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This study examines how financial inclusion affects the performance of micro, small, and medium-sized businesses in Nigeria’s south-western states. All micro, small, and medium-sized businesses (MSMEs) operating in Nigeria’s south-western states made up the study’s population; 1,028 MSMEs from each of the three selected local government areas in Lagos, Oyo, and Ogun States served as the study’s sample size.

In order to analyse the data, the multiple regression method was used. According to the study’s findings, government intervention, loan facilities, financial literacy, and microfinance banking services all have a positive and significant impact on how well small and medium-sized businesses operate in Nigeria’s south-western states.

According to the study’s findings, it is advised that the owners and managers of micro, small, and medium-sized businesses in Nigeria’s south-western states adopt financial literacy, set aside a portion of their profits,

use their microfinance banking services to conduct transactions, and access and use various credit facility packages as these factors have been found to significantly improve the performance of these small- and medium-sized businesses.



1.1 Background Of The Study

Most people agree that Micro, Small, and Medium-Sized Enterprises (MSMEs) are the grease that keeps every nation’s socioeconomic transformation engine running smoothly.

Small businesses are essential for economic growth because they promote entrepreneurship, create jobs, fight poverty, and offer adequate living conditions.

MSMEs are an integral part of the economic structure in emerging nations, and they are essential for advancing wealth, innovation, and growth.

In this regard, MSMEs have historically been the dominant players in domestic economic activity, particularly as employers and hence producers of primary and secondary sources of income for many households. Palmarudi and Agussalim (2013) cite this historical fact.

According to Ojokuku and Sajuyigbe (2014), MSMEs are the main driver of economic growth and development on a worldwide scale. MSMEs offer solutions to the issue of slow economic growth in emerging nations.

The National Policy on MSMEs defines MSMEs based on the twin perspectives of employment and assets (excluding land and buildings), which, according to SMEDAN, represent 90% of the firms in Nigeria (SMEDAN, 2009).

This policy defines a micro enterprise as an organisation with fewer than ten employees and assets worth less than five million naira, while a small enterprise has between ten and ninety employees and assets worth between five and fifty million naira, and a medium enterprise has employees ranging from fifty to one hundred and ninety and assets worth between fifty and five hundred million naira.

Micro, small, and medium-sized businesses (MSMEs) are significant contributors to the global and Nigerian economies. MSMEs employ a vastly greater number of people than major corporations do. MSMEs are also credited for fostering competition and innovation across a wide range of industries.

The total number of MSMEs in 2013 was 37,067,416 (Micro-36,994,578, Small-68,168, and Medium-4,670), with 9,628,993 of those in South West Nigeria (Micro- 9,602,249, Small-25,157, Ondo-1,028,769, Osun-1,358,446, Oyo- 1,872,941).

According to the Ministry of Industry, Trade, and Investment, MSMEs in Nigeria account for more than 84 percent of all jobs in the nation, roughly 48.5 percent of the GDP, and 7.27 percent of all goods and services exported from the nation.

The 2017 National Survey of MSMEs examined MSMEs in Nigeria that employed fewer than 200 people. It was carried out in all 36 federating states as well as the Federal Capital Territory of Nigeria, Abuja. From the statistics,

it showed that MSMEs has increased to 41,543,028 in 2017, (Micro-41,469,947, Small- 71,288, and Medium-1,793) out of which South West Nigeria has 9,886,473 (Micro- 9,863,183, Small- 22,720 and Medium- 570),

that is, Ekiti- 1,018,438, Lagos-3,337,552, Ogun-1,180,574, Ondo- 1,060,388, Osun- 1,373,915, Oyo- 1,915,606 , most of the businesses are located in Lagos , Nigeria’s largest commercial city.

Olowe, Moradeyo, and Babalola (2013) claim that a lack of financial access prevented many MSMEs in Nigeria from progressing to the growth stage of their life cycles.

MSMEs make up the majority of the workforce in many low-income nations, but their viability may be jeopardised by a lack of access to risk-management tools including loans, insurance, and savings. Their development is frequently impeded by the lack of access to services for payments, equity, and credit.

Financial inclusion is essential to the growth of MSMEs. Access to and use of a variety of convenient, cheap financial services is the classic definition of financial inclusion.

Financial inclusion, according to the Centre for Financial Inclusion, is a condition in which all those who can benefit from them have access to a full range of high-quality financial services that are offered at competitive rates, conveniently, and with respect for the clients.

Therefore, having access to financial services can improve investments in human capital, increase income, decrease vulnerability, and boost job creation.

Financial inclusion, according to the Central Bank of Nigeria (CBN, 2019), is the provision of formal financial services in a way that is dependable, practical, inexpensive, ongoing, and adaptable to individuals who might not typically have access to them.

To achieve financial inclusion, the Central Bank of Nigeria (CBN) is in charge. The bank’s policy acknowledges the importance that microfinance plays in giving MSMEs that are typically underserved by the other financial institutions financial access.

It follows that financial exclusion would harm MSMEs’ (Micro, Small and Medium-Sized Enterprises) ability to expand and flourish.

Banking Services (Agent Banking, Linkage Banking, etc.), Know-Your-Customers Requirement, Financial Literacy, Consumer Protection, Implementation of MSME Development Fund, and Credit Enhancement Programmes were identified by CBN as the major tools for driving financial inclusion.

The focus of this study will be on how to improve financial inclusion for MSMEs through financial literacy, banking services (mostly provided by microfinance banks), and government intervention (credit enhancement programmes).

In this study, financial inclusion refers to providing MSMEs in South West Nigeria with dependable and convenient access to the services they need.

All businesses have difficulties when trying to make specific financial decisions and educated assessments of financial services that affect their financial operations.

Financial literacy is required to make such decisions. Financial inclusion is impossible without financial literacy because stakeholders cannot comprehend the advantages and hazards connected with financial services.

Financial literacy is the body of information and abilities that enables an individual to make wise financial decisions (Norman, 2010).

In order to promote financial inclusion, consumer protection, and eventually financial stability and competency, particularly among young people, financial literacy is seen as a crucial component (CBN 2015).

Studying how financial literacy and inclusion increase entrepreneurial growth is essential given business size and location in Nigeria given the recent required deployment of monetary policies in Nigeria targeted at improving financial inclusion (CBN 2011).

Financial inclusion and literacy work together as an integral whole to assist people understand the needs and benefits of the goods and services provided by official financial institutions. Financial inclusion, however, appears to be the focus more so than financial literacy (EFInA, 2016; CBN 2011).

Muhammad Yunus, the recipient of the Nobel Prize, invented microfinance, which aids those who are economically disadvantaged by giving them access to the resources they need to launch a business and progress towards financial independence. Due to the fact that the borrower has no collateral, these loans are considerable.

Access to capital is made possible via microfinance, also known as microcredit, for small business owners and entrepreneurs. These tiny and independent companies frequently lack access to conventional financial resources from big organisations.

This makes it more difficult for them to obtain the financing, insurance, and investments they need to expand their enterprises. Microfinance essentially involves giving small business owners and entrepreneurs access to loans, credit, savings accounts, insurance policies, and money transfers.

The dominance of MFBs in the lending industry is a notable aspect. MFBs had 68% of all credit accounts in 2017 compared to 11% of all deposit accounts.

This discrepancy shows that, while being the main route for connecting customers with credit products, MFBs are constrained in their ability to grow their lending businesses.

For the microfinance sector to have an impact on improving loan availability, the liquidity problem needs to be solved.

Agribusiness Small and Medium Enterprises Investment Scheme, 2% Micro, Small and Medium Enterprises Development Fund (MSMEDF) for people with disabilities, General Enterprises and Empowerment Programme (GEEP), Micro Entrepreneurs Loan for Farmers, Traders, etc.

are just a few of the credit enhancement programmes that the government has implemented to help MSMEs become more financially inclusive and create jobs.

1.2 Statement Of The Problem

MSMEs have not had a significant economic impact in Nigeria. MSMEs in South Western Nigeria face a number of difficulties that have a significant impact on their survival and performance,

including low income, a lack of knowledge about financial services, access to available sources of financing, inconsistent government policies, subpar infrastructure, administrative red tape, and expensive fees and penalties.

The lack of access to capital and finance, however, is the most obvious. Access to institutional financing has always been a major obstacle to the growth of MSMEs in South West Nigeria. Particularly when compared to loans given to larger companies, credit to MSMEs is scarce.

According to data collected from the Central Bank of Nigeria (CBN), only N159.75, or 0.1%, of the total N135.9 trillion in loans issued to the economy between 2011 and 2015 went to SMEs. 2015 CBN Statistical Bulletin. This is due to the fact that MSMEs have very limited access to the finance they need for development and growth.

Due to high administrative costs, stringent collateral requirements, and a lack of familiarity with financial intermediaries, they are unable to acquire financing from deposit money banks and commercial banks.

Even banks with maintained liquidity levels above what is required by law have exhibited hesitation in lending to MSMEs, especially on a long-term basis because they are thought to be extremely credit-vulnerable. 2015 (Sacerdoti)

As a result, nations are creating various legal frameworks and initiatives to make sure that all populations that are not currently covered by financial services are reached.

Access to financial services, according to the CBN (2012), increases household savings (allowing those individuals to invest in their families and selves), leverages money for investments, and broadens the class of entrepreneurs.

In order to combat poverty, advance inclusive development, and fulfil the UN Sustainable (Millennium) Development Goals (MDGs), financial inclusion offers incremental and supplementary solutions. In order for them to have access to the full range of suitable financial services, it attempts to bring the unbanked population into the formal financial services network.

According to the CBN, financial inclusion is accomplished when economically disadvantaged people (including MSMEs) have simple access to a variety of formal financial services that can suit their needs at reasonable prices. These financial services range from payments to savings to loans to insurance and pension plans, among others.

Globally, there are significant regional differences in financial inclusion, which in this article is defined as having access to suitable, equitable, and cheap financial services. A total of 39.2 million adults in Nigeria, or 46.3% of the adult population, were not able to use financial services.

According to the Enhancing Financial Innovation & Access (EFInA) to Financial Services in Nigeria, 2018 Survey, 19.1% of the total 22 million adult population in South West Nigeria were financially excluded as of December 11th, 2018,

representing 28.8% in Ondo, 22.8% in Oyo, 21.8% in Ogun, 17.6% in Ekiti, 14.7% in Lagos, and 14.6% in Osun. These individuals are farmers, landless labourers, migrants, ethnic minorities, women, and MSMEs.

Financial inclusion is therefore required to guarantee that MSMEs’ performance is inclusive and long-lasting. This is so that all parts of the population can use formal financial services, which are referred to collectively as financial inclusion (Triki and Faye, 2013).

According to this view, concerted attention must be paid to groups of the population that have traditionally been denied access to financial services, especially MSMEs.

In light of this context, the study seeks to determine the impact of government intervention through credit enhancement programmes, microfinance banking services, and the financial inclusion concept on the performance of MSMEs in South Western Nigeria.

1.3 aim and objectives Of The study

This study’s primary goal is to assess the impact of financial inclusion on the performance of MSMEs in Nigeria. Its particular goals include the following:

Analyse the effect that entrepreneurs’ financial literacy has on their ability to acquire financing in South West Nigeria.

Analyse how microfinance banking services affect the viability of MSMEs in South West Nigeria.

Analyse the effects of government intervention on the performance of MSMEs in South West Nigeria by providing credit enhancement programmes.

1.4. Research Questions

What effect does an entrepreneur’s financial literacy have on how easily they can acquire financing in South West Nigeria?

How do MSMEs in South West Nigeria do in terms of sustainability thanks to microfinance banking services?

Are MSMEs in South West Nigeria performing well as a result of government intervention in credit enhancement programmes?

1.5. The Hypothesis Statement

The following theories were developed with the intention of achieving the aforementioned goals:

HO1: Entrepreneurs’ financial literacy has no appreciable effect on their ability to acquire financing in South West Nigeria.

HO2: The Sustainability of MSMEs in South West Nigeria is not significantly impacted by Microfinance Banking Services.

Ho3: The performance of MSMEs in South West Nigeria is unaffected by government intervention in the form of credit enhancement programmes.

At a significance level of 5% (0.05), the hypothesis will be tested.

1.6. Significance of the Study

By increasing their knowledge of the financial services accessible to them and how to use them, this study will be helpful to MSMEs operators. They would have a better understanding of the various credit sources and be able to use them to their advantage.

Additionally, they would be aware that the government may defend them through its agencies, such as SMEDAN, BOI, Nigerian Agricultural Cooperatives and Rural Development Bank (NACRAB), National Economic Agencies, etc.

This study will help the government regulate financial institutions’ activities and recognise the importance of creating an environment that allows MSMEs to flourish and ultimately become the engine of our nation’s economic expansion.

The study makes the general public aware that MSMEs are a thriving sector that can be profitably entered, making the nation’s economy the most viable and desirable to foreign investors.

MSMEs will comprehend the limitations impacting the banking industry’s ability to provide and supply financial services better.

This study also highlights the value of microfinance banking services because they enable the provision of straightforward,

low-cost financial services to a wide range of Nigeria’s excluded population, particularly in South Western Nigeria, and because they bring financial services closer to MSMEs.

It will also function as a repository for additional scholarly study and add to the body of information already present in the literature.

It is anticipated that the recommendations given will enhance MSMEs’ lobbying efforts and encourage the government to provide specific interventions that will boost MSMEs’ performance.

1.7 Scope of the Research

The goal of the study is to determine how financial inclusion affects MSMEs’ performance in South Western Nigeria. There are six states in Nigeria’s South Western region: Lagos, Oyo, Ogun, Osun, Ekiti, and Ondo.

For the purposes of this study, MSMEs in Oyo State’s Ibadan North Local Government, Ogun State’s Abeokuta South Local Government, Ijebu Ode Local Government,

and Lagos State’s Oshodi/Isolo Local Government, Ikorodu Local Government, and Ifako Ijaiye Local Government Area will be the only ones considered.

These three states were selected based on the size and density of MSMEs. Lagos had 3,337,552 people as of 2017 (micro-3,329,156, small-8,042, medium-354),

Ogun had 1,180,574 people (micro-1,178,109, small-2,394, medium-71) and Oyo had 1,915,606 people (micro-1,909,475, small-6,039, medium-92). This was equivalent to 65% of the 9,886,473 MSMEs in the South West States as a whole. 2017 SMEDAN Report

Due to the enormous number of MSMEs in South Western Nigeria, the study would only be conducted for a period of 7 years (2013–2019), using both primary and secondary methods of data gathering.

1.8 Operational Definitions of Terms

Micro, small, and medium-sized businesses (MSMES)

Depending on the nation and the person establishing the criteria, MSMEs are defined differently. MSMEs in Nigeria are typically referred to be businesses with up to 200 employees, with the following definitions:

Micro Enterprises: 1 to 9 employees, Small Enterprises: 10 to 49 employees, and Medium Enterprises: 50 to 199 people. 2017 SMEDAN

Financial Inclusion (1.8.2)

Financial inclusion is the process by which people and businesses have access to practical and reasonably priced financial products and services that meet their needs—transactions, payments, savings, credit, and insurance—delivered in a responsible and sustainable manner.

Financial inclusion is defined as the availability and timely delivery of financial services to the disadvantaged and low-income group at an affordable cost.

1.8.3 Financial Education

The ability to make wise judgements with all of one’s financial resources is known as financial literacy. It is the possession of a certain set of skills and knowledge.

SMEDAN, Nigeria’s agency for the development of small and medium-sized businesses

It is a government agency that was set up in 2003 to help promote and develop the MSMEs industry in Nigeria in a sustainable and effective way.

South West Nigeria, 1.8.5

It is one of Nigeria’s six geopolitical zones, together with the states of Oyo, Ogun, Lagos, Ekiti, Ondo, and Osun. Although there are various dialects even within the same state, Yoruba is the language that is spoken there most often.

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