Entrepreneurial Growth under Financial Inclusion: A Firm-Level Analysis of Microenterprises in Abeokuta Metropolis
DOI:
https://doi.org/10.54536/ajfti.v3i1.4584Keywords:
2SLS, Employment Growth, Financial Inclusion, Instrumental Variable, Micro-FirmAbstract
This study applies the Two-Stage Least Squares (2SLS) estimator to analyse the impact of financial inclusion on micro-firms’ employment growth in the Abeokuta metropolis. A survey research design was employed to randomly select 384 owners and managers of microenterprises in the study area. The traditional Ordinary Least Squares (OLS) produces underestimated and overestimated impacts of financial inclusion indicators on firm employment growth due to endogeneity issues with the predictors. However, the observed 2SLS estimation outcomes show that when the financial inclusion of a microenterprise is instrumented with education level, efficient and consistent estimates are obtained. From the 2SLS analysis, a one percent increase in access to and availability of the formal financial system leads to a corresponding 1.13 percent and 1.76 percent decrease in the employment growth of the sampled firms at two significance levels (5% and 10%), respectively. The study then affirms that high access to and availability of formal financial products and services significantly slow down employment growth among microenterprises in the study area. These results imply that increasing levels of financial inclusion are not palatable for micro-firms in the study area due to the significant financial challenges they face. It is recommended that bespoke formal financial products and services be provided for micro-firms, including addressing the daunting financial challenges these firms face.
References
African Development Bank. (2019). Catalysing digital financial inclusion across Africa: Annual Report 2019-2020. Abidjan: African Development Bank
Agbim, K. C. (2020). Government policy, financial inclusion and performance of SMEs in South Eastern Nigeria. International Entrepreneurship Review, 6(2), 69-82
Amidzic, G., Massara, A., & Mialou, A. (2014). Assessing countries’ financial inclusion standing: A new composite index. IMF Working Paper WP/14/36
Anastesia, A. C., Chijindu, E. H., & Steve, E. E. (2020). Effect of financial inclusion on entrepreneurial growth in retail and wholesale sub-sectors: Evidence from Nigeria. The Business and Management Review, 11(1).
Anga, R. A., Sakanko, M. A., & Adamu, A. M. (2021). Modelling the effect of financial inclusion on SMEs in Nigeria. Ajec, 2(1), 33–43
Anisiuba, C. A., Ezeaku, H. C., & Emengini, E. S. (2020). Effect of financial inclusion on entrepreneurial growth in retail and wholesale sub-sectors: Evidence from Nigeria. The Business and Management Review, 11(1), 295– 304.
Anthanasius Fomum, T., & Pieter, O. (2023). Financial inclusion and performance of MSMEs in Eswatini.International Journal of Social Economics, 50(11), 1551–1567.
Aterido, R., Hallward-Driemeier, M., & Pages, C. (2011). Big constraints to small firms’ growth? Business environment and employment growth across firms. Econ. Dev. Cultur. Change, 59(3), 609-647
Banco Central do Brasil. (2011). Relatório de Inclusão. Brasilia, Brazil.
Bricknell, A., & Kertay, P. (2024). Impact of Financial Inclusion on Entrepreneurship in the case of South Africa. Bachelor Thesis. Jonkoping University: Jonkoping International Business School.
Camara, N., & Tuesta, D. (2014). Measuring financial inclusion: A multidimensional index. Working Paper from BBVA Bank, Economic Research Department, No 1426.
Chandio A. A., &.Jiang, Y. (2018). Determinants of credit constraints: Evidence from Sindh, Pakistan. Emerging Markets Finance and Trade, 54(15), 3401–3410.
Central Bank of Nigeria. (2012). Measuring Nigerian’s financial inclusion strategy. Abuja: CBN
Chauvet, L., & Jacolin, L. (2017). Financial inclusion, bank concentration, and firm performance. World Development, 97, 1–13.
Demirgüç-Kunt, A., Klapper, L., & Singer, D. (2017). Financial inclusion and inclusive growth: A review of recent empirical evidence. Policy Research Working Paper 8040, World Bank, Washington, DC.
Dinh, H. T., Mavridis, D. A., & Nguyen, N. B. (2012). The binding constraint on the growth of firms in developing countries. World Bank, Washington D. C.
Fowowe, B. (2017). Access to finance and firm performance: Evidence from African countries. Review of Development Finance 7, 6–17.
Global Findex. (2021). The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19. World Bank: Washington D. C.
Ibekwe A. O., & Ogbonnia A. A., & Ibekwe A. I. (2021). Financial intermediation and economic growth in Nigeria: A Disaggregated Analysis. JETMASE, 3(1), 90-104.
International Monetary Fund. (2020). Measuring Financial Access: 10 Years of the IMF Financial Access Survey.Washington, DC: International Monetary Fund.
Krejcie, R. V., & Morgan, D. W. (1970). Determining Sample Size for Research Activities. Educational and Psychological Measurement, 30, 607-610
Mayorga, D. F. S., Melgarejo, Z., & Oliveros, D. (2024). Financial inclusion and its relationship with business growth of microenterprises in the manufacturing industry in Bogota during 2012–2016. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2338226
Mckinnon, R. I. (1973). Money, capital and banking. Washington D. C.: Brooklyn Institution
Nizam, R., AbdulKarim, Z., Sarmidi, T., & AbdulRahman, A. (2020). Financial inclusion and firms growth in manufacturing sector: A threshold regression analysis in selected Asian countries. Economies, 8(80), 112.
Ogidi, E. J., & Pam, P. (2021). Financial inclusion and growth of small and medium enterprises in plateau state. African Journal of Business and Economic Development, 1(8).
Omar, M. A., & Inaba, K. (2020) Does Financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Journal of Economic Structures, 9(37), 1-25
Osabohien, R., Ufua, D., Moses, C. L., & Osabuohien, E. (2020c) Accountability in Agricultural Governance and Food Security in Nigeria. Brazilian Journal of Food Technology 23, e2019054. https://doi.org/10.1590/19816723.08919
Park, C.-Y., & Mercado Jr., R. (2018b). Financial Inclusion, Poverty, and Income Inequality. The Singapore Economic Review, 63, 185-206.
Sarma, M. (2008). Index of financial inclusion. Working Paper No. 215
Sarma, M. (2010). Index of Financial Inclusion. CITD Discussion Paper, 10–05.
Sarma, M., & Pais, J. (2011) Financial Inclusion and Development. Journal of International Development, 23, 613-625. https://doi.org/10.1002/jid.1698
Sarma, M. (2012). Index of Financial Inclusion – A measure of financial sector inclusiveness (No. 1207). Hochschule fuer Technik undWirtschaft, Berlin.
Schumpeter, J. A. (1911). Theory of economic development. Cambridge: Harvard University Press.
Shaw, E. (1973). Financial deepening in economic development. New York: Oxford University Press.
Triki, T., & Faye, I. (2013). Financial inclusion in Africa. Abidjan: African Development Bank
World Bank. (2014). Building Integrated Markets within the East African Community: EAC Opportunities in Public Private Partnership Approaches to the Region’s Infrastructure Needs. Washington, D.C.: International Bank for Reconstruction and Development/ World Bank.
World Bank. (2020). Global Financial Development Report 2019/2020: Bank Regulation and Supervision a Decade after the Global Financial Crisis. Washington, DC: World Bank.
Zreik, M., Marzuki, S. Z. S., & Iqbal, B. A. (2023). Deepening Financial Inclusion through Digitization: A Case Study of Microfinance in China. ASEAN Entrepreneurship Journal (AEJ), 9(2), 9-21
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Kamilu A. Saka, Rasaki A, Raji
This work is licensed under a Creative Commons Attribution 4.0 International License.
