Effects of Microfinance on Micro and Small Enterprises Growth in South East Nigeria

Abstract

This research looks at the effects of microfinance banks on micro and small business growth in Nigeria. The objectives are: (1) to examine the effects of different loan regime practices in terms of loan size and tenure of small business growth criteria; (2) to examine the ability of Microfinance banks (MFBs), given its loan size and rates of interests charged, toward transforming micro- businesses to formal small scale enterprises. We employed panel data and multiple regression analysis to analyze a survey of 502 randomly selected enterprises finances by microfinance banks in Nigeria. The research finds strong evidence that access to microfinance loan does not enhance the growth of micro and small enterprises in Nigeria. However, other characteristics such as business size and business location, are found to have positive effect on enterprises growth. The research therefore recommends recapitalization of the Microfinance banks to enhance their capacity to support the growth and expansion of micro businesses to small enterprise in the country.

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