The Impact of Financial Institutions Financing on Small and Medium Scale Enterprises in Nigeria

ABSTRACT This study tries to examine and evaluate the role and impact of financial institution lending to SMEs in the Nigerian economic environment. An Econometric functional relational model was constructed using the Ordinary Least Square method to test whether there is a significant link or relationship between the loans released by financial institution and the active growth and development of small scale business or the supposed SMEs from a period of 1992 - 2012. Within the study Augmented Dickey Fuller test (ADF) and Phillip Perron (PP) was carried out to test for unit root and stationarity of the variables: the Johansen cointegration test is explored and utilized to check if there is long run equilibrium relationship among the selected economic variables. Based on the empirical findings, we identify that, a positive and significant relationship exist between the variables indicators, with the financial institutions coefficients having an impact on the growth of small and medium scale enterprises in Nigeria, while the foreign investment (portfolio) exert an inverse relationship. Long run integration was also found among small and medium scale enterprises, commercial banks lending to SMEs, development financing institutions financing and foreign investment (portfolio) inflows. In conclusion, we recommend that, there should be proper channel of funds into productive ventures by the small business owners. Keywords: Cointegration, financial institutions, foreign investment, economic growth in Nigeria.