Effect of Commercial Bank Loans to Small and Medium Scale Enterprises Growth in Nigeria (1986-2020): An Empirical Analysis

AFRAG023

Effect of Commercial Bank Loans to Small and Medium Scale Enterprises Growth in Nigeria (1986-2020): An Empirical Analysis

Sebastian O. Uremadu, PhD1* ( Corresponding Author)

John Ibeabuchi Osuji, PhD Department of Banking and Finance,

Michael Okpara University of Agriculture, Umudike,Abia State, Nigeria.

Email: sebauremadu@yahoo.com

+2348037876614

Duru, Erasmus Ejike2

(M.Sc Student), Department of Banking and Finance, Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria

Email: duruerasmuse@yahoo.com

Charity Egondu Duru-Uremadu, PhD3 Department Educational Management Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria.

Email: rityeuremadu@yahoo.com

Abstract

The study examined bank credit to small and medium scale enterprises (SMEs) and its effect on SMEs productivity in Nigeria within the period of 1986 to 2020. The Study made use of secondary data obtained from Central Bank of Nigeria Statistical bulletin for its tests and analysis. After

testing for the properties of the variables, it was found that the variables were integrated at order (1) and there existed some level of causality but no long run relationship existed among the variables of the model This prompted the study to apply vector autoregressive model to estimate the parameters of the model. Results found that bank credit to SMEs had significantly increased output of SMEs in Nigeria. Hence, bank lending had a positive and significant effect on small and medium scale enterprises in Nigeria. Based on the findings of the study it has been established that the contribution of commercial banks credit granted to the growth of SMEs in Nigeria has been significant. The result of the individual tests showed that most of the variables were insignificance while the test for the goodness of the fit of the model showed that the explanatory variables included in the  model accounted  for  over 89.3 percent variations of the output of the small and medium scale industry. This is a good fit. Based on the findings of the research it was recommended that measures should be taken to create a pool of long- term funds to enable long term lending to SMEs by commercial banks in Nigeria. In addition, measures should be taken to influence the regime of interest rate downward, ease loan documentation process and requirements, create additional inducement to boost lending to SMEs and augment monitoring of funds disbursed under the CBN intervention schemes.

Keywords: Commercial Bank Loans, Small and Medium Scale Enterprises, Growth of Nigeria

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