lagos State, entrepreneurs rely on MFIs to access capital, financial literacy, and entrepreneurial support (Brown, 2024). This study explores the multifaceted impact of microfinance on the establishment and expansion of small enterprises. MFIs offer flexible loan structures, microcredit, and training programs that address unique challenges faced by startups. Such financial interventions not only stimulate business growth but also empower entrepreneurs to innovate and compete in dynamic markets (Adams, 2023). Additionally, MFIs promote economic inclusion and reduce poverty by providing underserved communities with the necessary resources to initiate and expand businesses (Clark, 2025). This research integrates quantitative data on business performance with qualitative insights from entrepreneurs to evaluate the effectiveness of microfinance interventions. The study further examines the challenges of accessing finance, interest rate burdens, and repayment pressures. Ultimately, the research aims to provide a comprehensive understanding of how MFIs contribute to small business growth, informing both policy and practice in the financial services sector.
Statement of the problem:
Entrepreneurs in Ikorodu Local Government Area face persistent challenges in securing adequate financing for business expansion. Despite the presence of microfinance institutions, issues such as high interest rates and stringent repayment terms hinder optimal business growth (Adams, 2023). This study seeks to identify the factors limiting the effectiveness of MFIs and assess their overall impact on small enterprise development (Brown, 2024; Clark, 2025).
Objectives of the study:
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To evaluate the role of microfinance institutions in small business growth.
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To identify the financial and operational challenges faced by entrepreneurs.
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To recommend measures to enhance the impact of microfinance on enterprise development.
Research questions:
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How do microfinance institutions contribute to the growth of small businesses?
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What challenges do entrepreneurs face in utilizing microfinance services?
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What strategies can improve the effectiveness of MFIs?
Research Hypotheses:
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Microfinance positively influences small business growth.
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High interest rates negatively affect business expansion.
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Improved financial support structures enhance entrepreneurial success.
Significance of the study:
This study provides critical insights into the role of MFIs in fostering small business growth. Its findings can inform policy reforms and financial strategies, supporting entrepreneurial development in Ikorodu (Clark, 2025).
Scope and limitations of the study:
This study is confined to entrepreneurs in Ikorodu Local Government Area, Lagos State, and focuses solely on the impact of microfinance institutions on small business growth. It does not extend to larger financial institutions or other regions.
Definitions of terms:
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Microfinance institutions: Organizations that provide small-scale financial services to low-income entrepreneurs.
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Small business growth: The expansion and increased profitability of small enterprises.
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Entrepreneurship: The process of designing, launching, and running a new business venture.
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