Abstract
The study analysed impact of financial institutions on growth of small and medium scale enterprises (SMEs) in Nigeria using Autoregressive Distributed Lagged Model (ARDL). The Augmented Dickey Fuller (ADF) was used to test for unit root with ADF result showed that SMEQ, CBC, MFC, and SCS were stationary at first difference while AGS and LER were stationary at level. The result of the error correction model (ECM) showed that the speed of adjustment is 38%, meaning that in the following periods, about 38% of the previous period's disequilibrium is brought back into equilibrium. The result also revealed that commercial bank credit (CBC) has a positive insignificant impact and a negative significant impact on Nigeria’s SMEs growth in the short run and the long run, respectively. Microfinance bank credit (MFC) and aid and grant to SMEs (AGS) have a positive significant impact on Nigeria’s SMEs growth both in the short run and the long run while SMEs credit schemes (SCS) has a positive insignificant impact on Nigeria’s SMEs growth both in the short run and the long run. Finally, lending rate (LER) has a negative significant impact on Nigeria’s SMEs growth both in the short run and the long run. The study concluded that financial institutions have significant impact on Nigeria’s SMEs growth. Therefore, recommended that microfinance institutions in Nigeria should increase the availability of loans to SMEs in Nigeria with a view to provide them with the necessary capital to invest in their businesses and to enable SMEs to take advantage of new opportunities, leading to increased growth and development in the sector. Monetary authorities through CBN should partner with commercial banks in order to increase loan facilities to SMES at reduced cost with a view to promote SMEs activities in Nigeria and small and medium businesses in Nigeria should be supported with aid and grant by government at various levels, and private individuals with intention to create massive jobs, promote growth and business expansion of SMEs in Nigeria.