Micro, Small and Medium Scale Enterprises and the Willingness to Pay for Cost of Credit from Conventional Deposit Money Banks in Kwara State, Nigeria

Abstract

Micro, small, and medium enterprises (MSMEs) play a vital role in economic development, yet access to formal credit remains their major challenge in Nigeria. While existing studies focus on supply-side constraints such as collateral and lending rates, little attention has been paid to the demand side. This study addresses the gap by estimating MSMEs’ willingness to pay (WTP) for finance costs from conventional deposit money banks in Kwara State using a contingency valuation approach. A survey of 400 MSMEs across five local governments employed the Double Dichotomous Choice Contingency Valuation Method (DBDC-CVM) to estimate mean WTP and binary probit regression to evaluate determinants. Results show SMEs are willing to pay an average annual interest rate of 28.18% of formal credit given the hypothetical scenario. Loan tenure has the highest positive impact on WTP, while interest rate and collateral significantly reduce acceptance probability. Other positive factors include business revenue, size, tenure, education, and age, while gender and credit history are not significant. The study reveals MSMEs’ WTP is jointly predicted by financial, economic, and demographic factors. Findings suggest policies expanding MSMEs’ access to finance should prioritise financial education, reduced collateral burden, and longer loan tenure.