Abstract

This study examines the role of financial institutions in promoting entrepreneurship and economic development in Lagos State, Nigeria. It specifically investigates how access constraints, institutional performance and financial intermediation influence the growth and sustainability of Small and Medium- Sized Enterprises (SMEs). Using a mixed-method approach supported by quantitative analysis of 300 SMEs, the study employs multiple linear regression to test two key hypotheses relating to financial access barriers and institutional impact on entrepreneurial outcomes. The results reveal that structural constraints such as high collateral requirements, elevated interest rates and bureaucratic loan procedures significantly hinder SME performance, collectively explaining 42 percent of its variance. Among these, high interest rates exerted the strongest negative influence, demonstrating how credit costs and administrative burdens undermine business expansion and innovation. Conversely, the analysis confirms that financial institutions exert a significant positive influence on entrepreneurship and economic development, with institutional support and SME performance jointly explaining 51 percent of observed variations. The findings underscore that financial institutions serve not only as providers of capital but also as key enablers of enterprise sustainability and economic transformation. However, their developmental potential remains constrained by structural inefficiencies, limited outreach and weak institutional coordination. The study concludes that a multidimensional reform approach, encompassing affordable credit design, digital innovation, enhanced advisory support and improved regulatory oversight, is essential for repositioning financial institutions as effective partners in Nigeria’s entrepreneurial and developmental agenda.

Keywords: Entrepreneurship; SMEs; Financial institutions; Access to finance; Economic development

Jel Codes: G21, L26, O16, 017, O55