A CAUSAL LINK BETWEEN DIGITAL FINANCIAL SERVICES AND SMALL AND MEDIUM SCALE ENTERPRISES’ FINANCING IN NIGERIA: VERDICT FROM TODA-YAMAMOTO PROCEDURE

Abstract

Business thrives on finance and as such, digital finance services should drive business enterprises’ financing. In a bid to verify the preceding assertion, this study was conducted to determine causality between digital financial services and small and medium scale enterprises’ financing in Nigeria for the period 2009Q1 to 2021Q4. Digital financial services considered in this study are mobile pay, Point of Sales (POS), web-pay transactions and Automated Teller Machine (ATM) transactions while SMEs’ financing was measured using credit allocation to small and medium scale enterprises (SMEs) by Deposit Money Banks (DMBs) in Nigeria. Toda-Yamamoto causality test was performed on the time series data obtained from Central Bank of Nigeria’s statistical bulletin. Empirically, the study found no causality between from digital financial services and DMBs’ credit to SMEs in Nigeria. The study concluded that
digital financial services are not drivers of SMEs’ financing in Nigeria. This implies that to improve SMEs’ financing in Nigeria, instruments of digital financial services other than ATM, POS, web-pay, and mobile-pay transactions may be considered. There is therefore the need to embrace digital financial innovations by both the operators and financiers of SMEs, as well as the consumers of SMEs’ products and services. Also, government policies and institutional framework needed to ensure financing of SMEs through digital financial innovations should be encouraged/strengthened in Nigeria.