Determinants of Microfinance Sources by Micro and Small Enterprise (MSEs) Clusters in South-East Nigeria

Abstract

The source of microfinance is important and at the centre of every enterprise survival, profitability and growth that can trigger achievement of the expected roles and objectives. The main thrust of this study, therefore, is to understand the determinants of the choice of microfinance sources and level of support from funds providers. The study employed multi-stage sampling technique in identifying clusters from three cities (Onitsha, Aba and Nnewi) of the South East, Nigeria and generated relevant data through instruments such as questionnaire, personal interviews and Focused Group Discussions (FGDs). Using logit regression, the study found that interest rate, repayment period, amount or volume of capital and proximity to enterprises as the major determinants of the choice of microfinance source used by MSEs in South East, Nigeria. The study concluded that microfinance providers should be located closer to MSEs’ location for quicker response to their financing needs to the extent of taking advantage of social capital existing within the clusters as a possible cushion for the physical collaterals and documentations often requested for loan approvals. The study recommends that microfinance policy framework and interventions should encourage providers to locate closer to the enterprise clusters with the appropriate regulatory guarantee for operators.