FINANCIAL INCLUSION, MICROCREDIT AND PERFORMANCE OF SMALL AND MEDIUM SCALE ENTREPRISES IN NIGERIA

Abstract

Despite government efforts to ensure that SMEs play an important role in the Nigerian economy, the sector is still struggling to survive due to so many hindrances, among which are financial exclusion and lack of access to credit. This study is an attempt to investigate the impact of financial inclusion on the performance of small and medium scale enterprises in Nigeria using ARDL technique with data time series data from 1980 to 2022. Financial inclusion was measured by commercial bank branches, the number of rural bank branches and deposits of rural bank branches. The performance of SMEs was proxied by the output of retail and wholesale trade. Findings from the study revealed that a long-run relationship exists among the variables in the estimated model. The results of the Error Correction Mechanism (ECM) within the framework of the ARDL show that there is a positive and statistically significant relationship between the number of commercial bank branches (NDMB) and the output of SMEs (SMEQ) in Nigeria in the long run period. The relationship between the number of rural bank branches (NRBB) and the output of SMEs (SMEQ) was found to be positive and statistically significant at a five per cent significant level. The study therefore recommends that the Central Bank of Nigeria should deepen its pressure on commercial banks through special directive with the aim of promoting financial inclusion through the expansion of microfinance banks branches in rural areas.