How Important is Microfinance to Small Business Development? the Case of Nigeria

Abstract

Small businesses play a significant role in national development all around the globe. This is explained by the significant amount of employment they generate and the goods and service they render. As such, there financing is of utmost importance. Academics and practitioners have begun to question the implication of microfinance on small business development. An observable sample for this study is the Nigerian economy. The Nigerian government created microfinance banks in 1992 as a community scheme to act as mechanisms for financing sources for diverse small businesses because of the prominence given to this crucial industry. This study therefore investigated empirically if microfinance banks have had the intended effect on small business development. Utilizing secondary data obtained from the Central bank of Nigeria statistical bulletin over the course of the years 1992 to 2021 in Nigeria, the study employed analytical techniques like the unit root test, cointegration, and error correction model in conjunction with other diagnostic tests. The study concludes that microfinance positively and significantly relates with the growth of small businesses in Nigeria, while interest rate had a negative and insignificant influence on small businesses in Nigeria. The study recommends that, microfinance banks should encourage its appropriation of local borrowing in order to increase the country's productive supremacy and remove negative bottlenecks of low-income earners accessing the loan. The interest rate of these loans are exorbitant and needs to be reduced significantly to enable small businesses survive and ensure easy repayment of microcredits.