INFORMAL FINANCING AND THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES (SMEs)

Abstract

Small and Medium Scale Enterprises are regarded as the promoters of nations’ economic growth. For SMEs to make a meaningful contribution to economic growth, finance is a crucial factor. The difficulty in accessing formal finance led SMEs operators to source for finance in informal markets. This study theoretically provided recent information on informal micro credit financing for SMEs and also examined the impact of micro credit financing on the performance of SMEs. In order to gain insight into various ways in which different forms of informal micro credit financing affect the performance of SMEs, the study reviewed various published research studies on the problem statement. Financial Liberalization Theory was used to support the study, based on the role of informal credit financing in liberating SMEs from financial constrain and contribution towards their performance. The findings from the content analysis of the reviewed literature provided an exhaustive and precise discourse of the effect that informal financing had on the performance of SMEs. The study concluded that informal micro credit financing contribute immensely to the performance of SMEs. The study recommends that SMEs should explore more on the use of informal micro credit financing sources such as personal savings and cooperative societies. Formation of more cooperative societies should be encouraged by government. Bank interest rate on loans should be reduced by government, especially, to SMEs operators.