Impact Of Microfinance Bank Operations on Small and Medium-Scale Enterprise Performance in Nigeria: Var Evidence

This study empirically investigated the nexus between microfinance banking activities and the performance of small and medium-scale enterprises (SMEs) in Nigeria, which is based on the Resource-Based View and Financial Intermediation theories, driven by five objectives: to examine the impact of microfinance bank loans, deposits, assets, and lending rates on SME performance, and to examine the overall interrelationship among these variables. A quantitative research design using secondary data obtained from microfinance bank records and SME performance indicators, and the Vector Autoregression (VAR) model to analyse the dynamic interactions between the variables, with impulse response functions to trace the effects of shocks over a ten-period horizon was used. The findings indicate that microfinance loans have a positive, but statistically insignificant impact on SME performance, while deposits have a significant negative impact, suggesting inefficiencies in fund mobilization and allocation, and bank assets have a positive and significant impact, indicating that they are central to building credit capacity, while lending rates show a positive but insignificant effect, suggesting that cost may not be as significant as credit accessibility and terms. The impulse response analysis also reveals different short- and medium-term effects of the microfinance variables on SMEs, with loans and assets providing stabilising benefits, while deposits and lending rates yield mixed responses. Overall, results show that microfinance institutions are important players in the SME development and that the combined management of loans, deposits, assets, and lending policies is important.