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Abstract
This study investigates the effect of SME’s on financial sector in Nigeria. The main objective of the study is to investigate the relationship between SME’s and financial sector in Nigeria. The Ordinary Least Squares method was adopted to analyze the relationship between SME’s output, commercial bank credit to small businesses, credit to private sector, aggregate savings, money supply and lending interest rate and financial sector and secondary data which spans from 1981 to 2022 from the Central Bank of Nigeria statistical bulletin for financial sector was extracted and utilized for empirical analysis. Some forms of pre-estimation tests were carried out in order to obtain satisfactory results. Such tests are the unit root test: test for stationarity, the co-integration test which tests for long run equilibrium relation between the variables of interest of this study.
Both the long run and short run estimates (using error correction model), were obtained and interpretations were given according to the results obtained. From the long run result obtained it can be seen that some of the variables met with the apriori expectation as specified in chapter 3. The result shows: SME output positively impacts on financial institution however it is not significant at 5% level of significance, commercial bank credit to small businesses is negatively related to financial institutions, credit to private sector has a positive and significant impact on financial institutions, aggregate savings has a positive and significant impact on financial institution, money supply impacts positively an significantly on financial institutions and lending interest rate exhibited an inverse relationship with financial institutions in Nigeria. The study recommended that It is necessary for the financial sector to mobilize savings from small businesses so as to increase their level of credit availability and expansion in services rendered and the government can adopt expansionary monetary policy which will lead to increase in the cash balance. This can be done by decreasing the lending interest rate which will boost the level of investment, income and savings.
