By Amagwu, Ibeawuchi Francis
Micro and Small Enterprises (MSEs) are currently regarded as the backbone of every economy and have been globally regarded as engines of growth, vehicles for job creation, drivers of production and income generation as well as veritable tools for poverty reduction and wealth creation. The source of microfinance is equally important because at the centre of every enterprise objective is profitability and growth that can trigger its achievement of the expected roles. MSEs in Nigeria have not played these roles effectively due to the challenges of access to finance, infrastructural deficit and vocational skills deficiency. The main thrust of this thesis, therefore, is to evaluate the effectiveness of microfinance sources on the profitability of MSEs in South East, Nigeria as well as understanding the determinants of the choice of microfinance sources and the level of support that MSEs get from funds providers. The study employed multi-stage sampling technique in identifying clusters from three cities (Onitsha, Aba and Nnewi) of the South East, Nigeria and generated relevant data through instruments such as questionnaire, personal interviews and Focused Group Discussions (FGDs). A total sample of 540 enterprises out of 1994 enterprises were selected across different clusters comprising enterprises under production, trade and services in the three cities. Using multiple regression technique and logit regression, the study found that both formal and informal microfinance sources impacted significantly on the profitability of MSEs in South East, Nigeria. The study further found interest rate, repayment period, amount or volume of capital and proximity to enterprises as the major determinants of the choice of microfinance source used by MSEs in South East, Nigeria. Also, the respondents revealed that why most of them patronized informal source of microfinance is because of the quick response as well as the relationship with the provider (social capital). The study concluded that microfinance providers should be located closer to MSEs’ location for quicker response to their financing needs to the extent of taking advantage of social capital existing within the clusters as a possible cushion for the physical collaterals and documentations often requested for loan approvals. The study recommends that microfinance policy framework and interventions should encourage providers to locate closer to the enterprise clusters with the appropriate regulatory guarantee for operators.