The Effect of Macroeconomic Variables on SME Credit Risk in Nigeria
Abstract
This study examines the effect of macroeconomic variables on SME credit in Nigeria from 2010- 2024. Using secondary data from the Central Bank of Nigeria, National Bureau of Statistics, and World Bank, the research employs unit root tests, cointegration analysis, Vector Error Correction Model , and Granger causality tests to analyze relationships between interest rates, inflation, exchange rates, government policies, and SME credit accessibility. Unit root tests (Augmented Dickey-Fuller) show variables are stationary at first difference: SME Credit (ADF = -3.521, p = 0.012), Interest Rate (ADF = -2.943, p = 0.045), Inflation (ADF = -3.278, p = 0.021). Cointegration tests (Johansen) indicate long-run relationships (Trace Statistic = 69.521, p = 0.001). VECM results show significant negative effects of interest rates (-0.521, t = -3.421), inflation (-0.315, t = -2.601), and exchange rates (-0.412, t = -2.841) on SME credit, with a positive effect of government policy (0.235, t = 2.765). Granger causality tests indicate unidirectional causality from macroeconomic variables to SME credit (Interest Rate SME Credit: Chi-sq = 5.421, p = 0.020). The findings align with the Loanable Funds Theory (Hicks, 1937) and Credit Rationing theory (Stiglitz & Weiss, 1981), indicating that macroeconomic stability is crucial for SME credit access in Nigeria. Results are consistent with Adebayo (2019) and Khan & Sattar (2019). Recommendations include that Policymakers should manage interest rates and inflation to enhance SME credit access. Government policies should target SME-specific credit support. SMEs should hedge against exchange rate risks. Sector- specific SME responses to macroeconomic variables. Impact of fintech on SME credit accessibility. Policy Implications suggest that monetary policy should consider SME credit impacts and target credit policies that can mitigate macroeconomic volatility effects on SMEs.
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