Modelling Choice of Credit by Small Scale Entrepreneures’ in Oyo State, Nigeria: An Application of Multinomial Logit Model

Abstract

Study on Small Scale Enterprises (SSEs) has been recognized as one of the means by which accelerated economic growth and rapid industrialization can be achieved (Sauser, 2005). In view of this, the study examined determinants of source of credit by small scale entrepreneurs in Oyo state, Nigeria. Questionnaire was adopted for the collection of data from 350 respondents through stratified sampling techniques, while multinomial model was used to analyze the data. The results of the estimated multinomial logit model with personal savings as chosen base are that: entrepreneurial choice of credit from various sources revealed that, education and value of assets  were positively correlated to banks, while education was positively significant to relatives/friends and profit plough back had positive sign to multiple sources.  It was concluded that, the use of specific credit sources, either formal or informal, was justified as the only source available. It was against this background that small-scale enterprises  must be profitable in order to grow and be able to attract more external finance. It is therefore necessary to provide a policy environment that affords the necessary incentives for enterprise growth.

Keywords: Multinomial analysis, Entrepreneurs choice of credit, Small   scale enterprises, Nigeria.