The Impact of Real Sectors’ Microfinancing on Economic Growth in Nigeria: 1992-2016

Abstract

This paper examines the impact of real sectors’ microfinancing on economic growth in Nigeria. The selected real sectors are: Agriculture and Forestry, Mining and Quarrying, Manufacturing and Food Processing, Real Estate and Construction and Transport and Commerce. Time series data and econometrics tools were used for the test of stationarity, co-integration and causality of the economic variables. The Ordinary Least Squares (OLS) and Error Correction Model (ECM) were used to estimate the long-run and short-run impact respectively. The results show strong and positive relationships between the real sectors’ microfinancing and economic growth in Nigeria both at the long-run and short-run. Five out of the six economic variables were positively related to Real Gross Domestic Product in Nigeria. Loans to Mining and Quarrying (LMQ) and Loan to Transport and Commerce (LTRC) have positive and significant impact on economic growth in Nigeria. Though Loans to Agriculture and Forestry (LAF), Loans to the Real Estate and Construction (LREC) as well as Interest Rate have positive impact on economic growth, they were statistically insignificant in explaining the variations in Real Gross Domestic Product in Nigeria while Loans to Manufacturing and Food Processing (LMFP) has negative and insignificant impact on Real Gross Domestic Product in Nigeria. From the results, the insignificant impact of Loan to Agriculture and Forestry (LAF) and the negative impact of Loan to Manufacturing and Food Processing (LMFP) are challenges to economic growth. This may be due to the facts that loans meant for Agriculture, Forestry, Manufacturing and Food Processing are used for importation thereby creating job for other countries and compounding unemployment problem in Nigeria. Therefore, the paper recommends that monitory and evaluation mechanism should be adopted by the microfinance institutions and government financial agencies to control the diversion of loans meant for the real sectors in order to facilities sustainable economic growth in Nigeria.