Assessment of the Impact of Microfinance Banks on Small and Medium Scale Enterprises in Nigeria (1992 - 2015)

Abstract

This paper assesses the impact of microfinance bank on small and medium scale enterprise in Nigeria. The study admits that microfinance banks products are the sources of SMEs growth in Nigeria despite of its attendance shift and shortcomings in the realisation of the schemes objectives. Though, the past efforts by the Nigeria government to promote the scheme has not yielded much desire outcomes, microfinance banks still holds a lot of prospects for the active low income earners. It creates employment opportunity, reduces vulnerabilities, empowers the poor and enhances their innate consumption propensity. The study uses secondary data covering from 1992 to 2015 and adopted econometric techniques of OLS for analysis. Specifically, the empirical results revealed generally that a microfinance bank loan has a significant negative relationship with SMEs in Nigeria in both short run and at long run. The negative state of the result is an indication that Microfinance LOAN has not really yielded the expected positive impact on SMEs. All the other coefficients of MASSET, MDEP and MGE failed the significance test at the 5% per cent level. This indicates that in the short run, the level of MASSET and activities has a rather weak positive effect on SMEs performance in Nigeria. The implication of this result is that, increase in the level and performance of SMEs is not necessarily caused by the size microfinance banks in the country in the short run. This also goes to show that the total microfinance assets based in the country is rather too weak to fully support or provide any meaningful impact on the SMEs sector in Nigeria. It concludes therefore that there is the urgent need for microfinance banks operations and the relevant regulatory authorities to come up with policy measure that will ensure that microfinance banks assets base, deposits and gross earnings are improved upon in order to effectively support the growth of the SMEs sectors in the country. It recommends that the government should arise to its responsibility to the sector by providing the enabling environment for microfinance bank to strive and effectively supporting SMEs. Hence, there is the need also to spread the loan repayment over a long period or increase the moratorium so as to enable the microfinance clients have a greater use of the loan over a reasonable period for meaningful and profitable investment which ensure easy repayment.