Commercial Banks’ Loans, Finance Houses’ Domestic Credit, Monetary Policy Rate and Small and Medium Scale Industries Development in Nigeria : An Econometric Analysis (1992-2016)

Abstract

This study empirically investigated the relationships among commercial banks’ loans, finance houses’ domestic credit, monetary policy rate, exchange rate, inflation rate and development of small and medium scale industries in Nigeria over the period 1992 and 2016. It utilized time series data obtained from Central Bank of Nigeria Statistical Bulletin and National Bureau of Statistics. Augumented Dickey Fuller unit root test, Phillip-Perron unit root test, Johansen Co-integration test and Ordinary Least Square estimating technique were employed to analyze the model. The equation specified development of small and medium scale industries as dependent variable and commercial banks’ loans, finance houses’ domestic credit, monetary policy rate, exchange rate and inflation rate as exogenous or explanatory variables. Empirical findings revealed that there is a strong negative relationship between commercial banks’ loans and development of small and medium scale industries in Nigeria contrary to a priori theoretical expectation. The results further demonstrated that finance houses’ domestic credit is positively associated or related with the growth and development of small and medium scale industries. The study also found monetary policy rate  to be positively correlated with the development of small and medium scale industries in Nigeria. Based on the results, there should be adequate funding of small and medium scale industries by commercial banks in Nigeria through the removal of stringent conditions which make borrowing unattractive and inaccessible to these business organizations; Central Bank should substantially reduce the monetary policy rate so that commercial banks can review their lending rate downward to give room for easy accessibility of credit facilities by small and medium scale industries in order to finance their operations; devaluation of currency should be discouraged by the government since most of the existing small and medium scale industries rely heavily on imported raw materials and capital goods for their production; directive should be given by the government to commercial banks through the Central Bank  to establish more branches in the rural areas  so that rural dwellers who are operating small businesses can have easy access to credit facilities in order to galvanize their growth and development; and finance houses should be encouraged to offer more credit facilities to small and medium scale industries through favorable legislation and policy formulation by the government.

Keywords: Commercial banks’ loans, Finance houses’ domestic credit, Monetary Policy rate, Small and medium scale industries development, Ordinary least square, Unit root, Co-integration, Nigeria