MICROFINANCE BANKING AND THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES NIGERIA IN NIGERIA

Abstract

The study examines micro-finance banking and the performance of micro, small and medium enterprises in Nigeria from 1995 to 2023. The research utilized time series data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the Central Bank of Nigeria Annual Report, 2023. The study employed an Error Correction Model to assess the rate at which a dependent variable moved back to equilibrium following alterations in other variables. The study demonstrates that the deviation from long-run equilibrium in the previous era, referred to as the error, affects its short-run dynamics. Moreover, the findings indicate a negative and insignificant effect of microfinance bank credits to the agriculture sector on SMEs' contributions to gross domestic product. Microfinance bank financing to the agriculture sector demonstrates a significant and positive impact on small-scale businesses to gross domestic product. The study shows a positive but insignificant effect on micro-finance bank credit to manufacturing sector and small scale business contribution to gross domestic product. In conclusion, the research reports that microfinance banking influences the SMEs performance in Nigeria. The study recommends that microfinance banks ease borrowing conditions, extend loan durations, and allow for prolonged repayment periods. Additionally, it suggests that the government, via the central bank of Nigeria, establish a minimum percentage of deposits that micro-finance banking must allocate for loans and advances on small business in Nigeria.