Credit Access and Productivity of Green Small and Medium Size Enterprises in Rural Nigeria

Abstract

ABSTRACT: Small and Medium size Enterprises (SMEs) have played critical roles in developing great economies over the years but are being stalled in African economies. Literature posits that the variation is largely due to limited finance for SMEs in Africa. SMEs in Nigeria have not performed credibly well over the years with its contribution to the GDP still below 5%. The consequences of climate change on agro-based firms further creates the need for credit to boost productivity. As relevant as this might be, existing empirical research seldom examined the effect of credit access on productivity of green SMEs in Nigeria. The emphasis on green SMEs is essential due to its sustainability attribute. It is on this premise that this study examines the extent to which green SMEs access credit and how it impacts on their productivity in rural Nigeria. The specific objectives are therefore: to identify the determinants of access to credit for green SMEs in rural Nigeria; and to establish to what extent access to credit affects capital, labor and total factor productivity of green SMEs in Rural Nigeria. The study employed nation-wide–General Household Survey (2016) data, for its analysis. A logit model and the propensity score matching model were used to ascertain the objectives. The justification of the propensity score model lies in the fact that it estimates an average treatment effect from observational data. The findings show that, sex, years of schooling, capital, collateral requirement, amount of loan experience and interest rate are significant determinants of credit access in rural Nigeria, while age and labor are not. Finally, the study shows that access to credit significantly affects labor productivity but does not significantly affect capital and total factor productivity. The study recommends that the conditions for credit to the agricultural sector should be revised to ensure that credits are robust enough to generate significant impacts on capital and total factor productivity. Also, green SMEs need to be prioritized in accessing credit to incentivize other farmers to do same.