THE CONTRIBUTION OF THE INFORMAL FINANCIAL INSTITUTIONS TO THE GROWTH OF SMALL SCALE ENTERPRISES IN NIGERIA.

1.1   BACKGROUND TO THE STUDY

The economies of third world countries such as Nigeria operate with dual financial institutions. On one hand are group which function through direct governmental control known as Formal Financial Institutions such as Commercial Banks, Insurance Companies and Mortgage Banks. And on the other hand are those financial institutions which are not directly controlled by government, called Informal Financial Institutions such as money lenders, cooperative societies, thrift and loan societies, local bankers, cooperatives etc. It should however be noted that statutory dominance of formal financial sector since independence is hinged on the thinking that the sector would stimulate the growth of the economy and ensure the upliftment of the socio-economic lives of the people.

It has been contended that the Formal financial sector will promote savings and investment, improve opportunities for credit, and engender reduce poverty. But it has been observed that Formal financial institutions have seriously come short of the expectations as they have made things harder for Nigerians through stringent conditionalities for credit, poor customer services and high interest rates (Frank, 1998). Even the micro finance institutions that was created for the purpose of developing the small and medium scale enterprises has not been able to realize any of the objectives for which it was created, thereby leaving the small and medium scale enterprises to be sourcing for their respective means.