Financing Constraints of Microenterprises (MES) in North-Eastern Nigeria: The Prospect of Islamic Microfinance

Abstract

Micro Enterprises (MEs) occupy a central place in the economies of both developed and developing nations. Micro Enterprises are business with fewer than ten (10) employees. These enterprises have fundamental roles in the development of any economy. In addition, they make-up the vast majority of enterprises (between 70% and 95%) around the globe. Despite the importance and contributions of MEs to the economic growth of Nigeria, many constraints affects their development and the most formidable of these constraints is the lack of access to finance. However, the emergence of Islamic microfinance in the Nigeria is a positive innovation in the economy. Adoption of Islamic microfinance would significantly address the financing constraints faced by micro enterprises in the region. It is against this background that this study examined the financing constraints faced by micro enterprises in the north-eastern region and assess how Islamic microfinance can improve MEs access to finance. A structured questionnaire was used to collect data from microenterprises in two (2) states of the north-east region, namely, Gombe and Yobe states, respectively. Multiple sampling techniques were used to identify respondents in six (6) local government areas (3 from each state), including, Gombe, Akko, Funekaye, Potiskum, Bade and Damaturu LGAs. Out of the 440 copies of questionnaires administered, 426 were usable. The results of descriptive analysis revealed that microenterprises may eventually succeed in accessing external financing, but they might encounter difficulties in the process of obtaining these loans. The challenges MEs often face in accessing external funds include: religious prohibition, high interest rate, strict documentation requirement, high collateral, short loan duration, insufficient amount of loan, and complexity of loan application and procedure. The result also showed that Islamic Microfinance have high prospect in enhancing ME access to finance and majority of ME owners are willing to patronize the Islamic microfinance if offered.