IMPACT OF MONETARY POLICY ON FINANCING OF SMALL-SCALE ENTERPRISES IN NIGERIA

NWANI ONYEMAECHI CHRISTOPHER; ADUKWU PRECIOUS

doi:10.57233/gujaf.v7i1.20

Authors

NWANI, ONYEMAECHI CHRISTOPHER, Ph.D Federal University, Wukari, Nigeria
ADUKWU, PRECIOUS Federal University, Wukari, Nigeria

DOI:

https://doi.org/10.57233/gujaf.v7i1.20

Keywords:

Monetary Policy, small scale enterprises, credit to small scale enterprises

Abstract

This study examined the impact of monetary policy on financing of small-scale enterprises in Nigeria from 1999 to 2024. The specific objectives were to ascertain the impact of monetary policy rate, liquidity ratio, cash reserve ratio, and loan-to-deposit ratio on financing of small-scale enterprises in Nigeria. The study adopted ex-post facto research design with yearly time series data obtained from Central Bank of Nigeria (CBN) Statistical Bulletin and Monetary Policy Committee communiqué of the CBN. The dependent variable for this study was financing of small-scale enterprises, proxy by bank credit to small scale enterprises. A computer based multiple regression equation using Autoregressive Distributed Lag (ARDL) method of estimation was employed. The findings from the study revealed that monetary policy rate and loan-to-deposit ratio has positive and negative impact respectively on financing of small-scale enterprises in Nigeria but not statistically significant while liquidity ratio has negative but not significant impact on financing of small-scale enterprises in Nigeria over the time studied. Also, cash reserve ratio has negative significant impact on financing of small-scale enterprises in Nigeria over the time studied. The study therefore concludes that monetary policy, particularly cash reserve ratio considerably affects financing of small-scale enterprises in Nigeria such that lowering the ratio drives up credit to small scale businesses in Nigeria. Consequently, the study recommended among others that banks with liquidity can be incentivized to finance small businesses through the provision of partial credit guarantees from government agencies such as Bank of Industry while monetary authorities should ensure that banks rigorously adhere to the prescribed loan-to-deposit ratio and also the percentage of total credit that banks must provide to small-scale firms, with stricter penalties for non-compliance, such as forfeiting unused funds to the CBN.