Accounting Project Topics

Effect of Financial Inclusion on the Performance of Micro, Small and Medium Enterprises (MSMEs) in South Western Nigeria

Effect of Financial Inclusion on the Performance of Micro, Small and Medium Enterprises (MSMEs) in South Western Nigeria

Effect of Financial Inclusion on the Performance of Micro, Small and Medium Enterprises (MSMEs) in South Western Nigeria


Aim and Objectives of the Study.

The main objective of this study is to examine the financial inclusion on the performance of MSMEs in Nigeria and the specific objectives of the study are to:

  1. Determine the impact of financial literacy of entrepreneurs on accessibility to finance in South West Nigeria.
  2. Examine the impact of Microfinance Banking Services on the Sustainability of MSMEs in South West Nigeria.
  3. Examine the impact of Government Intervention in terms of Provision of Credit Enhancement Programmes on the Performance of MSMEs in South West Nigeria.



Conceptual Review

MSMEs have played a major role in employment generation, poverty reduction and globally advancing economic development. In this sense, Palmarudi and Agussalim (2013), state that MSMEs have historically been the main players in domestic economic activities, especially as providers of employment opportunities, and hence generators of primary and secondary sources of income for many households.

According to Munga (2012) most SMEs lack creditworthiness and management capacity, so they have trouble securing funds for their business activities such as procuring raw materials and products, and investing in plant and equipment. From the external perspective, MSMEs are regarded as insecure and costly businesses to deal with because they lack required collateral and have the capacity to absorb only small amount of funds from financial institutions and so they are rationed out in their access to credit because of high intermediation costs, including the cost of monitoring and enforcement of loan contracts.

Idowu (2010), claim that one of the major barriers to rapid development of the small and medium enterprises sector is the shortage of both debt and equity financing in the economy. Without finance, micro and small enterprises cannot acquire or absorb new technologies nor can they expand to compete in global markets or even strike business linkages with larger firms.

Financial inclusion is an intervention strategy that seeks to overcome the market friction that hinders the markets from operating in favour of the poor and underprivileged (Aduda and Kalunda, 2014).

The Consultative Group to Assist the Poor (CGAP) defines financial inclusion as a condition where all working-age people are able to get effective access to credit, savings, payment systems and insurance from all financial service providers.

According to Agarwal (2014), easy access to a well- functioning financial system, by creating equal opportunities, enables economically and socially excluded people to integrate better into the mainstream and actively contribute to development and protect themselves against economic shocks crisis. So, financial inclusion means to bring disadvantaged and vulnerable sections of the society within the ambit of formalized and standardized financial system because financial Inclusion is the process of ensuring access to financial services (basic banking, insurance, post office scheme, Micro finance, mortgage, etc., timely and adequate credit) where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.

Kumar and Sheel (2015), the achievement of full financial inclusion is indicated by the five A’s of availability, awareness, affordability, adequacy and accessibility. Basically aimed at benefiting the poor majority who do not use formal financial services, financial inclusion has been defined broadly as the process of availing an array of required financial services at a fair price, at the right place, form and time, and without any form of discrimination to all members of the society (Aduda and Kalunda, 2012)

Use of Formal Credit is one of the major indicators of financial inclusion (Demirgüç-Kunt and Klapper, 2013). Formal credit refers to credit or loans issued from financial institutions that are regulated by the government and operated within the regulatory framework of the financial system (Campero and Kaiser, 2013).

Martinez (2011) identified financial access as an important policy tool employed by government in fighting and stimulating growth given its ability to facilitate efficient allocation of productive resources, thus reducing the cost of capital.




Research Design

Survey and ex post facto research design will be adopted for this study. Triangulation method of data collection will be adopted for the study. Both primary and secondary data will be collected due to the nature of the research work. Primary data will be sourced through the administration of well- structured questionnaire using probability sampling techniques (Simple Random Sampling) to Micro, Small and Medium Enterprises in Lagos, Ogun and Oyo States. Secondary data will be collected from Central Bank Statistical Bulletins and SMEDAN Reports for the period of 7 years (2013- 2019). Descriptive Statistics (Simple percentage) Technique and Ordinary Least Square (OLS) regression Analysis will be adopted for data analysis at 5% level of significance. However, before the application of the OLS, the time series characteristics of the variables will be examined. This will involve conducting unit root test in order to determine their order of integration.

Population of the Study

This study focuses on effect of financial inclusion on the performance of MSMEs in the six south western states of Nigeria: Oyo, Ogun, Lagos, Ondo, Ekiti and Osun States. As at 2017, there are 9,886,473 MSMEs in the south west comprising 9,863,183 micro enterprises, 22,720 small enterprises and 570 medium enterprises. Ekiti had 1,018,438 ( micro-1,017,510, small- 926, medium- 2), Lagos had 3,337,552 (micro- 3,329,156, small-8,042, medium- 354), Ogun had 1,180,574( micro-1,178,109, small- 2,394, medium- 71), Ondo- 1,060,388( micro- 1,058,025, small- 2,324, medium- 39), Osun- 1,373,915( micro-1,370908, small-2,995, medium- 12) and Oyo- 1,915,606( micro- 1,909,475, small- 6,039, medium- 92) (MSMEs Survey Report 2017). The population of the study is the entire MSMEs in South Western Nigeria using Lagos, Oyo and Ogun States as sample size (three Local Government Areas in each state). For Lagos state: Oshodi/ isolo, Ifako Ijaiye and Ikorodu Local Government Areas. For Oyo State: Ibadan North, Akinyele and Egbeda Local Government Areas and for Ogun state: Abeokuta North, Ijebu Ode and Ado Odo Ota Local Government Areas.



This section of the study present and discuss the result of the study obtained from the regression result starting from the descriptive statistics, correlation matrix and the summary of the regression result.

Descriptive statistics

This section present and discuss the result of the descriptive statistics where mean, minimum, maximum, standard deviation, kurtosis and skewness were presented and discuss.



Based on the findings of the study, the research has provided both empirical as well as statistical evidence on the utility of four independent variables (Financial Literacy, Microfinance Banking Services, Government intervention and credit facilities) in explaining and predicting performance of micro, small and medium size enterprises in south western states of Nigeria. However, based on the above findings and conclusions, the study concluded that: the owners as well as managers of micro, small and medium size enterprises in south western states of Nigeria should embrace financial literacy, save more out of their profit, use their mobile phones to transact and access and patronize different credit facilities packages as they were found playing prominent role in improving the performance of micro, small and medium size enterprises.


To policy makers and practitioners; there is need to seriously consider and continue to enable an environment where inclusion is possible. This will enhance usage, access and quality of finances which in turn will enable better performance of enterprises. This will definitely have an effect on social inclusion of citizens and better the economic performance. For further studies, scholars should include more inclusion variables and intervening variables apart from just technology as there are more to inclusion and the intervening variables than what the study has looked into. The study also recommends a further study on the factors affecting financial inclusion and their effects on financial performance of small enterprises in rural parts of the country.


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