Microfinance Banks’ Credit and the Growth of Small and Medium Scale Businesses (SMBS) in Nigeria (1990-2016): Investigating the Nexus

Abstract

The study examined microfinance banks’ credit and the growth of small and medium scale businesses in Nigeria; for the period 1990-2016. Secondary data were used and collected from the Central Bank of Nigeria statistical bulletin. The study employed Microfinance Banks’ Credit to Small and Medium Businesses, Interest Rate and Broad Money Supply and used as the independent variables; whereas, Gross Domestic Product is proxy for the growth of small and medium scale businesses as dependent variable. Time series econometrics estimation techniques were used to test the formulated hypotheses. The stationarity test revealed that all the variables of the study are stationary at first difference. Johansen co-integration test showed the existence of at least one co-integrating relationship at 5% level of significance. Vector Error Correction Model revealed that microfinance bank credit had no short-run equilibrium significant relationship with growth of small and medium scale businesses in Nigeria.  Causality test indicated that microfinance bank credit had no causal relationship with growth of small and medium scale businesses in Nigeria. The study concluded that the activities of microfinance institutions have not significantly contributed to the growth and development of small and medium scale businesses (SMBs) in Nigeria. The study recommended that microfinance banks should be more concern with ethical and professional conduct by ensuring that soft loans are given to credible and promising entrepreneurs.  Microfinance banks should grant soft loans to this sector of the economy and also reduced stringent measures in granting credit to the small and medium scale businesses (SMBs). Monetary authority should encourage microfinance banks to set up more branches in the rural areas in order to encourage rural based investors to save and have assesses to credit facilities.

Keywords: Microfinance, banks credit, growth, small, medium, scale businesses, Nigeria