Chapter five

5.1.summary of findings

As indicated in the earlier chapters, it marked a deviation from previous SME studies where financial
system variables are pulled together without distinguishing which one measure market efficiency or
market depth, especially within the context of an emerging economy like Nigeria. The segmentation is
necessary because it allows the researcher to understand which of these two pathways has a more
significant impact on SMEs’ access to financing. According to Kaya (2020), if the financial system is
efficient, variables such as interest rate spread, bank overhead cost, and bank concentration are key
variables to consider

The first important finding of the research is that interest rate spread has a significant direct impact
on SME financing, as well as indirectly via the current and savings account balances (CASA) of the FIs.
The study established that interest rate spread plays a significant role in determining the current and
savings account balances of the banks and this has significant implications on the availability of funds
to the SME sector. This finding joins other empirical works in the literature to underscore the
importance of interest rate as a key variable in the financial system of any country that significantly
influences SME access to financing (Kisseih, 2017; Yang & Yan, 2020).

The second important factor for SME access to financing is bank overhead cost. It is found for Nigerian
banks that the bank overhead cost does not influence SME access to financing but affects the current
and savings accounts of the banks significantly. The study by Beck & Cull (2018) shows that bank
overhead costs have a significant impact on SME access to financing. However, it failed to distinguish
between direct and indirect effects. Furthermore, the findings from the extant literature imply that
the bank’s overhead cost has a significant effect on the financial institution's performance and this
relationship affects SME access to financing significantly. This finding here supports the research
results of Ashton and Keasey (2019) who maintained that bank overhead cost might not affect the
SME’s performance because banks are not the only entity that determine the performance of the
SMEs. In the same vein, the access of SMEs to financing is the focus of this study and not performance,
but the same conclusion applies.

The third finding is that the number of bank branches impacts SMEs’ access to financing but does not
significantly influence the current and savings account balance of the banks. It implies that the
number of banks in Nigeria is a strong factor that impacts the SMEs’ access to financing, without
having to seek the support of any mediating factor. However, the result underscores the fact that
bank branches which proxy bank concentration do not have a significant impact on the current and
savings account balances of the financial institutions in Nigeria.

The fourth finding is that credit to the private sector does have a significant impact on SME access to
financing but must be mediated by the current and savings account balance of the FIs. The result
further shows that credit to the private sector has a significant relationship with the performance of
the financial institution, and that is the current and savings account balance of the banks. This
significant relationship is relevant to the availability of SME loans. Credit to the private sector is an
integral variable in the financial system that affects the SMEs’ access to financing, but the findings
have shown that the financial institution has an important role to play before that can happen. The
legal status of the SMEs is one of the main factors that determines their suitability for financing.
According to CBN (2019) more than 60% of the SMEs in Nigeria are not duly registered with the
Corporate Affairs Commission (CAC); hence, they are not recognized under the law as a legal entity.
This is prominent among the sole proprietorship type of business which is the predominant structure
of SMEs. From the conclusion of Ufua, Olujobi, Ogbari, Dada, and Edafe (2020), many SMEs in Nigeria,
mostly the sole proprietorship, fail to separate the business from the business owners in that the bank
account used by their business is their personal account, the business address is their home address,
and many other things that do not distinguish the business from the ownership of the business thus
affecting the legal status of the business. The legal status of the business as a promoter of SMEs’
access to financing is supported by Ndiaye et al. (2018), who claim that the SME with legal status is in
a better situation to raise funds. It is because firms with formal ownerships like private foreign,
private, or public ownership companies have formal registration, indicative of higher performance,
which promotes their ability to access funds.

5.2.Conclusion

It is an accepted fact that the Nigerian financial sector contributes immensely to financial
intermediation considering its critical role in provision of funds to the small scale enterprise in
Nigeria. Though the extent of its contribution to the economy has remained largely
unquantifiable because of the problem of measuring their performances but there is no doubt that
they contribute to the GDP of the Nation. However, the study revealed that financial institutions
have a significant effect on performances of SMEs. This confirms that commercial banks still
remain an important source of finance for SMEs and an avenue through which SMEs can grow.
Nonetheless, the difficulties SMEs often face in accessing these funds include: lack of securable
assets, lack of knowledge by finance providers about the nature of respondents business,
stringent eligibility criteria, lack of knowledge about lending criteria, difficulty in finding out
about available finance, high interest rates on loans and bureaucracy. These really limit SMEs’
ability to access funds for their operations, which can be enhance through self help group
finance, family and friends finance; trade credit finance has a positive influence on the
performance of SMEs while shylock finance sources have a negative influence on the
performance of SMEs.

5.3.Recommendation

Based on the findings and the conclusions made in the course of this study, the following
recommendations were made;

1. SMEs need to put more emphasis on informal form of finance (self help group finance, family and
friends finance and trade credit finance)since the informal finance relies on relationships and reputation
implying that information asymmetries between informal lenders and their borrowers are less acute,
the loan application procedure lighter, and the collateral requirement easier to fulfill. Furthermore,
informal financiers are often better positioned to efficiently monitor and enforce repayment when legal
enforcement is difficult and timeconsuming.

2. Government should consider coming up with Usury laws that set interest rate ceilings to protect the
borrower from exploitation by shylocks. Shylock finance sources need to be avoided by SMEs if possible
since they charge unscrupulous interest rates. Credit from moneylenders is often the most expensive
credit available; hence the demand for it usually comes from persons without any other options.

3. SMEs in bauchi should adopt a capital structure that would allow them to expand their business
activities.

4. There is the need for the government to utilise Informal Financial Institutions in its poverty reduction
programmes, since they have been found to be popular among the people in-terms of poverty reduction

5.4. Limitations of the study

The thesis successfully achieved the pre-stated research aim and objectives, but it is not free from
limitations. The main limitation pertains to the data collection. Of the six geopolitical zones in Nigeria,
three zones – the Northeast, North-Central and South-South were all excluded in the study sampled
SMEs. The exclusion though not premeditated but based on SMEs geodensity and activities in Nigeria.
This might affect generalizability due to uncovered areas.In addition to this limitation, the limited scope
of population and representative sample. Since the population for the survey comprised SMEDAN
registered SMEs, the survey process might yield a different result if both registered and unregistered
SMEs are drawn into the survey. Therefore, it failed to consider the large pool of informal SMEs. Thus,
the sample for data collection may not be the true representation of the SME sector in Nigeria. It implies
that there is probability that the findings drawn from the research may not be applicable for the entire
pool of the SME industry and requires further study. However, due to the likely similarities of SMEs
within a geographical area, like Nigeria, this bias is substantially mitigated (Quartey,Turkson, Abor, &
Iddrisu, 2017).Even though the study collected both qualitative and quantitative data, the survey and
interviews were conducted using online platforms. However, proper measures were taking in the
process that mitigate the deficiencies arising from the use in the format (Evans, &
Mathur,2019).Another important limitation is the publication bias in responses. That is, there may be
some chances that the respondents, after learning about the research, or for lack of understanding or
interpretation of the questions may not provide their true opinions and viewpoints, which affect the
results.

5.5. Suggestion for further study

In conducting this study, the focus has been on the most critical challenge facing SMEs, access to
financing. The obstacles faced by SMEs are multi-dimensional, and a further deep dive into other key
issues faced by SMEs that inhibit them from contributing to the economic development in most
emerging economies, especially in sub-Sahara Africa and other emerging economies, can be explored.
The adoption of credit rationing and channel of transmission theories has opened new opportunities for
the application of multiple theories to analyze and contribute to the body of knowledge in the field of
SME financing and development.

Furthermore, to understand industry-specific problems, the scope of the study can be narrowed, and
future studies can be explored using SME sectorial formation. Also, the current study was performed in
Nigeria, but the problem of access to funding for SMEs is broad and global, thus, similar research can be
performed in other countries. And a geographical comparative analysis of different factors affecting
SMEs access across geography can be conducted to draw a comparison.

Finally, in the theoretical formation, the channel of distribution application of financial structure has two
views, the bank-based view, and the market-based view. This study has extensively explored the bank-
based approach, an in-depth analysis using the market-based view which highlights the importance of
well-functioning markets in promoting economic growth by facilitating risk management and risk issues,
including information asymmetry (Demirgiu-Kunt & Huizinga, 2020; Levine, 2018; OECD, 2019) should
provide an interesting perspective into SMEs’ access to financing