Preprint Article Version 1 This version is not peer-reviewed

Financing MSMEs (Micro Small and Medium Enterprises) in Nigeria: Implications of Transaction Costs

Version 1 : Received: 23 October 2018 / Approved: 24 October 2018 / Online: 24 October 2018 (12:05:42 CEST)

How to cite: Ajuwon, O.; Ikhide, S.; Akotey, J. Financing MSMEs (Micro Small and Medium Enterprises) in Nigeria: Implications of Transaction Costs. Preprints 2018, 2018100576 (doi: 10.20944/preprints201810.0576.v1). Ajuwon, O.; Ikhide, S.; Akotey, J. Financing MSMEs (Micro Small and Medium Enterprises) in Nigeria: Implications of Transaction Costs. Preprints 2018, 2018100576 (doi: 10.20944/preprints201810.0576.v1).

Abstract

This study investigated the roles of transactions cost in MSMEs access to finance. This was done by investigating the impact of transactions cost on access to credit from both MSMEs and financial institutions (commercial banks and microfinance banks). From the MSMEs’ side, borrowing experience, decision lag, firm size and borrowers’ distance to the loan office were investigated. On the financial institution’s side, the costs of information gathering, loan administration, monitoring and loan enforcement were investigated. We used the questionnaire survey method, in-depth interviews and case studies, as well as the annual financial statements of the banks. We identified interest rate and collateral value as constraints to access to finance for MSMEs. We also found financial institutions’ attitude to MSMEs access to credit was not friendly. Financial institutions need to do more to bring down transaction cost of lending. This hopefully can be achieved by investing more in agent banking which would lower operating costs, as well as spreading risk, and ultimately increase credit intermediation to small businesses.

Subject Areas

Micro Small and Medium Enterprises, Transaction costs, Small businesses, Credit accessibility

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