Micro, small and medium enterprises (MSME) financing and inclusive growth in Nigeria: an ARDL bounds testing approach

Abstract

This study examines the effect of Micro, Small, and Medium Enterprise (MSME) development on inclusive growth using quarterly time-series data from 2010 to 2024, sourced from the Central Bank of Nigeria Statistical Bulletin, the National Bureau of Statistics (NBS), and the World Bank Global Findex. Inclusive growth is proxied by financial inclusion, operationalized as a composite index constructed from five indicators: account ownership, deposit money bank (DMB) branches, automated teller machines (ATMs), point-of-sale (POS) terminals, and mobile/digital registered accounts. The composite index was derived through Principal Component Analysis (PCA) to reduce dimensionality and address inter-indicator multicollinearity. The Autoregressive Distributed Lag (ARDL) bounds testing framework was employed to estimate long-run and short-run dynamics among financial inclusion, MSME credit, private sector credit, interest rate, and inflation. Empirical findings show that MSME credit significantly (p < 0.05) promotes inclusive growth, while private sector credit and inflation exhibit statistically weak effects. These results underscore that expanding targeted MSME financing and improving access to affordable financial services are essential to advancing equitable economic participation in Nigeria.

Keywords