Trends in Commercial Banks Credit to Small and Medium Scale Enterprises (SMEs): Current Financing Difficulties and Implications for the Nigerian Economy

This study investigated the impact of trends in commercial banks credit to small and medium scale enterprises (SMEs) and implications of current financial difficulties on the Nigerian economy using annual data from 1981 to 2013. The study employed co-integration and error correction mechanism (ECM) with the use of sequential, modified LR test statistic as lag length selection criteria in estimation of the parameters. The result revealed that commercial banks credit to SMEs was not significant and thus did not contribute meaningfully to economic growth in Nigeria. Total credit to the private sector and money supply were statistically significant and positive at 5% level of significance. While lending rate has negative and significant impact on economic growth in Nigeria. The results from the study also revealed that the inexperience of SMEs personnel reduces their probability of being rated credit worthy by commercial banks. This calls for capacity building for SMEs personnel in the areas of business management (including financial record keeping) if they are to be rated credit worthy borrowers by the commercial banks. The study also revealed high cost of borrowing (i.e. interest rate) in the economy. The study recommends policies and regulations in the form of directives to the commercial banks to give certain percent of their total loans and advances to the SMEs at a specified rate of interest. This directive must be strictly implemented and monitored to ensure compliance.