How the Financial Liberalization Improved the Flow of External Finance for SMEs in Nigeria

This study examines how financial liberalization has improved access to external finance for small and medium scale enterprises (SMEs) in Nigeria. We used new coding rule to measure the extent of financial sector liberalization in Nigeria. Using principal component analysis (PCA), correlation among the financial liberalization components was interacted with the ratio of SMEs credit to GDP (PGDP) in order to measure the flow of credit to SMEs during the preliberalization and post-liberalization periods. The result from the PCA shows that the flow of credit to SMEs is mixed. The contributions of the first component are negative, followed by positive contributions in the next three components, thereafter showing positive and negative oscillations in the remaining components. An economic interpretation of the results vis-à-vis ratio of SMEs to GDP is that the contributions of behavior of credit to the principal components have been relatively unstable.