Challenges Inhibiting Sme’s In Accessing Credit In Financial Institutions In Nigeria

Filed in Articles by on November 11, 2022

 – Challenges Inhibiting Sme’s In Accessing Credit In Financial Institutions In Nigeria – 

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This study, The Challenges Inhibiting SME’s in Accessing Credit in Financial Institution in Nigeria, was undertaken to examine the issues facing SMEs in Oyo State in their quest to accessing bank credit (loans) from financial institutions (banks & non– banks) to undertake various activities.

Be it general business operations or carrying out expansion project all in the name of fulfilling the objectives as being job creators and helping to reduce poverty.

In tackling this topic, the quantitative approach was adopted. Questionnaires were circulated to 120 respondents in the Oyo State metropolis selected through a technique of convenience sampling. Based on the responses received through these questionnaires, the following major findings came to the fore.

There are institutions such as bank and non-bank financial institutions that are willing to provide funds to SMEs but Nigerian SMEs are not able to meet the requirements of these financial institutions. Chief among these requirements is the issue of collateral, which most SMEs cannot provide.

Aside this is the other issue of small equity base of these SMEs among others. Secondly, those who are able to access this credit are also faced with high-interest rates and short repayment periods making it very difficult to embark on any developmental or expansion projects.

Another interesting revelation with regards to the high rate of defaults in repayment of loans contracted relates to the tight Cash flow situations of these SMEs that is mostly due to difficulties in the management of the account receivables of the respective SMEs surveyed.

The study concludes with some recommendations to help free up capital or credit to the SME sector. Among the recommendations are encouraging financial institutions (banks & non-banks) to establish factoring services, enforcement of the credit reporting act and finally the provision of tax incentives for banks that lend to SMEs to encourage others to do same.


Title Page………i
Certification ……iii
Abstract …
Table of Contents……vii
List of tables………x


1.1 Introduction…….1
1.2 Background to the study……….3
1.3 Statement of the problem…………4
1.4 Objectives of the study………5
1.5 Research questions…..5
1.6 Statement of the hypotheses..6
1.7 Significance of the study….6
1.8 Justification of the study…….7
1.9 Scope of the study………7
1.10 Definitions of terms ………8


2.0 Introduction…………10
2.1 Conceptual frame work……….10
2.2 Theoretical frame work…….….19
2.3 Literature on the subject matter 22


3.0 Introduction……………31
3.1 Area of study……………31
3.2 Research design ……..31
3.3 Population of the study…………32
3.4 Sample size determination………..32
3.5 Instrumentation……………..33
3.6 Methods of data analysis………34
3.7 Limitations of the study……………..34


4.0 Introduction…….36
4.1 Findings of the study …36
4.2 Test of hypothesis.…………45


5.0 Summary of findings…..50
5.1 Conclusion..………54
5.2 Recommendations..…..55
5.3 Proposal for further studies…….57


On a global scale, small and medium-size enterprises (SMEs) have exerted much influence on social-economic development based on its outstanding contribution to employment and GDP growth.

According to the Ministry of Trade and Industry of Oyo State, Nigeria, as at August 2011, figures from the Registrar General’s Department suggest that 88% of registered businesses in the country are in the small and medium-size enterprises sector of the Nigerian economy (Adjei, 2012).

Based on this information, it can be said that the Nigerian economy is largely dependent on the SMEs sector, creating jobs for hundreds and thousands of Nigerians. Yet the full potential of the SMEs sector in Nigeria is still unrealized (Adjei, 2012; Adomako-Ansah, 2012).

To some writers (Cofie, 2012; Ahiawodzi and Adade, 2014), the SMEs sector can do better with respect to its current contribution to GDP growth. Invariably, the sector can grow faster and better contribute to employment in Oyo State.

These arguments are indirect ways of saying that the sector is not realizing its full potential logically as a result of some constraints.

Ackah and Vuvor (2011) are among several writers who have acknowledged that some of these constraints are challenges faced by SMEs in having access to credit facilities from financial institutions ( banks, micro-finance firms, savings and loans companies among others), which are the sector’s financiers.

In the microfinance and SMEs literature, several challenges are identified as militating against access to credit facilities among SMEs.

Some of these challenges are: SMEs lacking collateral security; poor records keeping; poor credit rating as a result of poor savings history, and stringent lending criteria used by financiers (Ackah and Vuvor, 2011; Cofie, 2012).

The fact is 2 that small firms have been found to have less access to external finance and to be more constrained in their operation and growth (Galindo and Schiantarelli, 2003).

Small and Medium Enterprises (SMEs) are viewed as a key driver of economic and social development in the African context.

They represent a large number of businesses in a country, generate much wealth and employment and are widely considered to be vital to a country’s competitiveness.

SMEs are hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development (Pelham 2000).

SMEs tend to be large in number, accounting for about 90 percent of all enterprises in many African countries and over 80 percent of new jobs in a given country (Reinecke, 2002).


Abor, J. & Biekpe, N. (2006). Small Business Financing Initiatives in Ghana. Problems and Perspectivesin Management, 4(3), 69-77.

Ackah, J., and Vuvor, S. (2011). The Challenges faced by Small & Medium Enterprises (SMEs) in Obtaining Credit in Ghana, Master’s Thesis in Business Administration, pp. 1-57.

Adjei, D.S. (2012). Micro, Small and Medium Scale Enterprises in Ghana: Challenges and Prospects. A Case Study of Sekondi-Takoradi Metropolis, Master’s Dissertation, Kwame Nkrumah University of Science and Technology, Kumasi, pp. 23-78.

Adomako-Ansah, F.K. (2012). Determinants of Small and Medium Enterprise (SME) Financing By Financial Institutions in Ghana, Master’s Dissertation, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana, pp. 1-67.

Alfo, M. and Trovato, G. (2006): Credit Rationing and the Financial Structure of Italian Small and Medium Enterprises. CEIS Tor Vergata-Res. Paper Series, 27(80): 1-20.

Aryeetey, E.A, Baah-Nuakoh, A., Duggleby, T., Hettige H., and Steel, W.F (1994), Supply and Demand for Finance of Small Enterprises in Ghana, Discussion Paper No. 251, Technical Department, Africa Region. Washington, D.C., World Bank.

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