Cash Reserve Requirement and Credit to SMEs in Nigeria: An ARDL Bounds Test Aproach

Abstract

This study estimated the impact of Cash Reserve Requirement on Credit to SMEs in both short run and long run in Nigeria. ARDL model was used to capture both objectives. The variables used were annual data from 1981-2017. The study found that Cash Reserve Ratio has an insignificant impact on Credit to SMEs in both short run and long run in Nigeria. Secondly, it was found that Lending Interest Rate has a negative but significant impact on Credit to SMEs. The study therefore suggested that banks and government should not concentrate on the use of Cash Reserve Ratio only in a bid to increase credit to SMEs in Nigeria. However, there is need to regulate the commercial banks? asset base to increase their Liquidity Ratio so as to increase access to credit by the SMEs. Again, government as a matter of necessity should appropriate and monitor the judicious disbursement of interest-free loans/credit to the SMEs in Nigeria as these would boost productivity and the Nigerian economy in the long run.