Firm characteristics and access to bank financing: Evidence from SMEs in North Central Nigeria
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Date
2019
Journal Title
Journal ISSN
Volume Title
Publisher
Amity Journal of Finance
Abstract
The paucity of finance to SMEs, widely reported in the literature has continued to undermine the
potential of the sector as a driver of economic growth. This scourge has partly been blamed on the SMEs’
observable characteristics. However, the dearth of comprehensive research in this area portends the need for
further studies especially in the North Central Nigeria where the problem is reportedly endemic. Against this
backdrop, the study examines, from both SMEs and banks’ viewpoints, the impact of firm characteristics on
access to bank financing in the North Central Nigeria. The study drew data from the primary source through
the adaption of World Bank and OECD Financial literacy questionnaires. A sample of 280 SMEs and 207 loan
officers were drawn from the population of 1030 SMEs and 448 banks respectively. Descriptive statistics,
binary logit regression model with Marginal effect and Kruskal Wallis H were employed in analyzing the
data. From SMEs’ perspective, the results revealed that firm age, incorporation status and industry which
are significant at 0.05, 0.01 and 0.1 respectively, are the firm specific characteristics impacting access to
bank finance among SMEs whereas firm size is insignificant. From banks’ perspective, all the selected firm
characteristics, which are all significant at 0.01, are the factors influencing banks’ credit approval for SMEs
in the North Central Nigeria. The study concluded that SMEs in the North Central Nigeria encounter serious
paucity of finance as they are virtually oblivious of, or not fully exploring all firm related factors influencing
their access to facilities especially from banking institutions. The study, therefore, recommended that SMEs
should fully explore all firm factors, at individual level, for improved access to financial market. Also, they
should synergise by forming strong alliance and solicit credits as a consortium rather than as individual units
to facilitate better access and at relatively cheaper costs.