The Impact of Microfinance Banks on the Growth Of Smes in Fct Nigeria (2005-2016)

Table of Contents

Dedication

Acknowledgement

Abstract

Chapter One INTRODUCTION
1.1. Introduction
1.2. Background
1.3. Statement of Problem
1.4. Objectives of the Study
1.5. Research Question
1.6. Statement of the Hypothesis
1.7. Significance of the Study
1.8. Scope of the Study
1.9. Definition of Terms
1.10. The Structure and Organisation of the Study
References

Chapter Two LITERATURE REVIEW
2.1. Introduction
2.2. Conceptual Framework Global Overview of MFBs and SMEs
2.3. Theoretical Framework
2.4. Literatures on the Subject Matter
MFBs and SMEs in FCT Nigeria
References

Chapter Three RESEARCH METHODOLOGY
3.0. Area of Study
3.1. Research Design and Source of Data
3.2. Study Population and Determination of Sample Size
3.3. Instrumentation
3.4. Procedure of Data Collection and Data Analysis
3.5. Limitations of the Study
References

Chapter Four DATA ANALYSIS, FINDINGS AND DISCUSSION
4.0. Data Analysis
4.1 Findings Of The Study
4.2. Discussion Of The Findings
References

Chapter Five CONCLUSION AND RECCOMMENDATIONS
5.0. Summary of Findings
5.1 Conclusion
5.2 Recommendations
5.3. Proposal for Further Studies

References

Bibliography

APPENDICES
Appendix ‘A’
Appendix ‘B’
Appendix ‘C’
Appendix ‘D’

List of Figures

Figure 4.3: Chart showing SME Rating Of Capacity Building

Figure 4.5: Chart showing SME Perception of MFB services

Figure 4.7: Chart showing MFB Perception Capacity Building Services

Figure 4.8. Chart showing SME rankings of CBN- Prescribed MFB Services

List of Tables

Table 2.1. SME definitions by the International Finance Corporation

Table 2.2. Showing list of CBN-prescribed services for MFBs

Table 4.3. Showing SME Rating Of Capacity Building

Table 4.5. Showing SME Perception of MFB services

Table 4.7. Showing MFB Perception of Capacity Building Services

Table 4.8. Showing SME rankings of CBN- Prescribed MFB Services

Table 5.1. Showing Project Recommendations

List of Appendices

Appendix ‘A’ Sample of SME Questionnaire

Appendix ‘B’ Sample of MFB Questionnaire

Appendix ‘C’ List of Microfinance Banks Involved in Project

Appendix ‘D’ Industry Specification of SMEs Under Study

Dedication

I dedicate this work to my family: My parents, Chief Barr. J.D. Ephraim & Mrs. D.Z. Ephraim; my sisters; Kushiyiyan, Kunaba, & Amanta; my brother in-law Emmanuel, and my young nephew, Memphis Ogah. This work is also dedicated to all the personalities who rendered their undivided support to its successful completion: to Mohammed S.B, a good friend and irreplaceable ally, to the helpful management and staff of Legacy Microfinance bank, the Microfinance Banks and Micro, Small & Medium Enterprises working tirelessly to make a difference in their respective fields, and my loved ones too many to mention, all of whom this project would not have been possible without.

Acknowledgement

I remain grateful to my supervisor, Dr. Emmanuel Orakwue who offered necessary guidance from the start of this thesis up until the end.

I am also thankful to all the staff from the Global Distance Learning Institute Abuja, who provided materials and other tools that led to the successful completion of this project.

I offer thanks to my fellow MBA classmates who granted as much assistance as possible towards the completion of this research work. This also extends to all the 48 SMEs and 21 MFBs that took part in this research.

The Abuja office of the Nigerian National Association Of Microfinance Banks (NAMB) who provided access to functional/registered MFBs within FCT Abuja, as well as organisations such as the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and Enhancing Financial Innovation & Access (EFInA), both of which were consulted for up to date research data regarding Nigeria’s SMEs, and finance coverage amongst adults within and beyond low income areas.

Abstract

This project presented an investigation into the impact of microfinance banks (MFBs) on the growth of Small and Medium Enterprises (SMEs) in Abuja between the periods of (2005-2017). To achieve this, a comprehensive analysis was undertaken regarding the development of Microfinance as an economic tool, and the relevance of SMEs to the achievement of widespread economic empowerment and the alleviation of poverty in Nigeria. Aside from conventional banking services such as the acceptance of deposits and provision of credit, findings from primary research disclosed that the provision of capacity building and other supportive services were designated by the CBN as necessary for adequate development of SMEs. However information on the existence of some of these service or information regarding the measures of success experienced by SMEs in terms of growth through access to these services were difficult to ascertain. Therefore, a secondary research was undertaken on twenty-one (21) MFBs and forty-eight (48) SMEs all based in FCT Abuja, Nigeria with the aim of investigating the factors surrounding the rendering of capacity building and other core microfinance services as prescribed by the CBN.

Findings revealed that only a fraction of identifiable CBN-described capacity building services were offered to SMEs by MFBs – services such as credit application training were focused on while other important capacity building services such as ‘ book keeping’, ‘ quality assessment’ and ’sales/marketing’ were largely ignored. Conclusive results revealed that there was not a significant indication of growth impacted on SMEs by MFBs. Findings rather suggested that there is a lot more that needed to be done in order for MFBs to effectively make an impact on the growth of SMEs. In conclusion, careful analyses of findings of the study were indicative of a need for more regulation within the MFB industry in order to ensure the execution of exclusive SME targeted Microfinance services, which would in-turn, facilitate economical growth within and outside the SME and MFB sectors. It was also recommended that special Microfinance resources (separate from those available to commercial banks) be made available to enable MFBs the capability to effectively and efficiently execute services that will be beneficial to the growth of SMEs.

Chapter One INTRODUCTION

1.1. Introduction

Microfinance banks (MFBs) have gained tremendous popularity for providing services such as credit and capacity building amongst other products to small and medium enterprises (SMEs) since the late 1980's (Gudz, F., 1999). This popularity is attributable to the massive employment opportunities they provide to low-income citizens of their host countries who also make up a majority of SMEs (Taiwo, et al., 2017). Poverty has long been a major force against development among the rural populace from underdeveloped countries like Nigeria (Ocasio, V.M., 2012). To combat rising poverty rates, microfinance concepts have been utilised by governments in developing the financial depth of small businesses owned by low-income persons through the provision of low-capacity financial services not usually attainable through large commercial banks (Weiss & Montgomery, 2004). It is expected that such small businesses, identified as SMEs, will be instrumental to the economic and financial competence of their resident nation. Therefore, in realisation of this, the Nigerian government through the Central Bank of Nigeria (CBN) in 2005, instituted a policy for the development of Microfinance banking through the conversion of pre-existing small-medium scale financial institutions such as community banks into MFBs with the mandate to provide financial products and services in order to grow the nation’s SMEs. Despite an observed increment in the number of registered MFB since 2005, there have been reports that indicate mixed reviews regarding their impact on SMEs within the areas they operate in (Oluyombo, D., 2010).

1.2. Background

Since their establishment through the microfinance policy established by the Central Bank of Nigeria (CBN) in 2005, the largest of the newly established MFBs have clustered in major economic cities where a majority of SMEs are located such as Lagos, Kano and Abuja – the Federal Capital Territory (FCT). Despite this, there have not been clear or consentient perceptions of the effectiveness of these institutions on the development of the SMEs they were mandated to serve (Oluyombo, D., 2010).

SMEs are globally perceived to be of paramount importance when considering the growth, sustenance, or recovery of a country’s economy (Ayyagari et al., 2007). This is widely due to the benefits, which come with the development of a robust SME industry such as employment, financial stability and the development of a middleclass population, whom are widely regarded as the backbone of a nation’s economy (Levy, B., 1993). Despite this, (Beck & Demirguc-Kunt, 2006) asserted that developing countries (such as Nigeria) who are most in need of an overhaul of economic activities are yet to implement effective frameworks into programs such as Microfinance Banking in order to support SMEs.

(Orodje, G., 2012) attests to the existence of documented schools of thought that question the benefits of the development expected from Nigerian MFBs to SMEs and consider them a failure. This could generally be due to the lack of considerable differences between the type of interest rates, capacity building/training services and credit access requirements of MFBs in Nigeria when compared to those attainable from larger commercial financial institutions as observed since 2005 (Yahaya et al., 2011). It is believed that such factors discourage SMEs from either soliciting the services of MFBs or returning after a first experience – an eventuality which, if left to continued occurring, will pose as a challenge to MFB impact on SME growth as initially envisioned by the CBN. (Olomola, A.S., 2002) describes these possibilities (amongst others), as a culmination of “failures overcoming successes envisaged from microfinance banks”, which indicate a need to undertake research on the real impact of MFBs in relation to SMEs in Nigeria especially as observed from the perspective of SME customers who have gained access to microfinance services in the past.

1.3. Statement of Problem

While MFBs have a reputation as economically benefiting advantages to small-scale businesses globally (Prasad et al, 2011), this has however not been proven in Nigeria as they are accused of not providing sufficient capacity building or varying support services, all of which are meant to be included to low-interest/collateral-free credit to customers according to prescriptions set by the CBN in order to distinguish MFBs from commercial banks (Olomola, A.S., 2002). Microfinance experts such as (Yunus, M., 2011), and scholars such as (Ahmed, S., 2009) have clearly identified capacity building and business support services as primary components that must be provided along with low-interest, collateral-free credit in order for true microfinance banking to be achieved. But as noted by academics such as (Acha I.A., 2012), (Nwigwe, et al. 2012), and (Nwankwo et al. 2007), there is little evidence that indicate adequate MFB implementation of capacity building or business support services for SMEs staff not even in accordance with the services prescribed by the CBN in the original 2005 MFB policy (CBN, 2005). Based on this, it is difficult to reconcile available data between services offered by MFBs, and the influence of such services on SME growth as adjudged from the perceptions of SMEs.

While there have been studies such as (Oke, et al., 2007), (Anyanwu, C.M., 2004), (Ekpe, et al., 2010) and others which aimed to study Nigerian MFBs from the Policy, Operations, Performance point of views, this study will aim to undertake a different approach by instead focusing on the extent to which SMEs attribute services received from MFBs such as capacity building/support services towards the growth of their businesses, as well as assessing the measure of endeavours undertaken by MFBs in order to provide these capacity-building/business support services prescribed by the CBN and to ascertain the reasons, if any, that may explain a lack of provision of these services.

1.4. Objectives of the Study

- To ascertain if and to what extent MFBs offer capacity building services to SME customers and by what measures those services have affected the growth of SMEs.
- To determine the extent of MFB adherence to microfinance support services prescribed by the CBN to be provided in support of SMEs
- To identify the most impactful MFB products/services on business growth as perceived by SMEs
- To suggest more appropriate and effective measure to be taken in order to improve the microfinance sector.

1.5. Research Question

1. What constitutes as ‘capacity building services’ from MFBs?
2. To what extent do SMEs attribute their growth to be partly or wholly due to accessing capacity building services specifically?
3. To what extent do MFBs offer a variety of business support products/services in accordance with CBN prescriptions?
4. By what measure do SMEs attribute the growth of their enterprise to be due to CBN-prescribed services received from MFBs?

1.6. Statement of the Hypothesis

The statement of the hypothesis is intended to try to outline a basis for reasoning from research questions. It also attempts to present comparable possibilities that may be uncovered in the course of the study at hand.

Hypothesis 1

H0: There is no evidence of support services or variety of products offered by MFBs that contribute to SMEs growth.

H1: There exists evidence of services or variety of products offered by MFBs that contribute to SMEs growth.

Hypothesis 2

H2: SME customers reserve positive perceptions towards the impact of capacity building and business support services received from MFBs.

H3: SME customers reserve neutral perceptions towards the impact of capacity building and business support services received from MFBs.

H4: SME customers reserve negative perceptions towards the impact of capacity building and business support services received from MFBs.

1.7. Significance of the Study

A 2016 study conducted by (EFIna, 2017) in partnership with Nigeria’s National Bureau of Statistics (NBS) revealed a majority of Nigeria’s 96.4 million active adult population (about 38.7%), participate in one form of SME or the other. Servicing the “Active poor” and providing an enabling environment for SMEs have been stated on several instances as core reasons for the development of Nigeria’s microfinance industry (CBN, 2005), (CBN, 2011), indicating the relevance of MFBs to the development and sustenance of the nation’s SMEs – and by extension, Nigeria’s adult-majority population.

This study has undertaken an analysis on the impact of MFBs on the development of SMEs between the year of conception of Nigeria’s Microfinance Policy (2005) and the most recent calendar year (2016). This study focused attention on the perceptions from SMEs regarding capacity building/support services received from MFBs. Findings from this study shall be beneficial to Nigerians and Nigeria as a whole due to its focus on how the microfinance system is perceived by SMEs. (Aris, N.M., 2007) describes SMEs as “the building blocks for economic growth”, pointing to SMEs as necessary components of economic development that must be fully harnessed especially in cases of growing economies such as Nigeria’s. This study will reveal some information that will enlighten SMEs on the viability and relevance of MFBs as an avenue for accessing credit and capacity building. The research undertaken will also add to previous studies aimed at identifying the gaps between the Nigerian microfinance industry and the SMEs they were mandated to serve and proffer possible solutions on the way forward for the microfinance industry.

1.8. Scope of the Study

This study conducted an investigation and evaluation on the extent and capacity of products and services made available by MFBs to aid the growth of SME customers in the FCT as well as to evaluate growth of MFBs within the FCT in order to meet with the rising population. The study’s focus on FCT Abuja is due to the logistical and financial advantages as a study focusing on the National or multiple states of the federation will present financial constraints and could constitute significant time consumption.

1.9. Definition of Terms

Terminologies utilised in this study have been explored in order to clarify and minimize ambiguity. Definitions of terminologies used within this study are as follows:

Microfinance Banks (MFBs): These include institutions such as Commercial/non-profit MFBs registered under the CBN with the mandate to offer credit and banking services to small and medium scale enterprises.

Microfinance Institutions (MFIs): Including a variety of financial institutions Corporative institutions/societies, Welfare associations, Micro Insurance institutions, as well as Commercial/non-profit MFBs, registered under the CBN with the mandate to offer credit and banking services to small and medium scale enterprises.

Small/Medium Scale Business (SMEs): (Central Bank of Nigeria, 2010) defines SMEs as “any enterprise with an asset base (excluding land) between N5 million – N500 million and a labour force between 11 - 300 people”. The sector includes manufacturing, agricultural value chain activities, educational institutions, renewable energy/energy efficient product and technologies and others. For simplification purposes, the term “SME” shall be used throughout this research to refer to both the official CBN definition for SMEs and that of MSMEs as described below.

Micro, Small and Medium Enterprises (MSME): Described by the (Central Bank of Nigeria, 2014) as an extension of SMEs to encompass a combination of enterprises described under SMEs, and in addition, to encompass “Micro” enterprises - described by the CBN as enterprises that operate below the threshold of the official CBN definition for SMEs – an asset base below N5 million and a labour force below 11 people.

However, both SMEs and MSMEs would be referred to in the course of this research as “SMEs” in accordance with norms and practices of academics across the globe who have done the same in observed instances such as India (Biswas, et al., 2007), Bangladesh (Islam, et al., 2011) & (Yunus M., 2011), China (Gibb, A., 2006), and several other scholarly sources from Nations with similar population/poverty metrics as Nigeria except from places where official statistics, metrics, or quotes are being directly referred to with the terms “MSME” or “Micro”.

Capacity Building: Defined by (Knowhownonprofit.org, 2017) as a description of a range of activities, which could be utilised in expanding or changing the direction of an organisation. In the context of this study, the term capacity building is used to describe the expansion of finance-based skills/knowledge, business operational strategies, and an improvement of local centered commercial skill-sets.

Customers: These refer to any person or entity involved or interested in patronizing/soliciting the services of another person or entity. For the sake of this study, the term customers would be used in reference to owners and actors of SME corporations.

CBN-prescribed Microfinance Services: These encompass an outline of certain Microfinance banking services recommended under the (CBN, 2005) ‘Microfinance Policy Regulatory and Supervisory Framework for Nigeria’, which was published in 2005 as a guide for the MFB industry. It includes regulations regarding the structures and limitations of MFBs as well as a list of recommended services that MFBs are expected to provide to their customers (including SMEs). These services are however not mandatory and as such MFBs are not required to provide them nor regulated in terms of quality of service delivery.

Service Perceptions: In the context of this study, perception of service will be weighted as the measure of satisfaction perceived by SME clients after soliciting services from MFBs. This characteristic will be educated by combined perceptions of MFB commitment to service delivery, quality of services rendered, and awareness regarding such service from the perspective of both SMEs and MFBs.

1.10. The Structure and Organisation of the Study

This study is intended to analyse the role of MFBs in the impact of MFBs on the growth of SMEs in FCT, Nigeria Between 2005-2016. The research is chaptalized into four parts, which will be undertaken in the following structure:

Introduction: The introduction will provide the background of the topic being researched. This will also include an assessment of the project scope as well as identification of research questions and hypothesis. This section is relevant to the success of the entire project as it will provide a background around which the direction of the project can be identified and also an avenue whereby structures and frameworks can be formed.

Literature Review: Where the conceptual and theoretical framework of the study subject will be explored. This part of the study will analyse the global history of MFBs followed by the history and development of MFBs within Nigeria. The concept and context of SMEs within Nigeria will also be examined.

Research Methodology: This section will focus on the intended area where the study will be undertaken along with the study sample size, instrumentation techniques intended and procedures for data collection to be followed. Limitations on study will also be identified.

Data Analysis: The data analysis section will seek to compile all data collected during research for the study in order to conduct analysis and determine results. Findings from the study will also be outlined and discussed

Recommendations and Conclusions: This section will outline unique discoveries from findings in the study and also proffer recommendations.

References

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Aris, N.M., (2007), SMEs: Building blocks for economic growth. Department of National Statistics, Malaysia. Available: http://www.academia.edu/download/36716863/ journal_1_SME.pdf Last accessed 20th Aug 2017.

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(Smecgs). Available:https://www.cbn.gov.ng/Out/2010/publications/guidelines/dfd/GUIDELINES%20ON%20N200%20BILLION%20SME%20CREDIT%20GUARANTEE.pdf. Last accessed 30th June 2017.

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Islam, M.A., Khan, M.A., Obaidullah, A.Z.M. and Alam, M.S., (2011), Effect of entrepreneur and firm characteristics on the business success of small and medium enterprises (SMEs) in Bangladesh. International Journal of Business and Management, 6 (3), p.289.

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Chapter Two LITERATURE REVIEW

2.1. Introduction

This literature research within this chapter will focus on the development of microfinance banking globally and within Nigeria along with factors surrounding capacity building and SMEs. The literature review will also highlight research findings with a reference to the area of study – FCT Abuja, Nigeria.

2.2. Conceptual Framework Global Overview of MFBs and SMEs

DeLong & Eichengreen (1994) point to studies from 19th century political/economic philosopher - Lysander Spooner, as far back as the 1800s, which highlighted the concept of poverty alleviation through the provision of micro-credit to entrepreneurs and farmers – the majority of SMEs within the region at the time. Evidence for a nationwide adoption of microfinance policies can be found in early proponents such as the Marshall plan; a concept initiated in 1948 by United States Secretary of State, George C. Marshall in response to the widespread destruction of a majority of Europe after the 2nd World War. The plan was deployed in order to revamp the continent’s economy through massive housing projects, which provided homes that could be procured through credit packages made available through designated local unit offices. Although the Marshal plan focused on housing and by extension the provision of jobs through construction of the needed buildings, analysts such as (DeLong & Eichengreen, 1994), who described the plan as “history's most successful structural adjustment program” also praised it as a modern pinnacle of microfinance efforts due to its far-reaching effects on improving rural standards through housing and boosting efforts of capitalism within the post-World War 2 era of Europe through the stimulation of SMEs within the areas where housing was provided for. However schools of thought such as (Wallsten, S.J., 2000) have since debunked the overwhelming emphasis on government assistance to industry in support of more market-centered/controlled economies whereby the role of government is strictly relegated to policy and regulatory reforms.

2.3. Theoretical Framework

Evidence has shown that the development of microfinance institutions as economical tools is often preceded by an unbalanced status of poverty (Morduch & Haley, 2002). There is also evidence indicating that microfinance institutions are higher in number within developing countries such as Bangladesh, Peru and Nigeria amongst others, due to relatively poor living conditions leading to a disconnect between upper and lower economic classes of populations (Macfarlane, A., 2002). The Grameen Bank of Bangladesh project is widely recognized as one of the most successful implementations of microfinance concepts and theories focused on the provision of credit and capacity building options primarily to women - An effort borne partly as a response to severe effects of drought and famine occurring within the period (Macfarlane, A., 2002).

Upon realizing that the provision of low-interest credit alone to mostly uneducated clients may not be feasible enough, Grameen bank organised their services to ideal clients - mostly within or below the threshold of SMEs - through the delivery of capacity building services (including adequate training and support) along with extremely low interest rates all provided concurrently (Yunus, 2011). The provision of eased access to lines of credit assisted in revamping the local economies where microfinance beneficiaries came from as they were able to operate and sustain their various SMEs with credit obtained (Yunus, 2011).

Small and Medium Scale Enterprises (SMEs)

Ekpenyong & Nyong (1992) pointed to the mid 1960s as a revolutionary period in time that not only changed macroeconomic conceptions of SMEs, but also served as a kick-start to the beginning of a revised global focus on SMEs as necessary tools for development. As stated by the (International Labour Organisation, 1973), many SMEs (or small-scale industries as they were referred to at the time) were before the 1960s, viewed by economists as an easily justifiable occurrence bound to exist only temporarily in any developing nation due to an unreliable supply of capital resources and administrative experience – all of which were expected to eventually become superseded by modern forms of large-scale production. This earlier theory viewed the existence of SMEs only as a precursor to large-scale enterprises rather than current perceptions of today, which instead, view SMEs as a necessary co-existing factor on par with large-scale enterprises in terms of economic relevance. This theory also viewed SMEs as absolute components of economically developing economies and only temporary components of developed or larger economies – believing that SMEs would one day only be found as components of developing nations alone and will eventually seize to exist in any nation as it became more and more economically buoyant. However, according to (Chenery et al., 1974), the 1960s oversaw a shift from this notion.

The Varying Definitions of an SME

(Kushnir, K., 2010) notes that it is difficult for international financial organisations such as The International Finance Corporation (IFC) and The World Bank to find a unitary definition of MSMEs or SMEs considering the varying economic factors across the globe. (Gibson & Van der Vaart, 2008) support this argument by proffering practical examples whereby a definition for an MSME in more developed nations such as the UK or UAE, may not meet the same parameters with those in less developed Nations such as Ghana or Nigeria. According to (Gibson & Van der Vaart, 2008), The African Development Bank aimed to avoid this by specifying only a labour definition for SMEs (at 50 staff or less) without any further descriptions for minimum annual cash turnovers or asset value). The (Pan) Asian Development Bank has also opted not to have an official definition for SMEs, opting instead to leave the definition open for any of its member-nations to utilise their own set definitions (Vandenberg, et al., 2016). The European Union, through The Commission of European Communities also chartered a Commission Recommendation for the official definitions of an SME that clearly defines Micro, Small, and Medium enterprises, but still opts to continue to refer to each under the umbrella of the term ‘SME’ (EU, 2003).

The IFC officially defines SMEs as organisations with 300 employees or less and then refers to financial categorisation for MSMEs according to what it calls the “Global Financial Markets” as follows (IFC, 2012).

Table 2.1: Showing Definitions of an SME by the International Finance Corporation

illustration not visible in this excerpt

Capacity Building for SMEs

It is difficult to find a consensus on a simple definition for capacity building. After referring to capacity building as “a term too broad to adequately define”, (Potter & Brough 2004) attest that the use of the term ‘capacity building’ is often utilised “merely as a euphemism referring to little more than training”. A two-year study conducted on microfinance institutions in Peru by (Karlan & Valdivia, 2011) found that institutions that offered routine capacity building/training services to customers had higher repayment and client retention rates than those that did not. This, it was found, was due to observable improvements in business knowledge, practices and revenues from benefiting customers. (Oguntimehin, 2001) identifies the functions of training as activities conducted in order to:

- Increase productivity
- Improves skills knowledge
- Introduce or enhance the use of tools, machinery, skills etc.
- Provide updates on new/existing policies, regulations, technologies, methods, products, etc.

Based on these findings, core capacity building services tailored towards the needs of Nigerian SMEs as prescribed by organisations such as the CBN and Grameen bank have been organised and broken down into the following services:

1. General Training (including Financial knowledge development)

In a study conducted on Tanzania’s microfinance industry by (Temu & Kessy, 2010), it was found that clients who received general training services from MFBs were more likely to have a higher asset base and sales revenue than those who did not. This, it was found, was majorly due to the added advantages of being kept up to date with knowledge on business support options from government or other credit sources.

2. Credit Application Training

(Tjossem et al., 2007) and (Valdivia & Karlan, 2006) emphasize on credit application training for SMEs as a way to avoid instances of defaulting loans due to lack of understanding of credit requirements during application such as loan structuring, loan approval and documentation information.

3. Book Keeping/Records Statement Development

(Anane, et. al., 2013) note that book keeping/records statement training activities offered to SME customers by MFBs were found to be instrumental in improving outputs and ensuring prudent financial management which ultimately reduced the instance of non-performing loans.

4. Technical/Vocational Skills/Quality Assessment Training

The need for vocational training for SMEs comes with recognition of the fact that advanced, popular, and in some cases basic education may not be accessible to all actors within the SME industry. This is especially vested in the fact that a lot of SMEs exist within environments of poverty where formal education may not be attainable for all (Acha I.A., 2012). (Shaw, J., 2004) notes that the provision of vocational skill training opportunities by MFBs to applicable customers could strengthen poverty impacts by supplementing loans with non-financial interventions which encourage skill development and aid the achievement of higher-value occupations and Quality assessment skills.

5. Sales/Marketing

(Anderson et al., 2016) conducted a research highlighting the benefits of marketing skills in the running of small businesses over other skills. It was found that in the specific case of new business entrants, marketing skills were more significant skills to the progress of business than financial skills such as book-keeping/accountancy, and others.

2.4. Literatures on the Subject Matter MFBs and SMEs in FCT Nigeria

The most recent figures from (SMEDAN, 2013) indicate that the FCT has an estimated 485,055 MSMEs, consisting of 2,244 small, 446 medium, and 482,365 micro enterprises. Despite the sheer number of MFBs incorporated within FCT Abuja, which grew from about 5 in 2007 to 71 in 2015 (CBN, 2015), there still exist gaps in the eradication of poverty within its less economically viable communities (Ijigah, E.A, et al., 2012). It is also important to note that a majority of the 71 MFBs incorporated within Abuja are either out of service or have had their licenses revoked ( Agwuegbo, A., 2010), ( CBN, 2010), (NDIC, 2013).

The Federal Capital’s Millennium Development Goals (MDGs) office reported that 336 out of 858 communities in the FCT - representing over thirty nine percent of the city’s 2,238,751 population as estimated by (National Bureau of Statistics, 2012) - are below the poverty line. This information indicates a disconnect between the Government, SMEs and MFBs currently operating in Abuja – reasons for which this study will ascertain. A significant number of studies from the International Finance Corporation (IFC), indicate that approximately (90%) of Nigerian businesses are SMEs (or MSMEs) (Banji, O.O., 2006). This reveals a significant statistic when compared to (53%) in the US and (65%) in Europe. The report also indicates that SMEs represent about (90%) of the manufacturing/industrial sector in terms of number of enterprises in Nigeria, contributing approximately (45%) of GDP compared to (40%) in Asian countries and (50%) in the US or Europe (Anudu, O., 2016).

Despite evidence regarding the relevance of SMEs within Nigeria’s economic system, (Banji, O.O., 2006) noted that Nigeria has a low amount of domestic investment through loans to SMEs when compared to other emerging markets. This occurs as the majority of loans granted are usually issued to large corporates and governments while SMEs are left with little to no options. As a stimulus to remedy this, the Central Bank of Nigeria (CBN) in 2013 established the Micro, Small and Medium Enterprises Development Fund, with a seed capital of N220billion and the mandate of providing for the wholesale funding requirements of SMEs and other Financial Institutions (CBN, 2013). There is however, little evidence that suggests that these requirements have presented any significant impact on SMEs.

It is pertinent to the summation of well informed and eminently enlightened conclusions at this point, to identify key prescriptions tailored by the CBN towards provision of services to SMEs by MFBs, and based on this, seek out a basis for measuring adherence to these services and their impact on SME growth. While these services are outlined within the (CBN, 2005) Microfinance Policy Regulatory and Supervisory Framework for Nigeria, they only form the basis of guidelines for service and as such, are not compulsory for MFBs to adhere to.

Permissible activities of MFBs as prescribed by the (CBN, 2005) Microfinance Policy Regulatory and Supervisory Framework for Nigeria include the following:

Table 2.2: Showing list of CBN-prescribed services for MFBs

illustration not visible in this excerpt

In general, Microfinance has proven to be a potentially successful economic tool that can benefit both the developed and developing parts of the world. It is obvious through the findings in this literature review that while basic amenities such as infrastructure and an all-round enabling environment are important in order for the industry to thrive, findings within this literature review have also revealed that the Nigerian microfinance industry as it currently exists does not emphasize on the provision of capacity building or business support services to customers despite its relevance to the success of the Grameen bank of Bangladesh model – the modern microfinance model from which the Nigerian microfinance industry is based on. It is therefore important to conduct research into the nature of relationship between MFBs and SMEs with special considerations towards the provision of capacity building and business support services to SME customers - the answers to which this study intends to undertake.

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Times, January 15: A23

Chapter Three RESEARCH METHODOLOGY

This chapter outlines the methods utilised in carrying out the study. To provide for a more in-depth understanding of the ideas considered about this research and its methodology, this chapter discusses the area of study chosen, the research design/sources of data, the study population/determination of sample size, instrumentation, procedure of data collection/analysis, and limitations to the study.

3.0. Area of Study

This section aims to provide a background of the area of study within which the study was conducted in, which would include a rationale regarding its selection in comparison to other viable locations.

The study was carried out in FCT Abuja, Nigeria’s capital. It covers a land area of 7,753.9 Sq. Km and as at the 2006 census, had a population of 1,406,239 people consisting of 733,172 male and 673,067 female (National Population Commission, 2006). Estimates indicate that the population of the FCT as at 2017 would have doubled from the numbers recorded at the 2006 census (National Bureau of Statistics, 2012). Three viable cities were initially noted for considered of the study namely: Kaduna City, Lagos, and Abuja. Each city possessed a larger population, infrastructural development and power supply relative to other cities in Nigeria, making them prime candidates for the study as these factors can be considered to be indicators of higher numbers of SME and Microfinance clusters. Abuja was ultimately selected due to its close proximity to the researcher’s location as well as its satisfaction of all three factors considered for viability of the study: Population, infrastructural development and power.

3.1. Research Design and Source of Data

The study consisted of qualitative analysis involving published financial data research from the CBN and questionnaires. The sample for the questionnaire was pooled from the Abuja Municipal Area Council (AMAC), which was chosen due to the observed size of economic activity practiced within it.

The secondary source of data emanated from journals, books websites, and several forms of academic publications, all of which are adequately cited on reference pages and the bibliography page using the Harvard referencing method.

The primary source of data for the study was derived from structured questionnaires. These were constructed in two parts. The first of which will aim to ascertain the mode of service provided by MFBs, while the second level will seek to capture perceptions from SME customers who have utilised MFB services in the past in order to measure satisfaction or any perceived growth in terms of capacity or financial growth.

3.2. Study Population and Determination of Sample Size

The study is based on past or present SME customers of MFBs based within Abuja, Nigeria with interactions that were conducted between the years 2005-2016. The entirety of the research was based on questionnaires. Separate candidate-groups were sourced to represent both SME and MFB study populations. Qualification criteria for SMEs were set ((i.e. SME must be resident in Abuja and conducted service between the years 2005-2016)). Separate questionnaires for candidates from MFBs that qualify for the parameters of this project (i.e. Resident in Abuja and conducted service before or between the years 2005-2016) were also developed with the aim of analysing the existence or extent of capacity building services and general services offered to SME customers by MFBs as well as measure growth impacted through these services within the stipulated period between 2005-2016.

Sample Size:

The sample size for this research was determined through the utilization of the Taro Yamane formula. The Taro Yamane formula is described by (Yamane, T., 1973) as a mathematical formula that can be used to deduce a sample size from any identified population for use of academic research, results of which can then be inferred to in regards to the entire population when constructing conclusions. The Taro Yamane formula is widely considered as an adequate form of sample size calculation due to its straightforward composition (Imperial Writers, 2016). Population details for SMEs in Abuja were sourced from (SMEDAN, 2013), while population details for MFBs in Abuja were sourced from (CBN, 2015). Factors such as dated information, unaccounted population changes in Abuja, and insufficient current data on MFBs operating within Abuja as at the time of research conducted, were taken into consideration in determining the margin of error in the determination of bot MFB and SME population sample sizes.

Taro Yamane’s Formula is defined as follows:

Key:

n = Sample Size

N = Total Population

E = Margin of Error

1 = Constant Number

Formula:

illustration not visible in this excerpt

SME Sample Size:

The most recent figures from (SMEDAN, 2013) indicate that the FCT has an estimated 482,365 SMEs. Margin of error estimated at 15%. Using the Taro Yamane Formula, a sample-size was calculated thus:

illustration not visible in this excerpt

In reality a total of 48 SMEs were involved in the questionnaire as at the conclusion of SME candidate result collations. Industry-group breakdown of participating SMEs available in Appendix D (Page 70).

MFB Sample Size:

The most recent figures from (CBN, 2015) indicate that the FCT has a registered number of 71 MFBs. Margin of error established at 15%. Using the Taro Yamane Formula, a sample-size was calculated thus:

Formula, a sample-size was calculated thus:

illustration not visible in this excerpt

n = 27.33 (~ 27)

In reality a total of 21 MFBs were involved in the questionnaire as a majority of Licensed Nigerian MFBs (which as at 2013 were reported to be 71), were either permanently closed based on records from (CBN, 2017), or completely inaccessible. A list of MFBs participating in the study available in Appendix C (Page 63).

3.3. Instrumentation

The sole instrumentation for obtaining the secondary data of this research were questionnaires requesting qualifying/quantitative information from both MFBs and SMEs who have utilised microfinance services in the past or at present. The entirety of both questionnaires were designed and distributed to qualifying candidates through a web-based system - (www.SurveyMonkey.com), SurveyMonkey.com is a free, widely used web-based system founded in 1999 as a web‐based tool that offers a variety of remote usability testing, data collection and data analysis options for research purposes (Symonds, E., 2011). It provides its users with free, customizable platforms for developing questionnaires, and for conducting data collection, analysis, and targeted marketing to respondents that qualify any specified criteria all of which lead to a more efficient data research system especially for academic purposes (Waclawski, E., 2012).

Questionnaires were administered to microfinance institution customers in order to ascertain perceived satisfaction with quality of service received. The measure of growth MFBs have undergone in quantified in respect to branch expansion will also be determined through questionnaire. As such, two sets of questionnaires will be designed for MFBs and SME customers each.

Both SME and MFB questionnaires utilised Likert scales. (McIver & Carmines, 1981) aptly describe the Likert scale as “…A set of items, composed of approximately an equal number of favourable and unfavourable statements concerning the attitude object, is given to a group of subjects”. Candidates undergoing a Likert scale are provided with what is usually a series of statements, and required to provide a response in terms of their own degree of agreement or disagreement. Typically, candidates can be instructed to choose from a certain format of provided responses: strongly agree, neutral, strongly disagree or numerical options grading between 1-5/1-10. The responses are then combined during analysis so that statements with the most favourable responses will have the highest scores while statements with the least favourable responses will have the lowest scores (Gliem & Gliem, 2003).

The Likert Scales used in this research allowed respondents to provide a rating between '1-10' based on the measure of impact any of the specified activities have had on the growth of their SME. A selection of '1' was intended to signify the lowest possible rating (indicating an unfavourable/negative response), a selection of '5' was intended to signify a neutral rating (indicating an indifferent/irrelevant response), a selection of '10' was intended to signify the highest possible rating (indicating a favourable/positive response), and a selection of ‘N/A’ was intended to indicate an instance whereby the candidate had no personal knowledge of such activity, or had reason to believe that such an activity was non-existent. Each answer was allotted a score/point-based weighting, with a selection of '1' allotted the lowest weighting, a selection of '10' allotted the highest weighting, and a selection of 'N/A' allotted no weight value.

MFB Questionnaire:

The questionnaire was designed into two parts – The first part consisted of questions seeking information about the bank being studied, such as Name, Date of start of operations, category of license (Unit, State or National), Initial branch network (1, 2, etc.), Current branch network (1, 2, etc.), and others.

The second part of the MFB questionnaire sought to ascertain in-depth details regarding capacity building services offered by the MFBs, as well as ascertaining services offered ratings regarding the extent by which MFBs perceive as threats to the execution of services especially to SMEs. SME questionnaire sample is available in Appendix B (Page 64).

SME Customer Questionnaire:

The SME questionnaire was designed into two parts - The first part of the questionnaire aimed to retrieve bio-data from the customer such as: Name, Age, Occupation, and Location etc.

The second part of the SME customer questionnaire aimed to ascertain participant status qualification in regards to being considered an SME. Likert scales were utilised to seek information regarding the existence of any of the identified capacity building services MFBs are expected to provide credit, and also Likert scales which aim to ascertain the level of impact other services offered by MFBs have had on SMEs. SME questionnaire sample is available in Appendix A (Page 63).

3.4. Procedure of Data Collection and Data Analysis

The entirety of both SME and MFB questionnaires were based on (www.SurveyMonkey.com), a widely used web-based survey/data collection system. All submitted responses were collated, analysed and designed into graphs where demographic, professional, and rated information would then be utilised in final analysis.

The first part of both the SME and MFB questionnaires was designed to gain quantitative information through the use of nominal questions to be answered using a Likert scale – which requires answers in the form of ratings from 1-10. The ratings were set considering allocations of one being the lowest indicating a negative response, 5 being the middle indicating a neutral response and ten being the highest indicating a positive response, each with weighted points that correspond with the numbers provided on the scale.

The second part of both the SME and MFB questionnaires will consist of qualitative questions inquiring about further information, additional comments, and recommendations depending on the relevant answer.

3.5. Limitations of the Study

As with most significant academic endeavours, this study was met with certain constraints that limited its scope. The most prominent of such limitations will include:

Location – As Nigeria is a large country with 36 states, making the deployment of research works outside the Federal Capital Territory (F.C.T Abuja) extremely expensive and time consuming. It may not be financially or logistically viable to conduct a research study to include all the other states in the country. This limits the location of the study to Abuja, the capital, which is believed will present a fair representation of results due to its diverse economy, culture and other elements derived from a population emanating from virtually all the states of the Federation.

Finance – Financial limitations will emanate due to the entire costs incurred being absorbed solely by the researcher. This will set a limit to the research area.

References

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Central Bank of Nigeria (2017), Updated List of Microfinance Banks Available: https://www.cbn.gov.ng/Out/2017/FPRD/LIST%20OF%20MICROFINANCE%20BANKS%20(MFBs)%20IN%20NIGERIA%20AS%20AT%20JANUARY%209,%202017.pdf. Last Accessed 7th March 2017.

Gliem, J.A. and Gliem, R.R., (2003), Calculating, interpreting, and reporting Cronbach’s alpha reliability coefficient for Likert-type scales. Midwest Research-to-Practice Conference in Adult, Continuing, and Community Education.

McIver, J. P., & Carmines, E. G. (1981), Unidimensional scaling.

Thousand Oaks, CA: Sage. (pp. 22-23)

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Waclawski, E., (2012), How I use it: Survey monkey. Occupational Medicine, 62(6), pp.477-477.Vancouver Available: https://www.researchgate.net/profile/Eugene_Waclawski2/publication/230723255_How_I_use_it_Survey_Monkey/links/56c32bec08aeeaf199f8bfec/How-I-use-it-Survey-Monkey.pdf Last accessed 19th June 2017.

Yamane, T., (1973), Statistics: An introductory analysis. Available: https://www.researchgate.net/profile/Mazyar_Ghadiri_Nejad/post/Would_you_mind_sending_me_the_full_text_book_of_Yamane_Taro_1967_Statistics_Introduction_to_Analysis_New_York_Harper_and_Row/attachment/5a38faffb53d2f0bba456a9c/AS:573245188915200@1513683711929/download/252560191.pdf Last accessed 1st May, 2017.

Chapter Four DATA ANALYSIS, FINDINGS AND DISCUSSION

A total of 69 respondents participated in the two categories of evaluation questionnaires developed for this study. 48 unique respondents participated in the SME category while 21 unique respondents participated in the MFB category. The pre-qualifying criteria for SME respondents were exclusively limited to SME businesses with current or previous experiences with MFBs located within Abuja, Nigeria within the period under study (2005-2016). The pre-qualifying criteria for MFB respondents were exclusively limited to MFBs incorporated and operational within the period under study (2005-2016) and located within Abuja, Nigeria. List of MFB respondents and Industry-groups of SME respondents in Appendix C and Appendix D (Pages 70 & 68) respectively.

4.0. Data Analysis

SME Data Analysis

Results were successful in giving insights on participating SMEs’ subjective opinions regarding perceived impacts observed after interacting with MFBs.

SME Rating Of Capacity Building:

Participants were asked to provide a weighting from 1-10 for each capacity building activity, scored according to the amount of impact such activity had on the growth of their business. Aside from the scoring options from 1-10, an extra score of N/A was also included to indicate a scenario whereby such an activity was either not offered, or the existence of which the participant was unaware about.

Table 4.3. Showing SME Rating Of Capacity Building

illustration not visible in this excerpt

Figure 4.3: A chart showing SME Rating Of Capacity Building (source: surveymonkey.com)

Measure of Impact on SMEs from Outlined CBN-prescribed MFB Services:

Participants were asked to provide a weighting from 1-10 for each outlined MFB service as prescribed by the CBN, again, scored according to the amount of impact such service had on the growth of their business. Aside from the scoring options from 1-10, an extra score of N/A was also included to indicate a scenario whereby such an activity was either not offered, or had an existence of which the participant was unaware about.

Table 4.5. Showing SME Perception of Outlined CBN-Prescribed MFB Services

illustration not visible in this excerpt

Figure 4.5: A chart showing SME Perception of CBN-prescribed MFB services (source: surveymonkey.com)

Suggestions from SMEs in order to improve the current state of relations between MFB s and SMEs:

Participating SMEs consulted during the study were vocal about areas where improvement was needed in order to facilitate further growth impartment from MFBs to SMEs. Some of the suggestions provided include the following.

1 Enabling access to loans at lower interest rate

2 Opening branches near small businesses such as markets, industrial area

3 Good behaviour of SMEs granted loans from MFBs in order to encourage more loans to other SMEs

4 Improved marketing in order to attract the attention of more SMEs

5 Organizing special products/services for people living with disabilities

MFB Data Analysis

Results were successful in giving insights on participating MFB’s preparation towards rendering services and facilitating growth to SMEs. MFBs that qualified for the criteria of this study – must be resident in Abuja and must have been in operation between the years 2005-2016. This naturally excludes MFBs that were registered or began operations after December 2016. 22 MFBs were considered in this research (as listed below), all of which participated in the research questionnaire (apart from one: EWT MFB, which not operational during the period)

Capacity Building Services Offered To SMEs:

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Figure 4.7: A chart showing indications of Capacity Building Services offered to SMEs (source: surveymonkey.com)

Table 4.7. Showing indications of Capacity Building Services offered to SMEs

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Most Impactful CBN-Prescribed Services to SME Growth:

Participating MFBs were asked to select any or all of the listed CBN-prescribed microfinance services they had offered to SMEs, taking into account the measure of impact such services may have on the growth of the SMEs. This was intended to gain information on the types of CBN-prescribed services offered by MFBs to SMEs and to gain an insight on what services MFBs observe to have the most impact on SME growth.

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Figure 4.8: A chart showing SME rankings of outlined CBN-prescribed services offered by MFBs (source: surveymonkey.com)

Table 4.8. Showing SME rankings of CBN-Prescribed MFB Services received

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4.1 Findings Of The Study

Findings: SME

SME Rating Of Capacity Building Services Received from MFBs:

‘Credit Application Training’ was allotted the highest points (6.44/10 or 64.4% - signifying neutral-positive perceptions), and the least ‘N/A’ responses (at 12.20% of total respondents). However, results indicated that ‘Quality Assessment Training’ was the least weighted Capacity Building Service, scoring the least points (4.59 - signifying neutral-negative perceptions towards impact to SME growth) and the highest ‘N/A’ responses (at 51.11%).

Other notable findings indicate ‘ Sales/Marketing Training ’ and ‘ Bookkeeping /Record Statement Development Training ’ as the least recognizable (at 43.48% and 34.09% N/A response respectively).

Measure of Impact on SMEs from Outlined CBN-prescribed MFB Services:

‘ Acceptance of Various Types of Deposits” received the highest weighted average points (6.48/10 or 64.80% - signifying neutral-positive perceptions towards impact to SME growth) and also scored the least ‘ N/A ’ responses. However, results indicated that ‘ Investment in Cottage Industries and Income Generating Projects for Low-Income Persons ’ was the least weighted CBN-prescribed MFB service, scoring the least average weighted points (3.33 or 33.30% - signifying negative perceptions towards impact to SME growth).

Results found that ‘ Buying, selling and supplying industrial/agricultural inputs, livestock, machinery… ’ services was the least recognised CBN-prescribed service offered to SMEs by MFBs (with 39.58% of ‘ N/A ’ responses). The services, ‘ Mobilizing/Providing Financial and Technical Assistance/Training to Microenterprises ’ (with 34.04% of ‘ N/A ’ responses) and ‘ Investment in Cottage Industries and Income Generating Projects for Low-Income Persons ’ (with 33.33% of ‘ N/A’ responses) were also shown to be the least recognised CBN prescribed MFB services.

Suggestions from SMEs in order to improve the current state of operations between MFB s and SMEs:

Participating SMEs were able to proffer suggestions about areas whereby improvement was needed in order to facilitate further growth of SMEs. Some suggestions include the following:

1 Enabling access to loans at lower interest rate

2 Opening branches near small businesses such as markets, industrial area

3 Good behaviour of SMEs granted loans from MFBs in order to encourage more loans to other SMEs

4 Improved marketing in order to attract the attention of more SMEs

5 Organizing special products/services for people living with disabilities

Findings: MFB

Capacity Building Services Offered to SMEs:

Results showed that ‘ Credit Application Training ’ received the highest responses (21 out of 21 or 100.00%). ‘ Quality Assessment Training ’ however, was the service with the least response (2 out of 21 or 9.52% of MFBs offered this service). Other services that received the least responses include ‘ Sales/Marketing Training ’ (5 out of 21 or 23.81% of MFBs offered this service) and ‘Technical/Vocational Skills Training’. (9 out of 21 or 42.86% of MFBs offered this service). Findings indicated that ‘ General Training ’, with responses of 12 out of 21 or 57.14% of MFBs offering the service) and ‘ Bookkeeping/Records Statement Development Training ’ with responses of 10 out of 21 or 47.62% of MFBs offering the service), which are both recognised as part of the most impactful services necessary for SME growth by both Microfinance scholars such as (Potter & Brough, 2004), and professionals such as (Yunus, M., 2011), are not utilised to their best potential within Nigeria’s Microfinance industry.

Most Impactful CBN-prescribed Services to SME Growth:

Results showed that both ‘ Acceptance of Various Types of Deposits ’ and ‘ Provision of (low-interest, collateral free credit) ’ were at a tie in terms of SME growth impartation as perceived by MFBs, receiving the highest responses (21 out of 21 or 100.00%). The service with the least response (7 out of 21 or 33.33%) was ‘ Buying, Selling And Supplying Industrial And Agricultural Inputs, Livestock, Machinery…. ’.

4.2. Discussion Of The Findings

Discussions of SME Findings:

SME Rating of Capacity Building Services Received from MFBs:

‘ Credit Application Training ’ was allotted the highest points (6.44/10 or 64.4% - signifying neutral-positive perceptions towards impact to SME growth) indicating that a mild majority of SMEs under study viewed credit application skills as the capacity building skills offered by MFBs that had the most impact on the growth of their enterprise, although only by a slightly positive perception. ‘ Credit Application Training ’ also scored the least in ‘ N/A ’ responses at (12.20%) of total SME respondents – indicating that it was a fairly known and recognised service. However, results indicated that ‘ Quality Assessment Training ’ was the least weighted capacity building service, scoring the least points (4.59 - signifying neutral-negative perceptions towards impact to SME growth) and the highest ‘ N/A ’ response (51.11%) – indicating that it was the least known or offered capacity building service.

Other notable results from analysis indicate that ‘ Sales/Marketing Training ’ and ‘ Bookkeeping/Record Statement Development Training ’ (at 43.48% and 34.09% ‘ N/A’ response respectively) were also fairly unknown to the SME participants.

Measure of Impact on SMEs from CBN-prescribed MFB Services:

‘ Acceptance of Various Types of Deposits ’ received the highest weighted average points (6.48/10 or 64.80% - signifying neutral-positive perceptions towards impact to SME growth) indicating that SMEs view the acceptance of various types of deposits as a CBN-prescribed MFB service that had the most impact on the growth of their business relative to other listed services, although only by a slightly positive perception. ‘ Acceptance of Various Types of Deposits ’ also scored the least in ‘ N/A ’ responses at (41.70%) at a tie with of ‘ Provision of Loan Disbursement Services for the Delivery of Credit programs..’, which coincidentally, also scored the 2nd highest average weighted points at (5.66 - signifying generally neutral perceptions towards impact to SME growth) – indicating that both services were as known and recognised as they were impactful to the growth of SMEs under study.

Results indicated that ‘ Investment in Cottage Industries and Income Generating Projects for Low-Income Persons ’ was the least weighted CBN-prescribed service, scoring the least average weighted points (5.09 or 50.90% - signifying neutral perceptions towards impact to SME growth). In this case however, its ‘ N/A ’ response (33.33%) was not the highest on record – indicating that it maintained a position as the least beneficial service received by SMEs on average, despite not being the least recognised. Such an occurrence of discrepancies between the weighted points and ‘ N/’A responses could be an indication of inadequate rendering of the service on the part off the MFBs.

Results also revealed that ‘ Buying, Selling and Supplying Industrial/Agricultural Inputs, Livestock, Machinery… ’ service was the least recognizable to SMEs (with 39.58% of ‘ N/A ’ responses). The services, ‘ Mobilizing/Providing Financial & Technical Assistance/Training to Microenterprises ’ (with 34.04% of ‘ N/A ’ responses) and ‘ Investment in Cottage Industries and Income Generating Projects for Low-Income Persons ’ (with 33.33% of ‘ N/A ’ responses) were also shown to be the least recognised CBN-prescribed services - indicating that MFBs are generally ignoring such services in the execution of their services as prescribed by the CBN.

Discussions of MFB Findings:

Capacity Building Services Offered to SMEs:

Results showed that ‘ Credit Application Training ’ received the highest responses (21 out of 21 or 100.00%) indicating that MFBs view credit application skills training as the capacity building service that had the most impact on the growth of SMEs. ‘ Quality Assessment Training ’ however, was the service with the least response (2 out of 21 or 9.52%) - indicating that it was the least offered capacity building service and least impactful on the growth of SMEs.

This further supports findings from the SME questionnaire results where ‘ Credit Application Training ’ was awarded the most weighted points in terms of contribution to SME growth, while ‘ Quality Assessment Training ’ received the least weighted points in terms of contribution to SME growth and also received the highest ‘ N/A ’ responses – indicating that over 50% of SME respondents were unfamiliar with the service altogether. Similar results were also observed between MFB and SME responses in regards to ‘ Sales & Marketing Training ’, which scored among the least in both SME and MFB questionnaires. No causality inferences could be drawn based on research material alone.

The results discovered from MFB responses to this question, especially considering its almost exact correlation with responses from SME responses indicate that either ‘ Quality Assessment Training ’ and ‘ Sales & Marketing Training ’ services are not adequately rendered by MFBs, or both services are not appreciated by SMEs. Results have however clearly indicated that ‘ Credit Application Training ’ is the most recognised/and most impactful capacity building service offered to SMEs by MFBs. Services such as ‘ Financial Knowledge Development ’ received favourable responses, while other services such as ‘ Sales/Marketing Training ’ and ‘ Technical/Vocational Skills Training ’ - both of which are recognised as part of the most impactful services necessary for SME growth by Microfinance scholars and professionals such as (Yunus, M., 2011) and (Potter & Brough, 2004) - are largely ignored in Nigeria’s MFB industry.

Most Impactful CBN-prescribed Services to SME Growth:

Results showed that both ‘ Acceptance of Various Types of Deposits ’ and ‘ Provision of (Low-Interest, Collateral Free) Credit ’ were at a tie, receiving the highest responses (21 out of 21 or 100.00%) indicating that MFBs view both CBN-prescribed services as the most impactful on the growth of SME customers. The service with the least response (7 out of 21 or 33.33%) was ‘ Buying, Selling And Supplying Industrial And Agricultural Inputs, Livestock, Machinery…. ’, which indicating that it was either the least offered CBN-prescribed service, or it was only the least impactful on the growth of SMEs. No causality inferences could be drawn based on research material alone.

Results from MFB responses to this question also further support findings from SME response results. ‘ Acceptance Of Various Types Of Deposits ’ and ‘ Provision Of (Low-Interest, Collateral Free) Credit ’ were awarded the most weighted points in terms of contribution to SME growth, while ‘ Buying, Selling And Supplying Industrial And Agricultural Inputs, Livestock, Machinery And Industrial Raw Materials On Credit And To Act As Agent For Any Association For The Sale Of Such ’, although not awarded the least weighted points on average, was pointed out as the most unfamiliar/unrecognizable CBN-prescribed service available with over (39%) of respondents indicating so with an ‘ N/A ’ response. Similar results were also observed between MFB and SME responses in regards to services such as ‘ Mobilizing/providing Financial and Technical Assistance/Training to Micro enterprises ’, and ‘ Investment in Cottage Industries and Income Generating Projects for Low-Income Persons ’, both of which were indicated as part of the least scored or least recognised CBN-prescribed services offered.

Considering the correlation between answers provided by both MFB and SME respondents regarding this question, it could be theorized the possibility that either MFBs were not adequately rendering both of the corresponding services, or both services are in fact adequately rendered, but probably not appreciated by SMEs.

References

Central Bank of Nigeria (2005). Microfinance Policy Regulatory and Supervisory Framework for Nigeria. Available: http://www.cbn.gov.ng/out/publications/guidelines/dfd/2006/microfinance%20policy.pdf. Last accessed 20th May 2017

Central Bank of Nigeria (2010). Microfinance Banks who’s Licenses are recommended for revocation. Available: https://www.cbn.gov.ng/Out/2010/pressrelease/gov/REVOCATION%20LIST.pdf. Last accessed 23rd Aug 2017.

Central Bank of Nigeria (2011). Distribution of MFBs by Geo-Political Zones. Available: http://www.cbn.gov.ng/OUT/PUBLICATIONS/DFD/2009/MFB_JUNE2008.PDF. Last accessed 3rd Oct 2017.

Central Bank of Nigeria (2012). Revised Regulatory And Supervisory Guidelines For Microfinance Banks (MFBs) In Nigeria Available: https://www.cbn.gov.ng/out/2013/ccd/amended%20regulatory%20and%20supervisory%20guidelines%20for%20mfb.pdf Last accessed 20th Jun 2017

Central Bank of Nigeria. (2015). List of Financial Institutions. Available: http://w1219.cbn.gov.ng/Supervision/fi.asp. Last Accessed 17th Apr 2017.

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Yunus M. 2011. Sacrificing microcredit for mega profits. New York Times, January 15: A23

Chapter Five CONCLUSION AND RECCOMMENDATIONS

5.0. Summary of Findings

Findings showed that capacity building services are in fact offered to SMEs and individual customers of MFBs. However, findings also revealed that only a fraction of identifiable capacity building services were offered by MFBs to individual customers and SMEs – services such as ‘ credit application training ’ were focused on while other important capacity building services such as ‘ Book Keeping’, ‘ quality assessment’ and ’sales/marketing’ were largely ignored. Out of 10 CBN-prescribed services outlined to MFBs under study, only 2 services - ‘ Acceptance of Various Deposits ’ and ‘ Provision of (Low Interest/Collateral-free) Credit ’, were both found to be offered across all 21 participating MFBs.

SME participants confirmed and mirrored results attained from findings of Capacity Building Services offered by MFBs - indicating ‘ Credit Application Training ’ as the most recognised and impactful service offered by MFBs whereas ‘ Quality Assessment Training’ and ‘Sales/Marketing Training’ were indicated as the least recognised Capacity Building Services. SME respondents generally indicated neutral perceptions towards the application of Capacity Building Services by MFBs and only indicated fairly neutral-positive perceptions towards ‘Credit Application Training’. This pattern was again repeated from responses provided by MFBs undertaking this study – where a majority of MFBS indicated ‘Credit Application Training’ as their most utilized service and also as the service perceived to be most impactful to the growth of SMEs.

5.1 Conclusion

Generally, results revealed that there was a disparity between activities prescribed by CBN and the reality of that offered by MFBs. A majority of services expected to differentiate MFBs from commercial banks, such as the provision of business support and capacity building services – which are meant to be administered along side low interest, collateral-free credit, were in most cases either partially or entirely non-existent. Results revealed that not only were MFBs operating structures fairly similar to commercial banks, a majority of SMEs partaking in the study who have interacted with MFBs were largely unaware of the existence of the services prescribed by the CBN to differentiate MFBs from commercial banks. In conclusion, based on the findings of this study, no conclusive evidence was found to prove a significant impact on growth received by SMEs from MFBs between the period of 2005-2016. A lot more needs to be done in terms of organizational, policy and regulatory restructuring of the entire Microfinance sector in order for MFBs to effectively make an impact on the growth of SMEs, especially in regards to capacity building activities and other mediums to supporting SMEs.

5.2 Recommendations

Based on findings indicated in the course of this study, recommendations towards the resolution of issues discovered need to be considered. These recommendations are based on input from both SME and MFB respondents recruited to undertake the research. The recommendations are also based on factors observed from globally practiced microfinance activities. These recommendations have now been compiled, and considered based on possible implementations within the Nigerian Microfinance industry (including the FCT), and listed below:

Table 5.1: Showing Project Recommendations

illustration not visible in this excerpt

5.3. Proposal for Further Studies

There are several other aspects of Nigeria’s Microfinance industry that were encountered either in the course of this research or during early literature review. These issues while important to comprehensive knowledge gathering on the Nigerian Microfinance industry were, for reasons based on immediate relevance, either bypassed or cut out from the core objectives of this project. It is however greatly encouraged that these components of research be explored in great detail in future works.

The Impact of the CBN MSME Fund

The recently executed MSME fund is one of the relatively recent developments within the Nigerian Microfinance industry that are of great significance. In the same year that it was enacted by the CBN - 2014, academics such as (Eniola, A.A., 2014) had published works recommending that the CBN provide exclusive financial resources to MFBs in order to enable them to build their financial capacities and provide a broadened variety of credit products to customers.

Although the MSME Fund aims to provide special funds to MSMEs, the fund is opened to any financial institution that meets the requirements (officially referred to as Participating Financial Institutions or PFIs) (CBN, 2014). This cancels the possibility of exclusive access by MFBs. Besides that, the CBN imposes certain Equity:Debt ratios that limits how much credit an MFB can give out making the value of shareholder equity of these MFBS (with mostly 20 million Naira minimum shareholder capital) to be a major hurdle limiting access to the MSME fund and from a larger perspective, ensuring an unavoidable situation of under-subscription to the MSME fund.

A Study On The Effects of Branch Network on MFB Service Delivery

During the process of this research, some additional unpublished enquiries were made in terms of MFB branch networks.

Findings had indicated that only (2 or 9.52%) of the participating MFBs were publicly traded on the Nigerian Stock Exchange and possessed National licenses with multiple branches across several Nigerian states (including the FCT) – these MFBs are Fortis MFB & NPF MFB.

(8 or 9.52%) of the responding MFBs possessed Unit licenses with NO intentions or on-going efforts to upgrade into state licenses, (5 or 23.81%) of the responding MFBs possessed State licenses with NO intentions or on-going efforts to upgrade into National licenses, whereas only (6 or 28.57%) identified as either Unit or State licensed MFBs WITH intentions or on-going efforts aimed at upgrading their licenses into State or National. Based on these findings further research on the issues highlighted, which may attempt to ascertain the commitment of MFBs in regards to expansion and Microfinance service delivery is highly recommended. This is particularly important, as academics such as (Adeyemi, K. S., 2008), and industry professionals such as (Yunus, M., 2011) are amongst many that have accused Nigerian MFBs of lacking any traits that prove an industry-wide interest to expand branches, improve networks, or execute true Microfinance policies.

An Investigation Into the Status of MFBs in Nigeria’s Financial Service Industry

Research on the literature review for this project had revealed relevant information regarding Nigeria’s financial industry in regards to financial inclusion, especially in terms of the composition of Nigeria’s banked population (adult population that utilizes modern banking solutions i.e. Commercial Banks, MFBs, Cash Centers, etc.). Key aspects of these findings are outlined as follows:

1. While the earliest survey from (EFInA, 2009) conducted in 2008 showed that (18 million or 21%) of the (86.6 million) Nigerian adult population utilised modern banking systems, the latest survey from the same organisation conducted in 2016 (EFInA, 2017) revealed that (45.4m or 48.6%) of Nigeria’s (93.5 million) adult population utilised modern banking systems. It was also found that MFBs held (3%) of Nigeria’s banked population in 2008, (3.8%) in 2010, (5.2%) in 2012, (2.8%) in 2014, and (1.9%) in 2016. (EFInA, 2009), (EFInA, 2011), (EFInA, 2013), (EFInA, 2015), & (EFInA, 2017).

2. Findings from other studies also revealed that while 1,024 licensed MFBs were approved by CBN as at 2009 (CBN, 2009), the number had declined to 974 in 2016 (Proshare, 2016), and 960 as at 2017 (CBN, 2017) with reports from (CBN, 2016) claiming that a large number of currently licensed MFBs were still inactive/dormant.

These findings along with all currently available information indicate that Microfinance Banking in Nigeria is on a rapid decline. Although MFBs had begun to advance in terms of the market share from about (3%) of the Nigeria’s banked population in 2008, and advanced up to what has now become their peak of (5.2%) in 2012, evidence from the most recent survey conducted reveals a decline afterwards to (1.9%) in 2016. Based on this, more research is recommended in order to attempt to establish the virility or relevance of MFBs within Nigeria’s banking industry.

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Sharma, M.K. and Bhagwat, R., (2006), Practice of information systems: Evidence from select Indian SMEs. Journal of manufacturing technology management, 17(2), pp.199-223.

Taiwo, J.N (2017), The role of microfinance institutions in financing small businesses. Microfinance Africa. Available: http://microfinanceafrica.net/editors-views/microfinance-in-nigeria-two-years-after-cbns-intervention/ Last accessed 19th June 2017.

ThePost (2013), 39.1% of Abuja Communities Live Below Poverty Level – MDGs. Available: http://www.thepost-ng.com/39-1-of-abuja-communities-live-below-poverty-level-mdgs/. Accessed 25th Apr 2017.

US Dept. Of State, Marshall Plan, 1948. Available: https://history.state.gov/milestones/1945-1952/marshall-plan

WorldBank. (2015), Does Microfinance Still Hold Promise for Reaching the Poor?. Available: http://www.worldbank.org/en/news/feature/2015/03/30/does-microfinance-still-hold-promise-for-reaching-the-poor. Last accessed 20th March 2017.

APPENDICES

Appendix ‘A’

Sample of SME Questionnaire:

User Involved Questionnaire: SME

This user involved evaluation aims to get insight on the services provided by MFBs (Microfinance Banks) to SMEs (Small & Medium Enterprises) and how SMEs perceive the types of services received in consideration of any growth to their SME. You have been selected to partake in this exercise because you match the pre-qualification criteria for participation, which specify that responding SMEs must be resident in FCT Abuja, Nigeria and must have utilised the services of an MFB based in FCT Abuja within the period of 2005-2016.

The Questionnaire

This questionnaire would consist of questions requiring input in form of yes/no answers, multiple-choice checkboxes, single-choice checkboxes, free text comment boxes, and Likert scales.

Explanation of a Likert Scale

Likert scale questions require rating allocations for each question allotted between 1-10, with '1' indicating the lowest possible/unfavourable rating, '5' indicating a neutral/indifferent rating, and '10' indicating the highest possible/favourable rating. A selection of ‘N/A’ will indicate a scenario whereby you have no recollection where such an activity has been or is being offered by your MFB. Each answer shall be allotted a score/point-based weighting with a selection of '1' allotted the lowest weighting, a selection of '10' allotted the highest weighting, and a selection of 'N/A' allotted no weight value.

Suggestions and Confidentiality

Users would be allowed to give suggestions towards a resolution to any issues encountered in Nigerian microfinance banking, especially in relation to services rendered to the SME industry. Information disseminated from this questionnaire will remain confidential, and information of the respondent shall not be recorded by neither the thesis author nor the website utilised.

1. Name (Optional):
2. Area of Residence:
3. From the series provided below, please specify your SME's age range (In years):
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4. Please specify an option from below that most describes your employment status (within your SME)?

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1. Please specify an option from below that most describes your employment status (within your SME):

(Answer choices between Manufacturing, food processing, marketing consultation etc., as well as answer boxes for description of specific profession in greater detail)

7. The Central Bank of Nigeria defines SMEs as “any enterprise with an asset base (excluding land) between N5 million – N500 million, and a labour force between 11 - 300 people”. Based on this description, do you identify as an SME business owner or active participant?

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8. As an SME, have you at any point in time utilised the services of an MFB for purposes intended to be beneficial to your SME (i.e. business loan/credit application, opening business account, business support products etc.)?

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9. The following list of services are globally identified as examples of capacity-building activities, which MFBs are expected to provide as support to individuals and SMEs aside from the provision of credit or the acceptance of deposits. These services seek to enable a more educational, supportive, and less stringent credit system than what is generally obtainable from larger commercial banks.

Please provide a rating between '1-10' for each of the services listed below based on your experience as an SME that has utilised the services of a MFB, and based on the measure of impact such experience had on the growth of your SME

This is a Likert Scale-based question. Please refer to earlier descriptions on how to answer if unsure. N/A indicates a situation where you were unaware of the existence of such an activity

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10. The services/activities listed below were specified by the Central Bank of Nigeria as objectives expected from licensed MFBs . Amongst other reasons, these objectives were also designed to facilitate an advantageous impact towards the growth of SMEs.

As an SME that has utilised the services of an MFB , please provide a rating between '1-10' based on the measure of impact the activities specified below have had on the growth of your SME.

This is a Likert Scale-based question. Please refer to earlier descriptions on how to answer if unsure. N/A indicates a situation where you were unaware of the existence of such an activity

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11. Given your experiences, what suggestions could you give to improve the current state of relations between MFBs and SMEs?

Appendix ‘B’

Sample of MFB Questionnaire:

User Involved Questionnaire: MFB

This user involved evaluation aims to get insight on the services provided by MFBs (Microfinance Banks) to SMEs (Small & Medium Enterprises) and how SMEs perceive the types of services received in consideration of any growth to their SME.

You have been selected to partake in this exercise because you match the pre-qualification criteria for participation, which specify that responding MFBs must be resident in FCT Abuja, Nigeria and must have been incorporated before or within the period of 2005-2016.

The Questionnaire

This questionnaire would consist of questions requiring input in form of yes/no answers, multiple-choice checkboxes, single-choice checkboxes, free text comment boxes, and Likert scales.

Explanation of a Likert Scale

Likert scale questions require rating allocations for each question allotted between 1-10, with '1' indicating the lowest possible/unfavourable rating, '5' indicating a neutral/indifferent rating, and '10' indicating the highest possible/favourable rating. A selection of ‘N/A’ will indicate a scenario whereby you have no recollection where such an activity has been or is being offered by your MFB. Each answer shall be allotted a score/point-based weighting with a selection of '1' allotted the lowest weighting, a selection of '10' allotted the highest weighting, and a selection of 'N/A' allotted no weight value.

Suggestions and Confidentiality

Users would be allowed to give suggestions towards a resolution to any issues encountered in Nigerian microfinance banking, especially in relation to services rendered to the SME industry. Information disseminated from this questionnaire will remain confidential, and information of the respondent shall not be recorded by neither the thesis author nor the website utilised.

1. Name (of MFB):

2. Area of Operations:

3. From the series provided below, please specify your MFB’s age range (In years):

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4. Exact year of commencement of services (If available):

DD/MM/YYYY

5. Please specify the current number of branches your MFB has in operation:

2. Please specify the number of branches at the start of operations:

3. Since initial commencement of operations, has your MFB ever gone on sabbatical or experienced any brief/prolonged suspension of operations?

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4. The Central Bank of Nigeria defines SMEs as “any enterprise with an asset base (excluding land) between N5 million – N500 million, and a labour force between 11 - 300 people”. Based on this description, would you identify your organisation as an SME business owner or active participant?

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5. The following list of services have been identified as examples of capacity-building activities, which microfinance banks are expected to provide as support to individuals and SMEs aside from the provision of credit or the acceptance of deposits. These services seek to enable a more educational, supportive, and less stringent credit system than what is generally obtainable from larger commercial banks.

Do you offer any of the following capacity building services to SME customers? Please respond by ticking any of your provided services (considering each option as that which you believe was most impactful to the growth of your SME customers). In the event of a scenario whereby such a service is not currently offered, but has been offered in the past, is currently being planned, or is only partially implemented, please select the 'other' option and clarify in the allotted space

This is a Likert Scale-based question. Please refer to earlier descriptions on how to answer if unsure. N/A indicates a situation where you were unaware of the existence of such an activity

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10. Please specify the category of Microfinance license your MFB utilises

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11. The services/activities listed below were specified by the Central Bank of Nigeria as objectives expected from licensed Microfinance banks. Amongst other reasons, these objectives were also designed to facilitate an advantageous impact towards the growth of SMEs.

As an MFB, p lease specify which of these services your organisation routinely provides to customers (in order of those most impactful to SME growth):

Acceptance of various types of deposits

Providing low-interest, collateral free credit

Acting as agent for the provision of mobile banking and micro insurance services

Providing loan disbursement services for delivery of credit programs for government, agencies, groups and individuals

Buying, selling and supplying industrial and agricultural inputs, livestock, machinery and industrial raw materials on credit and to act as agent for any association for their sale

Provision of loans for home improvement, housing microfinance and consumer credits

Investment in cottage industries and income generating projects for low-income persons

Mobilizing/providing financial and technical assistance/training to microenterprises

11. The following issues have been identified by relevant actors within the Nigerian MFB industry as hindrances to the effective rendering of services to customers, and by extension, to SMEs. Based on your experiences in rendering services to SMEs, please provide a rating of '1-10' for each of the issues below according to their measure of effect on services your institution can render to improve SME growth. Please Note! In this case, since what is being ascertained is factors with the most negative impacts, the allotment of highly ranked points (ie. 10, 9, 8 or 7) will signify negative perceptions, the allotment of neutral points (ie. 6, 5 or 4) will signify indifferent perceptions, while the allotment of low-ranked points (ie. 3, 2, or 1) will signify positive perceptions.

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Appendix ‘C’

List of Microfinance Banks Involved in the Project

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Appendix ‘D’

This section provides insight on the general industries within which SMEs participating in the research operate.

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