Effects of Capital Structure of Small and Medium Scale Agro-Enterprises on Access to Microfinance Banks Credit in Enugu State, Nigeria

ABSTRACT

The study evaluated the effects of capital structure of small and medium scale agro-enterprises on access to microfinance banks credit in Enugu state, Nigeria. A multistage sampling technique was used to select 120 agro-enterprise loan recipients from microfinance banks. The data collected were analysed using descriptive statistics, capital structure ratio analysis, multiple regression analysis, simple linear regression analysis and likert scale rating technique. The result showed that 64.2% of enterprise owners were between the ages of 41 to 50 years, 61.7% were males while 38.3% were females. Majority (53.3%) of the loan recipients had secondary education, 64.2% had experience in management 9-12 years, all the agro-enterprises examined were small scaled and 71.6% were located close to microfinance banks. About 62.5% incurred debt of between N1500001 to N2500000, 40.8% had equity position of N4000001 to N5000000, 60.0% had savings level of N300001 to N600000 with the banks, 93.3% accessed credit at the rate of 21% to 30% and 35% made profit before interest and tax (PBIT) of N2000001 to N2500000. The multiple regression analysis revealed that experience in enterprise management had positive sign and was significant (p

TABLE OF CONTENTS

Title Page i

Certification ii

Dedication iii

Acknowledgment iv

Abstract v

Table of Contents vi

List of Tables viii

CHAPTER ONE: INTRODUCTION 1

1.1 Background of the Study 1

1.2 Problem Statement 5

1.3 Objectives of the Study 6

1.4 Hypotheses of the Study 7

1.5 Justification of the Study 7

1.6 Limitation of the Study 8

CHAPTER TWO: REVIEW OF RELATED LITERATURE 9

2.1 Concept and Definitions 9

2.1.1 Concept of capital structure 9

2.1.2 Empirical literature 10

2.2 Conceptual of Small and Medium Scale Enterprises (SME) and its Impact in an Economy 12

2.2.1 The role of SMEs to an economy 16

2.3 Concept of Microfinance Banks 17

2.3.1 Microfinance credit and economic growth in Nigeria 19

2.4 Socio-Economic and Institutional Factors which Determines SMEs Access to Credit 21

2.5 Constraints Associated with Access to Credit by SMEs 23

2.6 Theoretical Framework 24

2.6.1 Utility theory 24

2.6.2 Theories of capital structure 24

2.6.2.1 Modigliani and Miller theorem (irrelevant theory) 25

2.6.2.2 Pecking order theory 26

2.6.2.3 The trade-off theory 27

2.6.2.4 The market timing theory 27

2.6.2.5 The agency cost theory 28

2.6.2.6 Summary of the theories 30

2.7 Analytical Framework 30

2.7.1 Capital structure ratio analysis 31

2.7.2 Regression analysis (Ordinary Least Square) 33

2.7.3 Likert-type scale rating technique 36

2.7.4 F-statistics 37

2.7.5 The Z-Test 38

CHAPTER THREE: RESEARCH METHODOLOGY 39

3.1 The Study Area 39

3.2 Sampling Procedure 41

3.3 Data Collection 42

3.3.1 Validity and reliability of research instrument 42

3.4 Data Analysis 42

3.4.1 Multiple regression analysis 43

3.4.2 Capital structure ratio model 43

3.4.3 Simple linear regression analysis 44

3.4.4 Likert-type scale rating technique 44

3.4.5 Test of hypotheses 44

3.4.5.1 F-statistics 44

3.4.5.2 The Z-test 44

CHAPTER FOUR: RESULTS AND DISCUSSION 45

4.1 Socio-economic and Institutional Characteristics of the Owners of Agro-enterprises 45

4.2 Analysis of Capital Structure of Agro-enterprises Examined 50

4.3 Effects of the Socio-economic and Institutional Factors on Access to MFB Credit 51

4.4 Credit Demand and Access by Agro-enterprises 54

4.4.1 Effect of capital structure on volume of credit accessed (demand-access gap) from microfinance banks 55

4.5 Factors that Constrain the Access to Microfinance Bank Credit 56

CHAPTER FIVE: SUMMARY CONCLUSION AND RECOMMENDATIONS 58

5.1 Summary 58

5.2 Conclusion 59

5.3 Recommendations 60

References 61

Appendix 73