Banks’ Intermediation Role and Small Scale Enterprises Performance: Empirical Evidence from Vector Error Correction Mechanism
Financial intermediaries such as banks, acting as agents specifically fill the information gaps between ultimate savers and investors. The funds mobilized from numerous customers are aggregated and disbursed as credit facilities to the deficit sector usually the investors. These facilities in form of loans and advances facilitate the exploration and expansion of productive investment by small, medium and large scale industries. Thus, the study examines effect of banks’ intermediation role on performance of small scale enterprises in Nigeria. Expos-facto research design was used and the population of the study comprises all the deposit money banks operating in Nigeria as 31st December, 2017. This study used secondary data, extracted from the CBN Statistical Bulletin. The data are time series in nature which cover thirty-six years period from 1981 to 2016 and were analyzed through Vector Error Correction Mechanism. The study found that in the long run banks’ loan and advance and lending rate have positive significant effect on performance of small scale enterprises while the inflation rate has negative significant effect on performance of small scale enterprises in the long run. The study concluded banks intermediation role through granting of credit facility has a long-run effect on the performance of the small enterprises and this will enhance the Nigerian economy in the long run. The implication of this study is that an increase in the loan and advances in the long-run will promote more productive investment activities to increase capital formation in the country. In view of this, the study recommends that Central bank of Nigeria should adopt appropriate mechanism to control the inflation rate in the economy as this has a great effect on the loan and advances given to the small scale enterprises.
Banks’ Intermediation Role, VECM, Expos-Facto, Performance of Small Scale Enterprise
Adama J., Duru, I. U, & Diyoke, K. O. (2017). Role of microfinance banks on employment generation in the grassroots: Evidence from Karu local government area of Nasarawa State, Nigeria. Asian Journal of Economics, Business and Accounting, 4 (2), 1-9.
Aigbedion I. M., Anefu-Apochi E., Ezulike C., C., & Gabriel K., M. (2018) The Impact of Small and Medium Scale Enterprises in Nigeria: a Case Study of Abuja Municipal Area Council (AMAC), International Journal of Advanced Studies in Economics and Public Sector Management 6,(1), 2018
Babajide, A. K. (2002). “Funding of SME: Sourcing of Funds and Problem Limiting Access. “Paper Presented at the 4th Partners Forum of the Public Practice Section of the Institute of Chartered Accountants of Nigeria (ICAN).
Baumback, C. M. (1983). Problems of macro and small scale enterprises (MSEs). Basic small management. Price Hall Incorp, New Jersy
Dada, R. M. (2014). Commercial Banks’ Credit and SMEs Development in Nigeria: An Empirical Review. International Journal of Research. 1 (8): 305-319.
Hallam, D., & Zanoli, R. (1993). Error Correction Models and Agricultural Supply Response, European Review of Agricultural Economics, 20, 151-166.
Haruna, U., Sulaiman, I., & Isa, T. A., (2017). The Role Financial Institutions in Financing Small and Medium Enterprises in Nigeria. Asian Journal of Economics, Business and Accounting, 5 (3), 1-9,
Imoughele, L. E. & Ismaila, M. (2014). The Impact of Commercial Bank Credit on the Growth of Small and Medium Scale Enterprises: An Econometric Evidence from Nigeria (1986-2012). Journal of Educational Policy & Entrepreneurial Research. 1 (2): 251-261.
Iloh, J. & Chioke, N. (2015). Commercial Bank Credit Availability to Small and Medium Scale Enterprises (SMEs) in Nigeria. Being a Paper Presented at the 3rd International Conference on Business Law and Corporate Social Responsibility. Held in Bali Indonesia. May 5 – 6.
Kuwornu. J K. M. (2012). Effect of macroeconomic variables on the Ghanaian stock market returns: A Co-integration Analysis. Agris on-line papers in economics & informatics IV(2).
Mamman, A. & Aminu, K. S. (2013). Effects of 2004 Banking Reforms on Loans Financing of Small and Medium Scale Industries in Nigeria. International Journal of Small Business & Entrepreneurship Research, 1 (3), 44-53.
Nwosa, P. I. & Oseni, I. O. (2013). The Impact of Bank Loans to SMEs on Manufacturing Output in Nigeria. Journal of Social Development Sciences 4 (5), 212-217.
Oke, M. O. & Aluko, O. A. (2015). Impact of Commercial Banks on Small and Medium Enterprises Financing in Nigeria. Journal of Business & Management. 17 (4), 23-26.
Omah, I., Durowoju, S. T., Adeoye, A. O. and Elegunde, A. F. (2012). Post Bank Consolidation: A Debacle in the Survival of SMEs in Nigeria “”An Empirical Study”. Australian Journal of Business & Management Research, 2 (8), 1-6.
Owenvbiugie, R. O. & Igbinedion, V. I. (2015). Role of Finance on the Growth of Small and Medium Scale Enterprises in Edo State of Nigeria. Journal of Education & Social Research, 5 (1): 241-247.
Yeboah E. (2017). The impact of finance on grassroots development: Evidence from SMEs in Kwabre East District of Ashanti Region of Ghana. Open Journal of Business and Management, 5, 577-591.
World Bank (2013). Nigeria – Enterprise Survey. Washington DC: World Bank