Are Deposit Money Banks’ Credit to SMEs Enough to Stimulate Economic Growth in Nigeria? Issues for Legislative Consideration

Osigwe, Augustine ; Onyimadu, Chukwuemeka (2018-02)

Small and Medium Enterprises (SMEs) contribute positively to economic growth through their positive effects on most socio-economic indices. Against this backdrop, this sector analysis examines whether Deposit Money Banks credit to the SMEs is enough to stimulate economic growth in Nigeria. Analysis of data shows that although loans to the private sector consistently increased from 2010 to 2016, the fraction of these loans that went to SMEs declined drastically, standing at 0.07% as at 2016. Also, with correlation statistics of – 0.13, we found that higher interest rates are associated with lower growth rates of loans to SMEs. This finding corroborate the huge problem of access to finance by SMEs. A review of cross country experience towards promoting SMEs access to finance presents credit models that Nigeria can tap into. In India, we learned that credit ratings for SMEs subsidized by the Government boost their access to funding whereas in Indonesia we discovered that in 2012, a legislation was passed requiring banks to increase the proportion of their loans advanced to SMEs to 20% by 2018. On the basis of our findings, a number of punchy recommendations that will aid the National Assembly consider how to boost credit to the SMEs so as to stimulate economic growth in Nigeria are presented

Working Paper