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Effects of Microfinance on Micro and Small Enterprises (MSEs) Growth in Nigeria

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Author Info

  • Abiola Babajide Ph.D

    ()
    (Department of Banking and Finance, Covenant University, Ota P.M.B 1023, Ota, Ogun State, Nigeria)

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    Abstract

    This paper investigates the effects of microfinance on micro and small business growth in Nigeria. The objectives are: one, to examine the effects of different loan administration practices (in terms of loan size and tenor) on small business growth criteria. Second, to examine the ability of Microfinance-Banks (MFBs) (given its loan-size and rates of interest charged) towards transforming micro-businesses to formal small scale enterprises. The paper employed panel data and multiple regression analysis to analyze a survey of 502 randomly selected enterprises finance by microfinance banks in Nigeria. We find strong evidence that access to microfinance does not enhance growth of micro and small enterprises in Nigeria. However, other firm level characteristics such as business size and business location, are found to have positive effect on enterprise growth. The paper recommends a recapitalization of the Microfinance banks to enhance their capacity to support small business growth and expansion.

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    Bibliographic Info

    Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

    Volume (Year): 2 (2012)
    Issue (Month): 3 (July)
    Pages: 463-477

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    Handle: RePEc:asi:aeafrj:2012:p:463-477

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    Related research

    Keywords: Small Firms; Micro firms; Entrepreneurship; Microfinance; Regression Analysis; Nigeria;

    References

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    1. Karine Chapelle & Patrick Plane, 2005. "Technical efficiency measurement within the manufacturing sector in Cote d'Ivoire: A stochastic frontier approach," Journal of Development Studies, Taylor & Francis Journals, vol. 41(7), pages 1303-1324.
    2. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, December.
    3. Brown, J David & Earle, John S & Lup, Dana, 2005. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 33-70, October.
    4. Masakure, Oliver & Cranfield, John & Henson, Spencer, 2008. "The Financial Performance of Non-farm Microenterprises in Ghana," World Development, Elsevier, vol. 36(12), pages 2733-2762, December.
    5. Bigsten Arne & Collier Paul & Dercon Stefan & Fafchamps Marcel & Gauthier Bernard & Gunning Jan Willem & Oostendorp Remco & Pattillo Catherine & Söderbom Måns & Teal Francis, 2005. "Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-29, October.
    6. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
    7. Lisa Daniels, 2003. "Factors that influence the expansion of the microenterprise sector: results from three national surveys in Zimbabwe," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 675-692.
    8. Marcel Fafchamps, 2002. "Ethnicity and Networks in African Trade," Economics Series Working Papers WPS/2002-20, University of Oxford, Department of Economics.
    9. Daniels, Lisa & Mead, Donald C, 1998. "The Contribution of Small Enterprises to Household and National Income in Kenya," Economic Development and Cultural Change, University of Chicago Press, vol. 47(1), pages 45-71, October.
    10. Kolvereid, Lars, 1992. "Growth aspirations among Norwegian entrepreneurs," Journal of Business Venturing, Elsevier, vol. 7(3), pages 209-222, May.
    11. Frazer, Garth, 2006. "Learning the master's trade: Apprenticeship and human capital in Ghana," Journal of Development Economics, Elsevier, vol. 81(2), pages 259-298, December.
    12. Fafchamps, Marcel & Gabre-Madhin, Eleni, 2001. "Agricultural markets in Benin and Malawi : the operation and performance of traders," Policy Research Working Paper Series 2734, The World Bank.
    13. Sleuwaegen, Leo & Goedhuys, Micheline, 2002. "Growth of firms in developing countries, evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 68(1), pages 117-135, June.
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    Cited by:
    1. Ayi Gavriel Ayayi, 2012. "Microfinance: A Time to Deliberate," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 445-447, July.
    2. George Kwadwo Anane & Patrick Brandful Cobbinah & Job Kwame Manu, 2013. "Sustainability of Small and Medium Scale Enterprises in Rural Ghana: The Role of Microfinance Institutions," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(8), pages 1003-1017, August.

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