Impact of Small Scale Enterprise Financing by Deposit Money Banks on Economic Growth in Nigeria

Abstract

The role of finance in any business enterprise cannot be overemphasised. In any economy where the interest rate on loan from deposit money banks is high, it will be difficult for small scale enterprises to access and repay loan facilities as scheduled. This may have adverse effects on the real sector of the economy. The study sets to assess the impact of small scale enterprise financing by deposit money banks on Nigerian economy. This study consists of time series data of small scale enterprise financing by deposit money banks in Nigeria for the period of seventeen (17) years (1999-2015). The parameters like Deposit Money Banks Loan Stock (DMBLS), Deposit Money Banks Interest Rate (DMBIR) and Real Gross Domestic Product (RGDP) in Nigeria for the period under review were used. Econometric View 7.0 software was used to analyse the data while the co-integration technique of analysis was used to estimate the model and test the null hypotheses formulated. Results showed that deposit money banks loan stock to small scale enterprises has a significant positive impact on real gross domestic product in Nigeria for the period under review. The results further revealed that deposit money banks interest rate on loan facilities to small scale enterprises has no significant impact on real gross domestic product in Nigeria for the period under review. This study recommends that the Central Bank of Nigeria should step up a monitoring and implementation strategies to ensure that 10% equity investment fund set aside by the deposit money banks are significantly accessed by small scale enterprises in Nigeria. Also, the Central Bank of Nigeria should regulate and fix the deposit money banks lending rate to small scale enterprises little above the prevailing inflationary rate in Nigeria.