Abstract
This study examined the extent SMEs are funded by deposit money banks in Nigeria. This was done through extensive descriptive, graphical and empirical analysis of Bank credit to SMEs data. The study generated and analyzed Bank credit to SMEs gap. It further explored Nigeria’s “financing gap” which measures the need of external funds for the corporate sector. Bank credit to SMEs was found to be decreasing over the period covered (i.e. 1992 – 2020). Bank Loans to SMEs as percent of Total Bank Loans reached a maximum of 47.7% in 2003 from where it had continued to decline to 0.56% in 2019 ended. Loans to Small Scale Enterprises as a percentage of Total Credit to the Private sector had been on the decline from a maximum of 27.04 % in 1992 to 0 0.54% in 2019. The analyzed SMEs Credit Gap shows that by 1992, SMEs Credit Gap was N113.664 million but by 2009, the SMEs Credit Gap has grown to N4261.46 billion and N7725.51 billion in 2016. The SMEs Credit Gap as at 2019 ended stood at N7565.51 billion. For the corporate sector, the financing gap is alarming as results reveal a financing gap of N3, 176,147,942,428.47 trillion in 2019. Thus, policies and actions aimed at reversing the downward trend in credit to SMEs as well as closing the financing gap should be intensified. Deposit money banks not just Microfinance banks should be encouraged to lend more to SMEs and remove all obstacles (hidden charges that increase the interest rate) while providing more technical assistance to SMEs. Keywords: SME Financing, Financing Gap, Bank Credit, SME contribution to GDP, Nigeria DOI: 10.7176/JESD/12-14-04 Publication date: July 31 st 2021
Highlights
Small and medium enterprises (SMEs) have long become the toast of nations seeking recovery and accelerated economic development
Policies and actions aimed at reversing the downward trend in credit to Small Scale Enterprises (SMEs) as well as closing the financing gap should be intensified
Deposit money banks not just Microfinance banks should be encouraged to lend more to SMEs and remove all obstacles while providing more technical assistance to SMEs
Summary
Small and medium enterprises (SMEs) have long become the toast of nations seeking recovery and accelerated economic development. Several strategies and models have been used by respective countries to boost the contribution of small and medium enterprises to economic growth and employment. As in 1994 (Ernest, Amoah, Tamara, Hemamala & William, 1994) so it is in the year 2020 that lack of access to finance is consistently mentioned as a principal constraint to the development of SMEs in African countries, Nigeria inclusive. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2013), one of the main challenges confronting the operations of SMEs in Nigeria is access to finance. The World Bank (2014) press release further asserts that “Limited access to finance is a key obstacle to enterprise growth and entrepreneurship ... According to the World Bank (2015) brief on SMEs Finance, “...more than 50% of SMEs lack access to finance, which hinders their growth”
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