MICROFINANCE POLICY REFORMS AND SMALL AND MEDIUM ENTERPRISES FINANCING IN NIGERIA: A DUMMY VARIABLE REGRESSION APPROACH

Abstract

SMEs financing by formal financial institutions started in the year 1992 when community banking scheme was still in vogue. In year 2005 however, microfinance banking was introduced through another policy reform, the effect of which all existing community banks were asked to transform to microfinance banks provided they met the requirements of the CBN. Despite the reform efforts of government in the area of micro financing little success story has been recorded regarding SMEs financing in Nigeria. Therefore, the study is designed to examine the effect of microfinance policy reforms on MFBs loans to SMEs and the impact of microfinance policy reforms on SMEs deposits with MFBs in Nigeria. To achieve this, time series data were collected on microfinance loan to SMEs from CBN statistical bulletin covering a period of twenty three years from 1992 to 2014. The data were analyzed using dummy variable regression approach (ANOVA model) to see the regime effect of both community banking and microfinance banking on the finance of SMEs in Nigeria. Hypotheses were tested at 5% level of significance and both the two hypotheses are found to be significant. The result of the revealed that microfinance policy reform impact significantly on MFBs loan to SMEs as well as on the deposit liabilities with MFBs. The study concludes that microfinance reforms have positive impact on SMEs financing in Nigeria. Based on the findings of the study, it is recommended that the CBN should through policy measures strengthen the microfinance banks in Nigeria to enhance their lending capacity to the SMEs sub sector; Microfinance banks should improve on their monitoring and supervision of loan disbursement and repayment to ensure that the depositors’ funds are not unnecessarily endangered as this will increase their loanable fund when depositors confidence is enhanced.