Micro, Small and Medium Enterprise Financing and Poverty Gap Index: Nigerian Experience

Poverty remains a pressing global issue, particularly prevalent in developing countries where it is often exacerbated by inefficient resource allocation and management. Prior empirical literature often treats MSME financing as a homogeneous variable. This study fills a gap by disaggregating credit into three distinct sources deposit money banks, development banks, and microfinance institutions thereby offering a nuanced understanding of their individual and collective effects on poverty reduction. This study investigated the impact of financing for Micro, Small, and Medium Enterprises (MSMEs) on the Poverty Gap Index in Nigeria. Utilizing annual time series data spanning 32 years (1992–2023), the study adopted a purposive sampling approach for period selection. Data were sourced from the Central Bank of Nigeria Statistical Bulletin, the World Development Indicators, and the World Income Inequality Database. The credibility and dependability of the data were assured by the statutory audit oversight of the Auditor General of the Federation and the methodological rigor of international data sources. The poverty gap index served as the dependent variable, while MSME financing was represented by three core credit sources: loans from deposit money banks, development banks, and microfinance banks. Empirical findings revealed that MSME financing significantly influenced the poverty gap index in Nigeria. Based on these findings, the study advocates for the expansion of sustainable credit schemes tailored to MSMEs as a viable strategy for narrowing the poverty gap in Nigeria.