ASHOGBON, Mustapha Babatunde Ademola
Department of Banking and Finance
Lagos State University of Science and Technology, Ikorodu
ashogbonhtkb@yahoo.com
ONYENEBO, Innocent Ndubisi
Department of General Studies, SPTS,
Lagos State University of Science and Technology,, Ikorodu
onyeneboinnocent@yahoo.com
OREFUWA, Festus Idowu
Department of Banking and Finance
Lagos State University of Science and Technology, Ikorodu
orefuwafestus@gmail.com
ABSTRACT
This study sought to evaluate the effect of interest rate on the growth of SMEs in Nigeria, using
annual time series data from 2000-2019. The data for the study was sourced from the World
Development Indicator (WDI) and the Central Bank of Nigeria (CBN) statistical bulletin. The
data collected were Small and medium scale enterprises GDP (SMEG) which is the dependent
variable while commercial bank total credit to private sector, commercial bank loans to SMEs,
percentage of commercial bank loans to SMEs, Monetary Policy Rate (MPR), inflation,
exchange rate, reserve requirement and lending rates of commercial banks to SMEs are the
independent variables. Descriptive and inferential statistics were employed, the Autoregressive
Distribution Lag (ARDL) were used to test the long run relationship of the variables. The results
show that LRCM have a negative effect on SMEGDP such that if the LRCM is increased by 1%,
SMEGDP declines by 1.6%. On the other hand, an increase in RR by 1% leads to an increase in
SMEGDP by 0.005%. The study recommends that MPR and INFR should be reduced to bring
about a reduction in LRCM that will improve financial capacity of SMEs, thus lead to an
increase in the contribution of SMEs to nation’s GDP.
Keyword: SME, Interest rate, Inflation, Exchange Rate, Reserve Requirement, Nigeria