EVALUATION OF FINANCIAL INCLUSION INITIATIVES AND THEIR IMPACT ON MICROBUSINESSES IN NIGERIA (A CASE STUDY OF GEEP (GOVERNMENT ENTERPRISE AND EMPOWERMENT PROGRAM) IN NIGERIA)

CHAPTER ONE

INTRODUCTION

1.1 Background to The Study

Microbusinesses are generally defined as commercial enterprises that have 10 or fewer employees (Ajibefun and Daramola, 2003; EUROPA, 2003; USAID, 2002). Research suggests that low- and middle-income people generally start microenterprises to create their own jobs or to provide additional income for themselves and their families, and they rarely engage in formal contractual arrangements (Roy and Wheeler, 2006). Microbusinesses expand due to factors such as entrepreneurship, demand-driven product quality and proper management (SBDC, 2006). Despite these potentials for innovation, entrepreneurship and wealth creation, micro-enterprises still face particular challenges related to poor financial support and credit environment, crises, large infrastructure gaps and low human capital investments.

A connection between the two (financial inclusion and micro-enterprises) was long established by Schumpeter in his innovation theory. According to him, technological innovation leads to the introduction of a new product or idea, a new market and a new customer, which can increase productivity.

The theory emphasizes that a developed and functioning financial sector is a prerequisite for successful entrepreneurial engagement in technological innovation, as the translation of innovative thinking into real results has cost implications that may not be obvious to the entrepreneurs, but an efficient financial system identifies entrepreneurs and can finance. This implies that increased access to finance promotes entrepreneurship (Abdullahi, 2021).

Financial inclusion is a situation in which individuals and companies have access to useful, effective and affordable financial products and services that meet their needs, store value and demand on-demand, including access to a bank, payments, savings, credit and insurance, ensured responsibility and sustainability (Sibos, 2014). According to Sarma (2008), financial inclusion is a process that ensures easy access to financial services in an economy. According to the author, accessibility is measured using proxies such as the number of bank branches or ATMs per 1,000 adult residents. Khan (2011) argued that promoting financial inclusion in the broader context of economic inclusion can improve financial conditions and increase the living standards of the poor and disadvantaged. According to him, financial inclusion can both improve the efficiency of intermediation between savings and investments and facilitate changes in the configuration of the financial system.

According to Aduda and Kalunda (2012), financial inclusion is the process of gaining access to financial products and services needed by all sections of society in general but particularly by the vulnerable, weaker sections and low-income groups, ensuring an affordable price for mainstream institutions in a fair and transparent manner. In this sense, financial inclusion is attracting more and more interest from policymakers, researchers and development-oriented agencies around the world. Financial inclusion has become a crucial element in promoting economic growth and reducing poverty, particularly in developing countries such as Nigeria. Over the last decade, several financial inclusion initiatives have been launched to increase access to financial services for underserved populations, particularly micro-enterprises.

These initiatives aim to bridge the gap between the formal financial system and the informal sector, which is critical to micro-enterprises that form the backbone of the Nigerian economy. The focus on financial inclusion is based on the premise that access to financial services such as savings accounts, credit facilities, insurance and payment systems can improve business growth, productivity and overall socio-economic development (Akinmoladun et al., 2022). In Nigeria, micro-enterprises are often hampered by limited access to formal financial services, a challenge that financial inclusion initiatives seek to address.

Through programs such as the Financial Inclusion Strategy (FIS), the Central Bank of Nigeria (CBN) has sought to promote the inclusion of previously excluded groups, including low-income earners, rural dwellers and micro-entrepreneurs, into the formal financial sector (CBN, 2021). Furthermore, the introduction of mobile banking platforms and digital financial services has facilitated micro-enterprises' access to credit and other financial products, especially in remote areas where traditional banking infrastructure is sparse (Olawale & Ojo, 2021). These efforts are expected to empower micro-enterprises and provide them with the necessary financial tools to scale their operations and contribute to national development. However, the impact of these initiatives on micro-enterprises remains mixed.

While some studies highlight improvements in access to capital and financial literacy, others point to the persistent barriers that prevent full participation in the formal financial system. According to a study by Nwankwo and Adebayo (2023), micro-enterprises in Nigeria continue to face challenges such as high interest rates, lack of collateral and inadequate financial literacy, which limit the success of financial inclusion programs. Furthermore, there is concern that the digital divide in the country could prevent some micro-entrepreneurs from fully benefiting from mobile banking and online financial services (Okafor, 2022).

Understanding the real impact of these initiatives on micro-enterprises therefore requires a more nuanced assessment of the barriers and opportunities they pose. Given these challenges, it is important to critically evaluate the effectiveness of financial inclusion initiatives in supporting micro-enterprises in Nigeria. This assessment should consider both quantitative aspects, such as improved access to credit and savings, and qualitative aspects, such as improvements in business decision-making and growth. By examining the broader socio-economic context and the specific needs of micro-entrepreneurs, policymakers can develop more targeted and inclusive strategies to improve the financial ecosystem for micro-entrepreneurs. This paper examines the effectiveness of Nigeria's financial inclusion initiatives and their impact on micro-enterprises and provides recommendations to improve their inclusiveness and sustainability (Adewale et al., 2023; Asogwa & Nwankwo, 2021).Top of Form

1.2 Statement of The Problem

Despite the numerous financial inclusion initiatives implemented in Nigeria, microbusinesses continue to face significant challenges in accessing financial services that can support their growth and sustainability. While programs such as the Central Bank of Nigeria’s Financial Inclusion Strategy (FIS) aim to integrate underserved populations into the formal financial system, the impact on microbusinesses has been limited. These businesses, which are critical to the Nigerian economy, struggle with issues such as high-interest rates, insufficient access to credit, and lack of collateral, which remain barriers despite the availability of financial services (Olawale & Ojo, 2021).

Moreover, while digital financial solutions such as mobile banking have expanded access to financial products, a significant digital divide exists, particularly in rural areas, which limits the reach of these initiatives (Nwankwo & Adebayo, 2023). This persistent exclusion from the formal financial system undermines the ability of microbusinesses to scale and contribute fully to economic growth.

The problem lies in understanding why these financial inclusion initiatives, despite their potential, have not significantly transformed the microbusiness sector. There is a gap in comprehensive evaluations that assess both the effectiveness of these initiatives and the challenges microbusinesses face in utilizing the available financial services. Existing studies have primarily focused on the broad accessibility of financial products but have not sufficiently addressed the nuanced barriers that micro-entrepreneurs encounter, such as financial literacy, affordability, and the appropriateness of offered products for their specific needs (Adewale et al., 2023). To effectively promote economic development through microbusiness growth, a more targeted evaluation of these initiatives is essential, focusing on how to overcome the barriers to full financial inclusion and enhance the support for micro-enterprises in Nigeria.Top of Form

1.3 Objectives of The Study

The main objective of the study is to evaluate the impact of Financial Inclusion Initiatives on Microbusinesses in Nigeria. Specific objectives of the study are:

1.  To evaluate the extent to which microbusinesses have experienced growth in terms of revenue, market reach, and operational efficiency due to participation in financial inclusion initiatives.
2. To investigate the barriers that microbusinesses face in accessing and adopting financial products (such as micro-loans, savings accounts, and insurance) provided through financial inclusion programs.
3. To analyze the contributions of government policies, regulatory frameworks, and private sector involvement in fostering financial inclusion and their specific impact on microbusinesses.

1.4 Research Questions

To guide the study and achieve the objectives of the study, the following research questions were formulated:

1.   How has participation in financial inclusion initiatives affected the profitability and expansion of microbusinesses in Nigeria?
2.   What are the main challenges faced by microbusinesses in Nigeria in accessing financial products offered through financial inclusion programs?
3.   How effective are the collaborative efforts between the Nigerian government and private financial institutions in promoting financial inclusion for microbusinesses?

1.5 Research Hypothesis

The following research hypothesis was developed and tested for the study:

Ho: There is no significant impact of financial inclusion initiatives on the growth and sustainability of microbusinesses in Nigeria.

1.6 Significance of The Study

The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:

Firstly, the paper will benefit major stakeholders and policy makers in the Commerce sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.

Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analyzed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organizations used as a case study.

Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.

1.7 Scope of The Study

The study is delimited to GEEP (Government Enterprise and Empowerment Program) in Nigeria. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.

1.8 Limitations of The Study

The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.

1.9 Organization of The Study

The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.

Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.

Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis are discussed in this chapter.

Chapter Four highlights’ data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.

Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.

1.10 Definition of Terms

1. Financial Inclusion
   The process of ensuring access to affordable, timely, and appropriate financial services (such as savings, credit, payments, and insurance) for individuals and businesses, especially those from underserved and low-income groups. In the context of Nigeria, it aims to integrate microbusinesses into the formal financial system to foster economic growth and reduce poverty.
2. Microbusinesses
   Small-scale businesses typically characterized by low capital investment, limited workforce (often fewer than 10 employees), and serving local or niche markets. In Nigeria, these businesses play a critical role in job creation and poverty alleviation, often operating in sectors such as agriculture, retail, and informal services.
3. Financial Literacy
   The knowledge and skills required to effectively manage personal finances, make informed decisions about financial products, and understand basic financial concepts. For microbusiness owners in Nigeria, financial literacy is crucial to improving financial decision-making and maximizing the benefits of financial inclusion initiatives.
4. Impact Assessment
   The process of evaluating the effects and outcomes of financial inclusion initiatives on microbusinesses. This involves analyzing both the direct and indirect effects, such as improved access to finance, increased productivity, enhanced business sustainability, and the wider economic effects on local communities.
5. Digital Financial Services (DFS)
   Financial services delivered through digital platforms, such as mobile banking, electronic wallets, and online payment systems. In Nigeria, DFS plays a vital role in financial inclusion by providing microbusinesses with easy access to banking services, enabling faster transactions, and enhancing financial transparency.
6. Microfinance Institutions (MFIs)
   Financial institutions that provide microloans, savings, and other financial services to low-income individuals and microbusinesses. In Nigeria, MFIs are crucial in fostering financial inclusion, offering credit to microbusinesses that may not be eligible for loans from traditional banks due to lack of collateral or formal credit history.
7. Social Impact
   The broader effects of financial inclusion initiatives on society, beyond the individual or business level. This includes improvements in poverty reduction, gender equality, employment opportunities, and local economic development. For Nigerian microbusinesses, financial inclusion aims to create a ripple effect that enhances the welfare of communities and contributes to national economic stability.