Research Article 44
Journal of Finance & Economics Research - Volume 7, Issue 2 2022
By Abimbola Oluwaseyi Ademola, Adekunle Ismaila Jayeoba
10.20547/jfer2207202
Keywords: Money supply, cash reserve ratio, liquidity ratio, deposit rate, gross domestic product.

Poor funding which incapacitated the Small and Medium Enterprises (SMEs) in Nigeria from assisting in creating employment opportunities motivated this work. This research investigated the effect of monetary policy instruments on SMEs financing by the Deposit Money Banks (DMBs) in Nigeria. It specifically evaluated how monetary policy instruments affect DMBs credit allocation to rural SMEs and also analysed the effect of total money supply on credit allocation to private sector. The study relied on secondary data from the Central Bank of Nigeria's Statistical bulletin and World Bank Financial Indicators with a duration of 30 years (1991- 2020). The data comprised of rural DMBs' Credit to rural SMEs, total credit to private sector, total money supply, liquidity ratio, cash reserve ratio, bank rate, Deposit rate, Inflation rate and Gross Domestic Product. Data was analysed using Auto-Regressive Distributed Lag (ARDL) Bond test approach. The results showed that credit to rural SMEs and its determinants co-moved in the long run significantly; money supply positively and significantly affects private sector in the long run. In contrast, there is no long-term relationship between bank lending to SMEs and their determinants. It is therefore recommended that DMBs should adequately grant credit to rural SMEs customers for productive purposes. Also, monetary policy makers should continue to maintain adequate level of money supply so as to consistently influence credit to private sector positively.

Submission Date: 13 Apr, 2022 Reviews Completed: 26 Jun, 2022
Acceptance Date: 30 Jun, 2022 Publication Date: 7 Jul, 2022