AN EXAMINATION OF FINANCIAL INCLUSION AND SMALL-SCALE ENTERPRISES IN NIGERIA

1.1 Background of the Study

Small and medium-sized businesses (also known as SME) are extremely important to the process of economic development, particularly in developing countries for example Nigeria. SME's provide a contribution to the elimination of poverty, the development of jobs, and the diversification of industries. The inability of many small and medium-sized enterprises (SME) to gain access to financial resources, notwithstanding their significance, restricts their capacity for expansion. There is a widespread consensus that financial inclusion, which is defined as the provision of financial services that are easily accessible, reasonably priced, and beneficial to underserved people, is a solution to this problem. Research has demonstrated that increased access to financial resources can improve the performance of small and medium-sized enterprises (SME), as well as cash flow management and the ability to make bigger investments in technology and human resources, all of which contribute to the expansion of the economy as a whole. Through the establishment of a number of programs, including the National Financial Inclusion Strategy in 2012, the Central Bank of Nigeria (CBN) has placed an emphasis on the significance of financial inclusion. Because of these activities, the number of Nigerians who have access to formal financial services is going to increase, which would in turn strengthen small and medium-sized enterprises (SME) by providing them with greater access to credit, savings, and payment methods. The exclusion of many small and medium-sized enterprises (SME) from the financial system continues to be a problem, particularly in rural regions. This is due to a number of issues, including high transaction costs, a lack of collateral, and poor awareness of the many financial products that are available.

Guiso, Sapienza, and Zingales (2004) conducted research that demonstrates the positive influence that financial inclusion has on entrepreneurial activity. The findings of this research state that having access to money increases the likelihood of starting and maintaining a business, particularly for very small businesses. In a similar vein, Demirguc-Kunt and Levine (2008) observed that financial inclusion not only stimulates economic growth but also reduces income inequality, which is of greater advantage to smaller enterprises than it is to larger companies. Despite this, the degree of financial inclusion in Nigeria is still below what would be considered desirable. A significant number of small and medium-sized enterprises (SME) continue to rely on informal sources of financing, such as family loans or micro finance organisations, which may not be sufficient to support their growth over the long term. In spite of the efforts made by the government to increase financial inclusion, obstacles such as poor infrastructure, a lack of financial literacy, and the underdevelopment of financial services in rural areas continue to exist. The authors Ayunku and Pakepinene (2023) state that financial inclusion has the potential to improve the performance of small and medium-sized enterprises (SME) by expanding access to loans and lowering transaction costs. However, this is contingent upon the elimination of structural impediments.

In light of this, it is vital to conduct an investigation into the connection that exists between small-scale enterprises and financial inclusion in order to gain an understanding of how the financial system may better meet the requirements of SSEs and encourage their expansion. The purpose of this study is to provide insights into the policies and actions that can strengthen the financial sustainability of small businesses by doing an investigation into the current level of financial inclusion in Nigeria and its influence on small and medium-sized enterprises (SME).

1.2 Statement of the Problem

Despite the significant role that small-scale enterprises play in Nigeria’s economic development, many SSEs remain financially excluded, limiting their capacity to grow and contribute fully to the economy. The lack of access to adequate financial services, such as credit, savings, and insurance, continues to hinder the ability of these enterprises to scale up their operations. While financial inclusion has been recognized as a key driver of SSE growth, the extent to which it has positively impacted the sector in Nigeria remains unclear. This study seeks to investigate the effectiveness of financial inclusion initiatives in addressing the financial needs of SSEs, particularly in terms of access to credit and other financial services, and the barriers that persist in limiting SSEs' financial participation.

 

 

 

1.3 Research Objectives

The main objectives of this study are to:

1. Examine the extent of financial inclusion among small-scale enterprises in Nigeria.

2. Investigate the impact of financial inclusion on the growth and performance of SSEs in Nigeria.

3. Identify the challenges hindering financial inclusion for small-scale enterprises and recommend solutions to overcome these challenges.

1.4 Research Questions

This study will address the following questions:

1. What is the current level of financial inclusion among small-scale enterprises in Nigeria?

2. How does financial inclusion affect the growth and performance of small-scale enterprises?

3. What are the main barriers to financial inclusion for small-scale enterprises in Nigeria?

1.5 Research Hypotheses

The following null hypotheses will be tested in this study:

H01: There is no significant relationship between financial inclusion and the growth of small-scale enterprises in Nigeria.

H02: Financial inclusion does not significantly affect the performance of small-scale enterprises in Nigeria.

H03: The barriers to financial inclusion do not significantly hinder the access of small-scale enterprises to financial services in Nigeria.

1.6 Significance of the Study

This study is significant because it will contribute to the body of knowledge on financial inclusion and its impact on small-scale enterprises in Nigeria. The findings will provide insights into the effectiveness of current financial inclusion initiatives and offer recommendations for improving access to financial services for SSEs. Policy-makers, financial institutions, and development agencies may find the results useful for designing interventions that enhance the financial inclusion of small businesses. By addressing the gaps in financial inclusion, this study can support the growth and sustainability of SSEs, ultimately contributing to economic development and poverty reduction in Nigeria.

1.7 Scope of the Study

The study will focus on small-scale enterprises in Nigeria, with particular emphasis on their access to financial services such as credit, savings, and insurance. It will also explore the role of financial inclusion in influencing the growth and performance of these enterprises. The geographical scope will cover urban and rural areas in Nigeria, providing a comprehensive understanding of the challenges faced by SSEs in different regions of the country.

 

1.8 Definition of Terms

Financial Inclusion: The process of ensuring that individuals and businesses have access to useful and affordable financial products and services that meet their needs, such as payments, savings, credit, and insurance.

Small-Scale Enterprises (SSEs): Businesses that operate on a small scale, typically employing fewer than 50 people and having limited access to capital and markets.

Financial Services: Services provided by financial institutions that include credit, savings, insurance, and payment systems.