Implication of Collateral in MSME (Micro, Small and Medium Enterprise)

Financing in Nigeria

Abstract

This study explores the effects of collateral on MSMEs’ access to credit from the financial institutions (Commercial Banks and Microfinance Bank), using a questionnaire survey method and in-depth interview. The survey revealed that collateral was a huge constraint to accessing finance with 45% (192 out of 418) of the firms surveyed revealing that collateral pledging has denied them access to debt financing from the banking institutions. In the light of this finding, it is therefore imperative to give attention to the alternative to collateral such as leasing, invoice financing and factoring, agent banking, relationship-based lending, group 
lending, credit guarantee scheme lending and cash-flow lending as it would go a long way to reduce the financing problem for MSMEs. It is important to mention that this study is part of a PhD thesis at the University of Stellenbosch, South Africa, and it is online.