The Impact of Access to Credit on Employment Generation in the Informal Sector: A Case Study of Ilorin Metropolis

Abstract

This study investigates the impact of access to credit on employment generation among small and medium enterprises (SMEs) in the informal sector of Ilorin, Kwara State, Nigeria. Guided by Pecking Order Theory and Endogenous Growth Theory, the study adopts a quantitative research design within a positivist paradigm. Data were collected through structured questionnaire administered to SME operators, financial institutions, and policymakers, yielding 400 valid responses. Descriptive statistics, correlation analysis, and Ordered Logistic Regression were employed to examine the relationships between bank lending, credit access challenges, government taxation policies, and employment generation. The findings reveal that bank lending positively and significantly enhances employment generation, while challenges in accessing credit, such as stringent collateral requirements and perceived risk, negatively affect job creation. Additionally, supportive government taxation policies were found to boost employment in the informal sector. The results underscore the importance of financial inclusion and institutional support in promoting SME-led job creation and sustainable economic growth. Based on these insights, the study recommends policy measures including credit guarantee schemes, tax incentives, partnerships with FinTech platforms, and initiatives to improve SMEs’ financial literacy and record-keeping. Limitations include reliance on self-reported data and a cross-sectional design. Future research should adopt longitudinal approaches and explore broader geographic contexts to enhance understanding of credit access and employment generation dynamics in Nigeria’s informal economy.
Keywords
Access to credit, employment generation, financial institutions, informal sector, Small and Medium Enterprises (SMEs)