MICROFINANCE BANKS AS CATALYSTS FOR SME DEVELOPMENT AND ECONOMIC TRANSFORMATION: EMPIRICAL EVIDENCE FROM NORTHERN NIGERIA

Abstract

This study examines the impact of microfinance banks on Small and Medium Enterprise (SME) development in Northern Nigeria, focusing on microcredit facilities, savings mobilization services, and financial advisory support. Employing a descriptive survey research design, primary data were collected through structured questionnaires administered to 230 licensed microfinance banks across Northern Nigeria, yielding a 93.0% response rate. Multiple regression analysis reveals that microcredit facilities exert the strongest positive effect on SME growth (β = 0.462, p < 0.001), while savings services significantly enhance enterprise sustainability (β = 0.318, p < 0.01), and advisory services positively influence performance (β = 0.287, p < 0.01). The model explains 74% of the variance in SME development outcomes (R² = 0.74). Despite these contributions, significant constraints including high interest rates, inadequate loan sizes, short repayment periods, security challenges, infrastructural deficits, and operational inefficiencies—continue to limit institutional effectiveness. The study concludes that while microfinance banks remain indispensable for regional economic transformation, strengthened policy frameworks, enhanced institutional capacity, and expanded financial inclusion strategies are essential for optimizing their developmental impact. These findings contribute empirical evidence from a structurally disadvantaged region and offer policy-relevant recommendations for sustainable SME development in contexts characterized by financial exclusion and institutional fragility.