Effect of Microfinance Bank Branches as Financial Inclusion indicator on Performance of Micro, Small and Medium Enterprises in Nigeria

Abstract

Financial inclusion, a critical subset of financial development, prioritizes access to financial products and services over the mere proliferation of financial institutions. Microfinance banks (MFBs) have become instrumental in promoting financial inclusion by providing alternative credit systems for micro, small, and medium-sized enterprises (MSMEs) that often face barriers to accessing traditional financial services due to high risk and lack of collateral. MSMEs are a cornerstone of Nigeria's economy, contributing significantly to employment and tax revenues, yet their growth is stifled by limited access to capital. The establishment of the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) and the introduction of Nigeria’s microfinance policy framework in 2005 were pivotal in addressing these challenges by fostering an enabling environment for MFBs to thrive. MFBs offer tailored financial services such as microcredit, savings accounts, and business loans, specifically designed for the underserved active poor in rural and urban areas. Despite their potential, challenges such as low financial literacy, inadequate banking infrastructure, and a distrust of formal banking systems hinder the full realization of financial inclusion in Nigeria. This study investigates the relationship between financial inclusion, facilitated through MFB branches, and the performance of MSMEs in Nigeria. It aims to explore how the distribution and availability of MFB branches influence MSME performance and addresses the hypothesis that no significant relationship exists between the number of MFB branches and MSME performance. Findings from this research are expected to inform policy decisions, enhance MSME growth, and contribute to poverty alleviation and economic development in Nigeria.