Microfinance banks and SME growth in Nigeria: The influence of credit, interest rates, non-financial services, and policy barriers

Abstract

This study examines the role of microfinance banks (MFBs) in facilitating the growth and entrepreneurial development of small and medium-sized enterprises (SMEs) in Nigeria. A correlational research design was adopted, with primary data obtained from 312 SME owners and managers who had utilized microfinance services in Lagos, Kano, and Rivers States. The study was theoretically grounded in the Pecking Order Theory, Trade-Off Theory, and Resource-Based View. Data were analysed using multiple regression and the Ordinary Least Squares (OLS) estimation technique. The findings indicate that microfinance credit has a positive and moderately significant relationship with SME profitability and investment (β = 0.312, p < 0.01). Conversely, high interest rates significantly constrain enterprise growth (β = −0.274, p < 0.01). Non-financial microfinance services, particularly entrepreneurial training and advisory support, exert a positive and statistically significant influence on entrepreneurial capacity (β = 0.421, p < 0.001). Furthermore, policy-related constraints significantly reduce access to credit and adversely affect firm performance (β = −0.198, p < 0.05). The study concludes that microfinance banks constitute important instruments for supporting SME growth and entrepreneurship in Nigeria, although their effectiveness is constrained by high borrowing costs, short repayment periods, and weaknesses in policy implementation. It therefore recommends the expansion of digital microfinance services, more flexible collateral and loan-tenor requirements, and the adoption of integrated credit and entrepreneurial training programmes.