Influence of Microfinance Services and Social Capital on the Profitability Growth of SMEs in Nigeria

Abstract

One of the critical factors that continue to constrain the SMEs sector in developing economies is the issue of accessing loan, which has broadly impeded the SMEs performance in Nigeria. This study examines the impact of microfinance services and social capital components on the performance of SMEs. This study used Stratified Probability Proportionate Sampling Technique (SPPST) and sampled 375 SMEs in the North-Western Nigeria. The results of the Generalized Ordered Logit Model 2 (GOLOGIT2) utilised in the statistical tools for analysing the data based collected on the relevant variables in the study. The results of the study generally
indicate that both microfinance services and Social Capital components, have positive impacts on SME performance. The implication is that new policies should be adopted to ensure more efficient and quality access to Microfinance Institutions (MFIs). This may reduce the problem of accessing loans, improve business performance and further contribute to economic growth.
Institutions such as SMEDAN and NDE which act as agencies to help monitor the activities of MFIs in carrying out their key responsibilities towards the SMEs. This study identifies several constraints when the focus of the study covering the North-Western region of Nigeria alone may not be generalizable due to differences in economic location. Since this study only focuses on microfinance factors, and social capital components, further study of other regions or states will provide a clearer description of the problems faced by SMEs. It is also suggested that future studies look at SMEs in terms of internal and external factors as well as other microfinance facilities that can be used to further explore the impact of SMEs on their performance in the economy.