CHAPTER ONE

INTRODUCTION

1.0 Background of study

Small businesses have been regarded as one of the drivers of economic growth in

most countries of the world. These enterprises have been remarkably implicated in the

creation of employment and wealth. They are the backbone of many economies in Africa

(particularly Nigeria), as they hold the key to the revival of economic growth and the

elimination of poverty on a sustainable basis. Evidence shows that a dynamic and growing

SMEs sector can contribute to the achievement of a wide range of development objectives,

including: the attainment of income distribution and poverty reduction savings mobilization

(Beck et al., 2015); and production of goods and services that meet the basic needs of the

poor (Cook and Nixson, 2010). World Bank review on small business activities establishes

the commitment of the World Bank Group to the development of the SMEs sector as a core

element in its strategy to foster economic growth, employment and poverty alleviation

(World Bank, 2019).

Financial technology (FinTech) refers to innovative financial products or services

provided through technology. With technological advances (such as mobile and Internet) and

their global adoption, consumer expectations are changing. Many small businesses, start-ups,

and midsize businesses work on financial technology products, which can have a disruptive

effect on financial services channels. Financial technologies have also become a buzzword

for innovative small businesses that are developing financial technologies and related

products. This definition is useful for describing the dynamic world of start-ups in the

financial technology sector. However, it easily creates an image in which the start-up

becomes the focal point, unlike the technology itself. In practice, financial technology is not

an exclusive domain of financial technologies, as it is also used by banks, MFIs and more

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traditional small and medium sized enterprises. The recent and rapid emergence of financial

technology in Nigeria's financial system and in small and medium-sized enterprises has

sparked a continuing interest among stakeholders to question the appropriateness of the

technologies adopted. Some of the stakeholders are enthusiastic about the adoption given the

innumerable benefits obtained, such as the ease and speed of service delivery operations,

while others are not, worry about the risks involved, associated and anticipated. This risk is

linked to the weak infrastructure and technical knowledge of these technologies. In addition,

Nigerians lack financial education, which would encourage users/customers to accept

innovative products and services derived from technology. By focusing on SME operations,

researchers are worried about the influence of financial technology on SMEs.

Given the great potentials of businesses to bring about social and economic

development, it is of no surprise that the performance and financing of SMEs is of huge

concern to the government of different countries in the world (Okpara 2016). The ability of a

small scale enterprise to secure financing is important for funding business investment,

business survival, ensuring business expansion and growth. Despite the numerous challenges

facing business in Nigeria, access to finance has been identified as one of the most important

factors that militate against its development, survival and growth. Finance enables small

businesses to develop their entrepreneurial spirit, expand and innovate production.

Entrepreneurs in Nigeria require credit and other services from financial institutions

for several reasons: start-up capital, working capital, expansion or growth capital or for other

possible purposes. SMEs contribute significantly to the gross domestic product and employ a

large number of people, signifying their relevance to the economic growth and development

of Nigeria. This success however depends on their access to credit (Humphery & Freeman,

2018).

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1.2 Statement of the problem

A loan is a sum of money given to an individual or institution on the condition that it is paid

for a given period of time with interest, and that serves as a payment for the use of money.

There are several types of loans, such as loans, finances and mortgages. Business

exploitation, expansion and modernization depend on capital investment, given good

management. Most business people in developing nations are poor and so require credit.

Providing credit to poor borrowers has remained a challenge; as credit markets in these

regions are faced with the problems of enforcement and imperfect information among others.

Government intervention in the form of ownership of banks, regulation and subsidization of

credit has equally failed to allocate credit to poor borrowers. Institutional problems such as

the lending conditions which limit access of investors to credit facilities have not been

adequately addressed. The fragmented structure of financial institutions where formal and

informal sectors operate almost independent of each other is inimical to the growth of

business industries in Nigeria. In Nigeria, one of the greatest obstacles that most businesses

have to grapple with is access to funds. This is further compounded by the fact that even

where online credit facilities are available, there exists little awareness as well as getting the

required collateral security to access the loan.

1.3 Objective of the study

The main objective of this study is to examine the impact of online credit facilities/Fintech on

individual and businesses in Nigeria and to ascertain the extent to which activities of these

online credit facilities have impact on the growth of SMEs in Nigeria.

1.4 Research questions

a. Can online credit facilities/Fintech make significant impact on individuals in Nigeria?

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 b. Can online credit facilities/Fintech make significant impact on businesses in Nigeria?

1.5 Research hypothesis

H1: Online credit facilities/Fintech does not have a significant impact on individual in Nigeria

H2: Online credit facilities/Fintech does not have a significant impact on businesses in

Nigeria

1.6 Significance of the study

It is hoped that the results of this study will make up for the lack of sufficient information on

the impact of online credit facilities/FINTECH on individual and businesses in Nigeria. The

results of this study can also be useful for decision makers in various sectors of government.

For example, in the Educational program developers will be informed when they develop a

program for the education sector. In the business sector it will help business men, especially

those who are in charge of SME to know what tools to use to effectively utilize financial

service. The results of these studies are likely to influence the academic research of other

researchers likely to Interested in this area of knowledge and initiate appropriate mitigation

measures.

1.7 Scope of the study

The research horizon will be limited to some selected online credit facility/fintech

institutions, the selected fintech institution includes; Fair money, Renmoney and Piggyvest.

1.8 Definition of terms

Finance: the management of large amounts of money, especially by governments or large

companies.

Technology: the application of scientific knowledge for practical purposes, especially in

industry.

Service delivery: Service delivery can be defined as any contact with the public

administration during which customers – citizens, residents or enterprises – seek or provide

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data, handle their affairs or fulfil their duties. These services should be delivered in an

effective, predictable, reliable and customer-friendly manner.

Firms: A firm is an organization which sells or produces something or which provides a

service which people pay for.

Fintech: Financial technology (Fintech) is used to describe new tech that seeks to improve

and automate the delivery and use of financial services