THE EFFECT OF SELECTED MACRO-ECONOMIC VARIABLES ON THE

PERFORMANCE OF SMES IN KEBBI STATE

By

1 Dr ABDULRAHAMAN BALA SANI

Sonyaxle9@gmail.com

2 AJAYI OLUWAFEMI EZEKIEL

Femiajayi57@gmail.com

3. USMAN ABDULSALAM
usmanabdulsalam@gmail.com

1, 2&3 DEPARTMENT OF ACCOUNTING FCULTY OF MANAGEMENT SCIENCE USMANU

DANFODIYO UNIVERSITY SOKOTO

Abstract
This study was carried out to investigate the effect of selected macro-economic variables on the
performance of SMEs in Kebbi state, Nigeria. The research employed a quantitative survey
design. The purpose of the study was to assess effect of interest rate, exchange rate, and inflation
rate on the SMEs financial performance in Kebbi State. Small and medium scale enterprises
(SMES) was seen in the study as indispensable components of natural development in both
developed and developing economies. The research employed purposive sampling technique to
sample one hundred SMEs across all the twenty one local governments of Kebbi state. These
samples were chosen from the statistical bulletin of the Central Bank of Nigeria (2019).
Secondary data extracted from reports of the Central Bank of Nigeria (CBN) statistical bulletin
(2018), Federal Ministry of Finance (2018), and Nigerian National Petroleum Corporation
Annual Statistical Bulletin (2018) was used. The collected data were analysed with Time Series
analysis tool but estimated with Fully Modified Least Square (FMLS) Regression Technique. The
findings of the study revealed that when all the explanatory variables are kept constant, the
output of the SMEs sector in Kebbi State is 3.012. Also, the result showed that exchange rate
significantly has impact on SMEs output in Kebbi State. Its value of the 0.028 implies that while
keeping constant inflation rate and interest rate, a percentage increase in the naira relative to
the US dollar (currency depreciation) brought about 2.8% increase in the output of SMEs in
Kebbi State, Nigeria. The study therefore concludes that monetary policy has a very important
role to play in determining the performance of the Small and Medium Enterprises in Kebbi State.
The study recommended that there should be flexibility in monetary and expansionary policies
that will stimulate the performance of SMEs in Kebbi State.
Key word: exchange rate(EXR), inflation rate (INF), interest rate(INT), Financial Performance
(FP)
Introduction
Individuals, groups of people or associations, corporations, industries, and the government all
participate in a variety of commercial activities with the goal of maximizing profits.
They range in size from tiny to medium to huge (Blackford, 2018). Small-scale businesses are the
most frequent type of business in Nigeria's economy. If we look at the level of practice of small
scale enterprises in economically developed countries, for example, the goal of any economy
(whether industrialized or non-industrialized) is primarily determined by how well structured the
small industries are (Petrakis & Kostis, 2017). Nigeria's small business sector appears to be
sluggish and less ambitious than that of wealthy countries.
Small businesses are better managed and coordinated in economically developed nations than in
developing ones because governments recognize their importance to the national economy
(Thomas & Norman, 2018). In reality, the primary objectives of macroeconomic instruments are
to promote price stability, long-term output, and employment.
Interest rate fluctuations, which impact the cost of capital and investment in the productive
sector, are projected to affect the real sector of the economy through macroeconomic instruments.
Macroeconomic instruments may also impact economic production through a variety of routes,
including interest rates, credit, asset values via exchange rates, equity, and housing prices
(Mishkin, 2017). Due to the routes via which shocks are communicated in both the global and
local economies, research into the influence of macroeconomic instruments on the productive
sector of the economy is gaining traction (Petrakis & Kostis, 2017).
This has ramifications for macroeconomic management since monetary authorities must now
consider the effects of their actions on diverse sectors of the economy, including how their
actions affect SMEs.
Because the tightening of macroeconomic measures, for example, might be perceived as
excessive for specific sectors of the economy, this becomes quite significant.
As Alam and Waheed (2016) point out, understanding which sectors are negatively affected by
monetary tightening, for example, can assist the monetary authority create useful policy
information.
The rise of modern governments across the world, notably in Africa, from the 1970s to the
present, which is shaped by the continent's democratic wave, bestows huge duties on states of all
climes.
Nigeria, like several other countries, is monocultural and oil-dependent, and as such is not
immune to the global crisis, since the country is presently stuck in a web of currency rate
fluctuations (Boylan & Sprinkle, 2017).

According to Adigwe (2018), one of the most important macroeconomic policy disputes is the
impact of the exchange rate on the economic performance of both developed and emerging
economies like Nigeria.
Economists are increasingly arguing that, although exchange rate stability fosters growth and
raises living standards, exchange rate misalignment stifles export growth and creates
macroeconomic instability (Osundina & Osundina, 2018).
Statement of the Problem

Despite the fact that small and medium size companies (SMES) are regarded as true engines of
economic development, their growth and development in Nigeria has been sluggish, if not
stunted, due to a variety of difficulties and challenges confronting this vital sub-sector of the
economy (Ozgulbas et al, 2016; Chaston et al, 2017).
Due to the nature and scale of their company, SMEs are frequently confronted with a slew of
issues.
Some of the issues that SMEs face originate from the fact that their production is often lower
than that of larger corporations.
Studies on exchange rates, economic growth, and development have been undertaken all around
the world.
Empirical research has been carried out all around the world Pokhariyal et al. (2017) in Kenya,
Mukhtar and Mlik (2017) in Pakistan, Gylfson and Schmidt (2018) in the United Kingdom and
Brazil, Diaz-Alejandro (2018) in Argentina, Poon et al. (2018) in East Asian economies, are only
a few examples of recent research In Malaysia, Mori, Asid, Lily, Mulok, and Loganathan (2018).
However, Ganiyu & Keun (2019), Edoko, Nwagbala & Stella (2019), Osundina & Osundina
(2019), Akindiyo and Oladiran (2019), Peter & Mohammed (2019), Ismail (2019), Akindiyo &
Olawole (2019), Bala & Asemota (2019) conducted research outside Nigeria on exchange rate,
small and medium enterprises in Sokoto metropolis, and However, Ganiyu & Keun (2019),
Edoko, Nwagbala & Stella (2019), Osundina & Osundina (2019), Akindiyo and Oladiran (2019),
Peter & Mohammed (2019), Ismail (2019), Akindiyo & Olawole (2019), Bala & Asemota (2019)
have worked on the relative contribution of exchange rate and currency devaluation, welfare
effects of higher import prices induced
Research Questions

i. What is the effect of interest rate on SMEs FP in Kebbi State?

ii. To what extent does exchange rate affect SMEs FP in Kebbi State?
iii. In what way does inflation rate affect the SMEs FP in Kebbi State?
Objectives of the Study
Broad objective of this study is to examine the effect of macro-economic variables on the
performance of SMEs in Kebbi State. The specific objectives are to:
i. Examine the effect of interest rate on the SMEs FP in Kebbi State.
ii. Ascertain the effect of exchange rate on the SMEs FP in Kebbi State.
iii. Assess the effect of inflation rate on the SMEs FP in Kebbi State.
Research Hypotheses
This study is guided by the following hypotheses:
H01 interest rate does not have a significant effect on SMEs FP in Kebbi State, Nigeria.
H02 Exchange rate has no significant effect on the SMEs FP in Kebbi State in Nigeria.
H03 Inflation rate does not have significant effect on the SMEs FP in Kebbi State, Nigeria.
Significance of the Study
Stakeholders in SMEs, academics, policymakers, and government will benefit greatly from the
conclusions of this study. This will alert them to the necessity to strengthen their monitoring and
control roles over economic managers at all levels. The study is useful to Nigerian SMEs that
have not performed admirably, particularly in Kebbi state, and so have not played the expected
role in the country's economic growth and development. This is because the majority of SMEs in
Kebbi State, Nigeria, failed, and those that remain are struggling for various reasons (Basil,
2005).

Conceptual Framework
The Concept of Small and Medium Enterprises

Small and medium-sized businesses (SMEs) continue to play a significant role in the economy of
the country because of their ability to increase the economy's productivity and human welfare,
the contribution of SMEs has been acknowledged as economic sustenance (Akingunola, 2017).
SME formation and effective management have a favorable influence on the nation's economic
growth since SME is one of the benchmarks for gauging economic progress. SMEs has been
defined in a variety of ways by various authors (Ediagbonya, 2018).
The Role of SMEs in an Economy
In certain aspects, SMEs have aided the Nigerian economy; a few years ago, they accounted for
around 90% of the industrial sector in terms of number of businesses, and they also generated a
paltry 1% of the country's gross domestic product (NIPC, 2002).
When compared to nations like Indonesia, India, and Thailand, where SMEs account for about
40% of GDP, this is substantial.
SMEs are an essential component of the economic landscape in many other nations, but they
confront considerable hurdles and impediments in Nigeria, limiting their capacity to function and
contribute to the Nigerian economy.
Challenges facing the SMEs in Nigeria

Small domestic markets, poor infrastructure, high transportation costs, a scarcity of capital and
foreign exchange, and a glut of low-quality labor are all hallmarks of emerging nations.
According to Basil (2015), SMEs in Nigeria have a number of challenges, including poor and
inefficient infrastructure, which drives up operating costs since SMEs are forced to rely on
private providers for services such as road, water, and power.

Inadequate credit availability can be related to banks' unwillingness to offer loans to people who
owe them money, as well as poor paperwork in project proposals and insufficient collateral by
SME operators (Ganiyu & Keun, 2018).

Financial Growth Theory

Berger and Udell created the notion of financial growth (1998). They claim that as a company
becomes older, its financial commitments and funding alternatives change, making more
information available to the public. Firms that are smaller, younger, and have more confusing
information, according to them, must rely on first internal investment, trade credit, or a sort of
financing known as angel finance. (Angel finance is when a private individual or organization
donates a small amount of capital to a new company in exchange for a more favorable repayment
schedule.)
As the company expands, it becomes eligible for venture capital and midterm loans as sources of
intermediate stock and debt, respectively. As the company becomes older, it becomes larger and
less opaque in terms of information. As a result, the company qualifies for both public stock and
long-term loans as sources of capital.
Population, Sample Size and Sampling Technique
In research, a population is a large group of people or topics with similar characteristics that are
the subject of a systematic examination. The study's participants were all small and medium-sized
businesses (SMEs) in Nigeria's Kebbi State.
Method of Data Analysis
The research approach used in this work is time series data analysis, although the results were
calculated using the Fully Modified Least Square (FMLS) Regression Technique. E-views
version 7 was used to evaluate the data. The stages involve evaluating each series for stationarity
using the Engle and Granger (1987) two-step technique and utilizing the Augmented Dickey-
Fuller (ADF) set of unit root tests to establish the order of integration of the variables (Audu,
2010). Then, as specified in the model, we looked for the presence of a long-run equilibrium
casual link between petroleum profit tax and the economic growth factors that impact it.
Nature and Sources of Data
These study will employ secondary data retrieved from the Central Bank of Nigeria (CBN)
statistics bulletin 2018, the Federal Ministry of Finance, and the Nigerian National Petroleum
Corporation Annual Statistical Bulletin 2018. This is due to the fact that the study's model
estimate necessitates the usage of time series data. Interest Rate (INTR), Exchange Rate (EXCR),
Inflation Rate (INFR), Credit to the Private Sector (CPS), and SMEs performance in Kebbi State,
Nigeria, from 1980 to 2018, as acquired from the CBN (2019). The regression approach was
chosen as an analysis tool since it was determined to be suitable for the data analysis.
Estimation Technique
The research approach used in this study is time series data analysis, which was calculated using
the Autoregressive Distributed Lag (ARDL) Regression Technique.
E-views version 7 was used to evaluate the data.
The stages involve individually testing the series for stationarity using the Engle and Granger
(1987) two-step technique and utilizing the Augmented Dickey-Fuller (ADF) set of unit root tests
to establish the order of integration of the variables. Following that, the researchers looked for the
presence of a long-run equilibrium casual connection between variables.
Model Specification
To this end, this study follows the plethora of studies in specifying a functional relationship for
macro-economic variables and performance of the SMEs sector in Nigeria as follows:
𝑆𝑀𝐸 = (𝐸𝑋𝑅, 𝐼𝑁𝐹, 𝐼𝑁𝑇, 𝑆𝑀𝐸−1) (1)
Where SME represents the output of the Small and Medium Enterprises, while EXR, INF, and
INT are the monetary policy instruments employed in the study as explanatory variables while
𝑆𝑀𝐸−1 is the lagged value of the output of the Small and Medium Enterprises. They represent
exchange rate, inflation rate, interest rate and credit to the private sector respectively. Also, the
credit to the private sector is expressed as a percentage of the gross domestic product (GDP)
while SMEs’ output is also expressed as a percentage of GDP because the variable is taken as the
contribution of the SMEs sector to the real GDP in Nigeria.
For the purpose of regression analysis, equation (1) is explicitly stated as:
𝑆𝑀𝐸 = 𝛽0 + 𝛽1𝐸𝑋𝑅 + 𝛽2𝐼𝑁𝐹 + 𝛽3𝐼𝑁𝑇 + 𝑆𝑀𝐸−1 + 𝜀 (2)
Where SME stands for Small and Medium size Enterprise
EXR stands for Exchange rate
INF stands for Inflation rate
INT stands for interest rate
In equation 2, 𝛽0, 𝛽1, 𝛽2, 𝛽3, 𝛽4 are the slope parameters of the model while 𝜀 is the white noise
error term. The a priori expectation is that 𝛽3 should be positive since more credit to the private
sector should stimulate more activities for the SMEs sector too, while 𝛽3 is expected to have a
negative sign since higher rate of interest is expected to negatively impact the output of SMEs.
However, 𝛽1 and 𝛽2 can show either positive or negative sign depending on the nature of
economic activities. Moreover, in the study, equation (2) is estimated by employing the
autoregressive lag model. Data for the study are mainly secondary and they are sourced from the
Central Bank Statistical Bulletin (2018). Such data include SMEs output as a percentage of GDP,
inflation rate, interest rate and exchange rate over the period of 2000 to 2018.
Descriptive Statistics
4.2.1 Descriptive Statistics
SME INT INF EXR
 Mean  12.48405  11.88109  10.22535  12.13865
 Median  14.92968  11.62834  10.57702  12.30863
 Maximum  18.66568  15.06398  14.02173  13.88910
 Minimum  10.79368  8.228684  5.998937  8.890273
 Std. Dev.  2.672443  2.416579  2.806302  1.416010
 Skewness -0.131468 -0.142877 -0.148191 -0.561889
 Kurtosis  1.631835  1.469808  1.538234  2.227326
 Jarque-Bera  3.235020  4.038573  3.707673  1.937397
 Probability  0.198392  0.132750  0.156635  0.379577
 Sum  587.3629  475.2438  409.0141  303.4663
 Sum Sq. Dev.  278.5361  227.7543  307.1379  48.12202
 Observations  19  19  19  19
Source: Authors’ Computation, 2020.
Table 4.1's descriptive statistics demonstrate that all of the model's variables have a positive
average mean. This means that the variables are getting bigger with time. The inflation rate also
has the biggest standard deviation, indicating that the variable has seen a greater degree of change
than any other variable in the estimation. The exchange rate, on the other hand, has the smallest
standard deviation. This is due to the fact that the exchange rate has remained constant over time.
The variables are all regularly distributed, according to the normality test.
Table 4.2: ADF Unit Root Test Results
 ADF Tau Statistics
Variable 5% Significant 1% Significant Order of
Integration
SME -10.28823 (0) [-2.929734] -10.28823 (0) [-3.5885091] 1
INT -6.948692 (0) [-2.931404] -6.948692 (0) [-3.592462] 1

INF -6.833940 (0) [-2.931404] -6.833940 (0) [-3.592462] 1

EXR -5.814294 (0) [-2.929734] -5.814294 (0) [-3.588509] 1

Note: Mackinnon critical values are shown in paranthesis. The lagged lengths shown in brackets
are selected using the minimum Schwarz Information criteria.
Source: Authors’ Computation, 2020.
The time series variables, small and medium enterprise production, inflation rate, interest rate,
exchange rate, and credit to the private sector were found to be non-stationary at levels, according
to Table 4.2. Table 1 shows that all of the variables included in the study are stationary at first
difference at both the 5% and 1% level of significance after first differencing the series.
As a result, the study may infer that all of the variables are stationary at first difference, rejecting
the null hypothesis of "non-stationarity" at first difference. This means that the regression model's
included series have no unit root and that the series in their first difference are mean reverting and
converging to their long-run equilibrium.
Table 4.3: Restricted Co-integration Rank Test (Trace)
Hypothesized Eigenvalue Trace Statistic 0.05 Prob.**
No. of CE (s) Critical Value

None* 0.631015 89.66414 69.81889 0.0006

At most 1 0.404630 45.79621 47.85613 0.0771
At most 2 0.278629 22.97907 29.79707 0.2471
At most 3 0.133980 8.608614 15.49471 0.4028
At most 4 0.050484 2.279331 3.841466 0.1311
Source: Authors’ Computation, 2020.
Table 4.3 shows that at the 5% significance level, the trace statistic implies that there is only one
co-integrating equation. As a result, the variables have a long-run equilibrium connection and
there is only one co-integrating vector.
Table 4.4: Restricted Co-integration Rank Test (Maximum Eigenvalue)
Hypothesized Eigenvalue Max-Eigen 0.05 Prob.**
No. of CE (s) Statistic Critical Value
None* 0.631015 43.86793 33.87687 0.0023
At most 1 0.404630 22.81714 27.58434 0.1814
At most 2 0.278629 14.37046 21.13162 0.3354
 At most 3 0.133980 6.329284 14.26460 0.5713
At most 4 0.050484 2.279331 3.841466 0.1311
Source: Authors’ Computation, 2020.
Table 4.4 shows that at the 5% significance level, both the trace statistic and the Maximum-given
value statistic imply that there is only one co-integrating equation. As a result, the variables have
a long-run equilibrium connection and there is only one co-integrating vector.
The investigation may now move to estimating the long run autoregressive model since the
variables included in the study have a long-run connection.
Table 4.5: Result of the Long Run Model
Dependent Variable: SME Included Obs.
Variable Coefficient Std. Error t-Statistic Prob.
C 3.012425 1.031087 2.921602 0.0058
EXR 0.028078 0.009271 3.028621 0.0488
INF -0.007969 0.003241 -2.458809 0.0001
INT 0.027837 0.027019 1.030283 0.3092
SME(-1) 0.700842 0.101203 6.925106 0.0000
R-squared 0.762462 F-statistic 25.03690
Adjusted R- 0.732009 Prob(F-statistic) 0.00000
squared
Log Likelihood -8.639900 Durbin-Watson 2.015353
stat
Source: Authors’ Computation, 2020.
The output of the SMEs sector in Kebbi State is 3.012 when all explanatory variables are
maintained constant, according to the results of the autoregressive model provided in table 4.5.
Furthermore, a cursory examination of the results reveals that the exchange rate has a positive
and substantial influence on SMEs output in Kebbi State, with a coefficient of 0.028 and a
probability of 0.0058.
Its value of 0.028 indicates that a percentage rise in the naira relative to the US dollar (currency
depreciation) resulted in a 2.8 percent gain in SMEs output in Kebbi State, Nigeria, while
maintaining inflation, interest rate, and the previous value of SMEs output same.
The rationale for this is not far-fetched, as most small and medium businesses in Nigeria's Kebbi
State rely less directly on currency rates for input and raw material procurement.
There is, in reality, more local material.
Table 4.5 shows that when all explanatory variables are preserved, the output of the
autoregressive model is In reality, because the industry is primarily primitive and disorganized,
there is greater local content in SMEs' production in Kebbi State, Nigeria. To keep body and
spirit together, they typically engage in tiny commerce, art and craft, and low-level production.
Similarly, currency depreciation causes Nigerian goods to become cheaper in comparison to
international goods, causing Kebbi State to change its attention away from importing goods and
focus more on buying locally created items, boosting patronage of SMEs in the state and
increasing their production.
Heteroscedasticity Test
According to Gujarati and Porter (2009), Autoregressive Conditional Heteroskedasticity (ARCH)
may have an autoregressive structure in that heteroskedasticity may be detected throughout
several periods, hence the test for this study is required.
H0: There is no ARCH effect
Observation included: 19 Dependent Variable: H0: No ARCH effect
RESID^2
F-statistic 5.329446 Prob. F(5,39) 0.2008
Obs* R-squared 18.26620 Prob. Chi-Square (5) 0.1626
Scale explained SS 21.82941 Prob. Chi-Squared (5) 0.1506
Source: Authors’ Computation, 2020.
Table 4.6 shows that both the observed R-squared (0.1626) and explained sum of squares
(0.1506) probability Chi-Squared values are more than 0.05 levels, indicating that they are
unimportant.
As a result, the investigation may accept the null hypothesis that no ARCH impact exists.
This is ideal for the research since it indicates that the model has no heteroscedasticity issues and
that the residual term's variance is homoscedastic.
Table 4.7 Regression Results
Macro-economic Variables and SMEs Performance
Variable Coefficient P-value
C -170.48 0.0012
INT 0.0016 0.0000
INF -43.261 0.2812
EXR 30.443 0.0373
R-squared 0.6699
Adjusted R-squared 0.6178
S.E. of regression 9.4513
Source: Authors’ Computation, 2020.

In Nigeria's Kebbi State, Table 4.7 depicted the linear link between macroeconomic factors and
SMEs performance. The model's findings demonstrate that the equation has a strong fit, with 67
percent of systematic changes in SMEs described by the variables in the equation, according to
the overall coefficient of determination R-squared (R2).
In terms of the signs of the coefficients that represent the impact of macroeconomic variables on
SMEs in Kebbi State, Nigeria, it can be seen that the variables interest rate, inflation rate, and
exchange rate all agree with a priori expectations, with interest rate and exchange rate having
positive signs and inflation rate having a negative sign, indicating that there is a direct
relationship between INT, INF, CPS, and EXR and an inverse relationship on INF. In terms of
size, INT definitely has a substantial influence on SMEs, as evidenced by coefficients (0.0016
and 30.442) with P-values (0.0000 and 0.0373) at the 5% level of significance, respectively.
This means that a 1% change in interest rate would result in a 30.44 percent positive change in
SMEs, and a 1% rise in interest rate will result in a 0.16 percent positive change in SMEs in
Kebbi State, Nigeria. Exchange rate and inflation rate, on the other hand, have no significant
influence on SMEs, as evidenced by coefficients (43.261 and 13.520) with P-values (0.2812 and
0.4991) at the 5% level of significance, respectively.
Discussion of Findings
In this section, results of the analysis of the variables contained the result of the autoregressive
model revealed that when all the explanatory variables are kept constant, the output of the SMEs
sector in Kebbi State is 3.012. Also, a cursory look at the result shows that exchange rate
positively and significantly impacts SMEs output in Kebbi State. Its value of the 0.028 implies
that while keeping constant inflation rate, interest rate, credit to the private sector and the
previous value of SMEs output itself, a percentage increase in the naira relative to the US dollar
(currency depreciation) brought about 2.8% increase in the output of SMEs in Kebbi State,
Nigeria. The reason for this is not far-fetched as most of the small and medium enterprises in
Kebbi State, Nigeria depend less directly on exchange rate in terms of input and raw material
sourcing.
In fact, there is more local content in producing output of the SMEs in Kebbi State, Nigeria
because the sector is mostly rudimentary and unorganized. They often engage in petty trading, art
and craft and low-level production just to be able to keep body and soul together. Similarly,
currency depreciation means that Nigerian goods become cheaper relative to foreign goods and
so, Kebbi State shift emphasis away from depending on imported goods and concentrate more on
buying local made goods; this fuels the patronage of SMEs product in the state and boosts their
output. However, the findings are connected with Ehinomen & Charles (2018) in the
effectiveness of the monetary policies in promoting agricultural development. The coefficient of
inflation conforms to theory as it shows that inflation rate has negative and significant impacts on
the output of the SMEs sector. A percentage increase in inflation rate causes SMEs output to fall
by almost 0.7% while keeping other explanatory variables constant.
This is what is being witnessed currently and that is the channel through which exchange rate
depreciation can negatively impact the SMEs sector. The reason is that currency depreciation is
often associated with fuelling inflation in the domestic economy and persistent increases in the
general price level shift aggregate demand inward thereby negatively affecting consumption,
investment and even output of the SMEs and the economy at large. Interest rate however
positively but insignificantly impacts SMEs output as a percentage increase in interest rate causes
SMEs output to rise by about 2.7% while other variables are kept constant. This is borne out of
the fact that the SMEs sector does not often obtain long term loans directly from commercial
banks while only the organized private sector does.
Thus, in relation to the opinions of Olweny & Chiluwe (2018); Ubi, Lionel & Eyo (2018); Azeez,
Kolapo & Ajayi (2018); Quartey & Afful-Mensah (2018) and so on, increase in interest rates
means that more people are encourage to save either in commercial or micro finance banks
thereby making some cheap funds available for the SMEs which boost their output; it is not
significant because SMEs source more of their funding from friends, cooperative societies and
others than they source from micro finance or commercial banks.
Regression result shows the linear relationship between macro-economic variables and SMEs
performance in Kebbi State, Nigeria. The results obtained from the model indicates that the
overall coefficient of determination R-squared (R2) shows that the equation has a good fit with
67% of systematic variations in SMEs explained by the variables in the equation.

In terms of the signs of the coefficients which signify the impact of macro-economic variables on
SMEs in Kebbi State, Nigeria, it can be seen that the variables interest rate, inflation rate, and
exchange rate concur with a priori expectation with interest rate, inflation rate, and exchange rate
have positive sign while inflation rate has negative sign, this means that there is direct relation
between INT, INF and EXR and inverse relationship between INF.

In terms of the magnitude of the coefficient INT clearly has significant effect on the SMEs as
indicated by coefficient (30.442) with P-value (0.0373) at 5% level of significant. This is in line
with the studies conducted by Okpetu (2017); Oluwagbenga (2017); Olowe, Moradeyo &
Babalola (2018); Ezema (2018); Aminu, Adamu & Ibrahim (2019) and Isola & Mesagan (2019).
This implies that 1% changes in interest rate will induce 30.44% positive changes in SMEs, also
if the increase in interest rate is changes by 1%, this will induce 0.16% positive in SMEs in Kebbi
State, Nigeria. Exchange rate and inflation rate do not have significant impact on SMEs as
indicated by coefficient (43.261 and 13.520) with P-value (0.2812 and 0.4991) respectively at 5%
level of significant.
Conclusion
Based on the findings from the study, the following conclusions were drawn:
 First, the study has provided both empirical and statistical evidence on the effect of three
major macro-economic variables: interest rate, exchange rate and inflation rate on
performance of in Kebbi state. There are mixed conclusions on the results of the findings.

 Second, the study presented exchange rate as the value of a country’s currency against
that of another country or economic zone. The findings showed that exchange rate has
positive effect on SMEs output. However, it is concluded that exchange rate is a macro-
economic variable that contribute to the performance of SMEs in Kebbi state.

 Another factor that was presented is the effect of interest rate in the performance of
SMEs. The interest rate is the amount charged on top of the principal by a lender to a
borrower for the use of assets. The findings showed that interest rate has positive effect on
SMEs output. It can be concluded based on the findings that interest rate is a macro-
economic variable which contributes to the performance of SMEs in Kebbi state.

Recommendations
Based on the conclusions of the study, the following recommendations were made:
i. Micro finance banks should explore supporting the operations of SMEs through the
supply of short and medium-term loans, in addition to assisting the government,
individuals, and corporations.
ii. As a result of the high interest rate, which encourages more investment, the SMEs sector
will see a rise in production with the present high rate of inflation devouring the Nigerian
economy, the central bank must devise an inflation benchmark that does not stifle the
growth of SMEs in Kebbi State and other areas of the country.Furthermore, because
increased lending to the organized private sector crowds out funds available for SMEs,
negatively hurting their production, policies in Kebbi State, Nigeria, should be geared
toward making sufficient money accessible for small scale companies.

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