ASSESSING THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND FINANCIAL PERFORMANCE OF MSMEs IN NIGERIA

Abstract

Micro, Small, and Medium Enterprises (MSMEs) form the backbone of Nigeria’s economy, playing a vital role in creating jobs, distributing income, and fostering grassroots industrialization. Despite their significance, many MSMEs face growth limitations due to restricted access to formal financial services. This study examines how the financial performance of MSMEs is influenced by financial inclusion, considering factors such as current literacy levels and the availability and accessibility of financial services. It employs a cross-sectional survey design and a linear regression model as its estimation technique. The results show a positive and statistically significant link between financial inclusion and the financial performance of MSMEs in Nigeria. Access to affordable credit and the effective use of digital financial services have the most significant impact on profitability and revenue growth. However, structural challenges like high interest rates, collateral requirements, low financial literacy, and infrastructural issues weaken this relationship. The study also finds that financial literacy enhances the benefits of financial inclusion by improving decision-making and resource management. It concludes that financial inclusion is a key driver of MSME financial performance, but its effectiveness depends on supportive institutional and regulatory frameworks. The study recommends policies to expand access to affordable finance, improve digital financial infrastructure, and promote targeted financial education programs for MSME operators.