Abstract
This study examines the channels of transmission through which cash reserve ratio impacts on credit to micro-, small and medium-sized enterprises (MSMEs). A vector error correction model was used to capture the objective. Quarterly data ranging from 2001 to 2017 were also utilized in the analysis. The study found that cash reserve ratio indirectly impacts credit to MSMEs through liquidity ratio and lending interest rate as its channels of transmission. It is worthy to note that, as liquidity ratio has a positive significant impact on credit to MSMEs, lending interest rate has a negative but significant impact on credit to MSMEs. To boost economic productivity in developing economies, the study therefore recommends that the monetary authorities reduce the cash reserve ratio in order to increase commercial banks’ liquidity. As the commercial banks’ liquidity rises, they should also reduce their lending interest rate to increase access to credit by MSMEs. Again, the government should appropriate and monitor the judicious disbursement of interest-free loans/credit to MSMEs through banks, especially development banks.
Highlights
There is a growing recognition of the important role that micro, small and mediumsized enterprises (MSMEs) play in economic development [Nwosu E.O. et al 2020; Orji A. et al, 2019]
The total number of persons employed by the MSME sector as at December, 2013 was about 59,741,211, representing 84.02% of the total labor force in Nigeria and contributing 48.47% to the Nation’s Gross Domestic Product in nominal terms
The results showed that there is co-integration between repositioning of commercial banks and capacities of small and medium-sized enterprises (SMEs) to deliver products/services and there is significant dispersion resulting from lending conditions and macroeconomic variables
Summary
There is a growing recognition of the important role that micro-, small and mediumsized enterprises (MSMEs) play in economic development [Nwosu E.O. et al 2020; Orji A. et al, 2019]. They play a crucial role through several dimensions, apart from creating employment opportunities. They contribute significantly to improving the living standards of the larger population, and create a platform for local capital formation, innovation and competition in Third World countries.
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