Financial Inclusion Strategy and Access to Credit by Micro Small and Medium Scale Enterprise (MSMEs) in Nigeria

Abstract

Financial inclusion avails all economic units the opportunity to access financial services needed to boost economic activities. One of the objectives of financial inclusion is to provide access to finance for the poor majority who initially do not use formal financial services. The MSMEs requirement for funds is hampered by their limited access to the financial market. This study however investigated the effect of financial inclusion strategies on access to credit by micro, small and medium scale enterprises (MSMEs) in Nigeria. Data for the study were collected from the CBN Statistical bulletin for the period of 1991 to 2019. The explanatory variables used to develop a multiple regression model captured the market capitalization, pension account, insurance account, microfinance account and e-banking as strategies to financial inclusion. The Autoregressive Distributive Lag model was developed and analyzed for long and short-run dynamics of financial inclusion on access to loan and advances by the MSMEs in Nigeria. The bound test showed that financial inclusion strategies had a long-run relationship with loan and advances of the MSMEs. The coefficient of determination explained 99% of access to loans and advances by the MSMEs in Nigeria. The coefficients of regression revealed that lags of Loan and Advances to MSMEs had adverse endogenous effects on the model. More so, activities in the capital market (MKTC) and pension accounts (PA) at lag 1 have positive and significant effects on credit to MSMEs (LA) in Nigeria; but insurance accounts (IA), microfinance account (MFA) and e-banking innovations (EBDUM) creates unstable significant effects on credit to MSMEs in Nigeria. The study posits that financial inclusion strategies have a long-run impact on MSMEs with the capital market and pension funds the major enhancers of MSME funding.

Keywords: Financial inclusion, financial access, micro, small and medium scale enterprises, Nigeria

DOI: 10.7176/EJBM/13-13-06

Publication date:July 31^st 2021