THE ROLE OF FINANCIAL INSTITUTIONS IN THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES (SME)

ABSTRACT Small and Medium Enterprises (SMEs) are pivotal to economic growth and development, particularly in developing nations like Nigeria. They contribute significantly to employment generation, poverty reduction, and the overall diversification of the economy. Despite their importance, SMEs in Nigeria face numerous challenges, with access to finance being one of the most critical barriers to their growth and sustainability. Financial institutions, including banks and microfinance institutions, are expected to play a crucial role in providing the necessary capital for SMEs to thrive. However, many SMEs struggle to secure financing due to stringent lending conditions, high-interest rates, and the requirement for substantial collateral. This study investigates the role of financial institutions in the development of SMEs in Mubi metropolis, Adamawa State, Nigeria. It examines the extent to which financial institutions support SMEs, identifies the challenges SMEs face in accessing finance, and evaluates the impact of Central Bank of Nigeria (CBN) policies on the ability of financial institutions to provide credit to SMEs. The study employs a mixed-methods approach, utilizing both qualitative and quantitative data collected through surveys and interviews with SME operators and financial institution representatives. The findings reveal that while financial institutions do provide some level of support to SMEs, significant challenges remain, particularly in accessing affordable credit. High interest rates, inadequate collateral, and complex application processes are major obstacles. Additionally, the study finds that CBN policies, though well-intentioned, have not fully achieved their objectives in enhancing access to finance for SMEs due to implementation gaps and the reluctance of financial institutions to lend to smaller enterprises.