Credit access and the performance of non-farm household enterprises: evidence from Nigerian data

Abstract

Inadequate availability of credit access is one of the major problems facing household enterprises in developing countries, especially Nigeria. Despite various government interventions aimed at solving this problem, it is still perceived that credit access is a serious challenge facing these enterprises in Nigeria. Hence, this study examined the impact of credit access on the performance of total stock of input supply of non-farm household enterprises in Nigeria. Unlike the bulk of existing studies, we employed multinomial logit regression and used the 2018 General Household Survey data. The stylised facts from the data revealed that non-farm household enterprises in urban areas have greater access to credit than their counterparts in rural areas. Interestingly, the findings indicate that even though a large chunk of the non-farm household enterprises in our sample face the challenge of access to credit, credit access nonetheless impacts significantly and positively on total stock of input supply of non-farm household enterprise in Nigeria. Among others, we recommended that credits to non-farm household enterprises should be adequately monitored not only to enhance the performance of these enterprises but also to ensure that the funds are not diverted to other uses.

Access to Credit and Physical Capital Stock: A Study of Non-Farm Household Enterprises in Nigeria

“…These findings are interesting because these two factors would likely worsen in the aftermath of the ongoing Covid-19 pandemic. In Nigeria, Ojonta and Ogbuabor (2021) demonstrated that the pandemic has severely impacted on households and businesses. The evidence that has emerged from this study suggests that for NHEs to contribute towards growth and development in Nigeria on a sustainable basis in the post Covid-19 era, there is a need for government to frontally address the challenge of access to credit facing these enterprises.…”

“…These studies generally established that access to credit impacts positively and significantly on the performance of enterprises. Some studies (e.g., Lam et al, 2019;Jimi et al, 2019) found that access to credit is an important driver of agricultural productivity, while others (Ojonta and Ogbuabor, 2021;Nwosu et al, 2018) showed that credit access enhances labour allocation patterns, total factor productivity, technology adoption, and business efficiency.…”

“…In Nigeria, studies (e.g., Nwosu and Orji, 2016;Nwosu et al, 2020) found that access to credit enhances agricultural yield and farm production of enterprises, while other studies (e.g., Adegbite, 2009;Rahji and Fakayode, 2009) found that credit access significantly improves agricultural productivity. Studies have also shown that access to credit impacts positively and significantly on the performance of enterprises (Nwosu and Orji, 2016;Ojonta and Ogbuabor, 2021). Overall, the different aspects of the empirical literature on the relationship between access to credit and household enterprises indicate that the impact of credit access on the physical capital stock of NHEs in Nigeria is yet to be investigated.…”

“…For instance, the Community Banking Scheme was launched in 1991 to avail start-up credit to individuals, while the Micro, Small and Medium Enterprises Development Fund of the Central Bank of Nigeria was launched in 2013 to make credit available to smallholder enterprises like artisans and cottage industries . Other government schemes include Paylater, Renmoney, Page Financials, FINT Loan, Kwikmoney and Zedvance (Ojonta and Ogbuabor, 2021;Nwosu et al, 2018). Programmes implemented by the current government include: the Government Enterprise and Empowerment Programme, which was launched in 2016 to grant interest and collateral free credit to traders and artisans (Trader-moni), market women (Market-moni), and farmers (Farmer-moni); the disbursement of US$1.3 billion in medium and long-term credit to business enterprises owned by youths and women since 2017 by the new Development Bank of Nigeria; the disbursement of over N400 billion in credit to micro, small, medium and large businesses since 2016 by the Bank of Industry; the US$20 million Young Entrepreneurs Fund; and the N5 billion Artisanal Miners Fund created by the Federal Ministry of Mines and Solid Minerals Development.…”

“…Programmes implemented by the current government include: the Government Enterprise and Empowerment Programme, which was launched in 2016 to grant interest and collateral free credit to traders and artisans (Trader-moni), market women (Market-moni), and farmers (Farmer-moni); the disbursement of US$1.3 billion in medium and long-term credit to business enterprises owned by youths and women since 2017 by the new Development Bank of Nigeria; the disbursement of over N400 billion in credit to micro, small, medium and large businesses since 2016 by the Bank of Industry; the US$20 million Young Entrepreneurs Fund; and the N5 billion Artisanal Miners Fund created by the Federal Ministry of Mines and Solid Minerals Development. However, despite these government efforts, the challenge of access to credit by NHEs in Nigeria has persisted (Ojonta and Ogbuabor, 2021).…”