Micro Financing and Economic Development: A Sectorial Microcredit Study from Nigeria

Abstract

This study examined the effect of sectorial microcredit allocation on Nigeria economic development. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 1992-2019. Nigeria per capita income was proxied for dependent variables while microcredit to agricultural sector, mining and querying, manufacturing sector, real estate and construction and transport and communication were proxies for independent variables. The study employed descriptive statistics and multiple regression models to estimate the relationship that exists between sectorial microcredit allocation and economic development. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The study found that 59 percent variation on Nigeria per capita income can be traced to variation on microcredit allocation to the various sectors of the economy. microcredit to transport and communication have positive and no significant effect, microcredit to real estate and construction have negative but no significant effect, microcredit to manufacturing sector have negative and significant, microcredit to mining and querying have positive and significant effect while microcredit to agricultural sector have positive and significant effect on Nigeria per capita income. From the findings, the researcher concludes that microcredit allocation have significant effect on Nigeria economic development. It recommends that for re-introduction of the abolished compulsory sectorial lending operation and sectorial reforms to attract microcredit. Microfinance banks should be encouraged to increase their branches so as to reach out and provide loans to more clients in order to achieve greater investment purposes. Government should further encourage the activities of micro finance banks by creating enabling environment so that they can further support the growth of business enterprises in Nigeria.