Barriers to SME lending in Nigeria : finding context-specific solutions

• Main Author: Emuwa, A.
• Published: Nottingham Trent University 2015
• Subjects: 658.02
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.698062

This research seeks to deepen the understanding of the causes of obstacles to bank lending to the smaller businesses in Nigeria, and to contribute to the literature aimed at finding solutions to this persistent problem. Smaller firms report access to finance as a major obstacle to their growth. With bank credit contributing up to 50% of their external financing, the research focuses on banking institutions. Perceived as a credit market failure, the economics literature ascribes these credit shortages to problems of informational asymmetry and institutional failure, and in turn, these two issues have dominated the applied research on the subject. This thesis contends that small business credit shortage is a complex phenomenon which needs to be understood within the context of the specific operating environment. This research is a qualitative case study of a commercial bank in Nigeria that newly entered into the SME credit market using semi-structured interviews and documentary data to explore the obstacles to SME lending and possible solutions. Based on a thematic analysis of the data, the research found that a well-regulated finance industry within the growing economy stimulated opportunities for lending to SMEs. Attracted by these perceived lucrative opportunities, the commercial bank established a successful lending programme developing proprietary credit scoring techniques and innovative devices to overcome institutional barriers and informational obstacles. To encourage more banks to increase lending to the sector, the research concluded with proposals towards removing impediments to SME business lending. These included improving banks' knowledge of specialised techniques to lend to SMEs, business friendly policies to improve the business environment for smaller businesses to reduce their risk of failure, lower interest rates on loans and capacity building to improve management skills of business owners.