Microfinance Bank Operations and Performance of Small and Medium Enterprises (SMEs) in Ibadan, Oyo State

This study explores the role of microfinance bank (MFB) operations in supporting small and
medium-sized enterprises (SMEs) in Ibadan, Oyo State, Nigeria. While MFBs are vital for
bridging the financing gap and fostering local entrepreneurship, challenges such as high interest
rates, information asymmetry, and inadequate business support services hinder SME
performance in the region. Guided by the Resource-Based View (RBV) theory, the study
adopts a quantitative approach, surveying 380 SMEs out of 31,739 registered businesses in the
state using structured questionnaires. Stratified and simple random sampling ensured the
sample's representativeness. The survey instrument was validated through pre-testing and
principal component analysis, confirming convergent validity and strong internal consistency,
with Cronbach’s alpha coefficients above 0.7 for most variables. Data analysis was conducted
with SPSS version 25, using descriptive statistics and multiple regression analysis to examine
the impact of loan repayment terms, loan accessibility, and interest rates on SME performance.
Results revealed a moderate positive relationship between microfinance bank operations and
SME performance (R = 0.483), accounting for 23.3% of the variance (R² = 0.233). The
regression model was statistically significant (F(3,364) = 128.654, p = 0.000). Of the variables
studied, only loan accessibility significantly influenced SME performance (t = 7.205, p =
0.000), whereas loan repayment terms and interest rates did not. The study concludes that
improving loan accessibility is crucial for SME growth and recommends reducing collateral
requirements, simplifying loan processes, and revising repayment terms to support financial
health in Ibadan’s SME sector. Recommendations include simplifying loan application
processes, reducing collateral requirements, and revising repayment terms to support the
financial health of SMEs.