FINANCIAL INTERMEDIATION, AND THE GROWTH OF SMALL AND MEDIUM-SIZED ENTERPRISES: EMPIRICAL EVIDENCE FROM NIGERIA

602 International Journal of Social and Educational Innovation Vol. 12, Issue 23, 2025 ISSN (print): 2392 – 6252 eISSN (online): 2393 – 0373 DOI: 10.5281/zenodo.17572022 FINANCIAL INTERMEDIATION, AND THE GROWTH OF SMALL AND MEDIUM-SIZED ENTERPRISES: EMPIRICAL EVIDENCE FROM NIGERIA Kayode David KOLAWOLE Department of Accounting Science, Walter Sisulu University, Mthatha, South Africa [email protected] 0000-0002-6704-2673 Abstract Small and medium size enterprises (SMEs) have become part and parcel of economic growth and structural change as seen in the developing economies like Nigeria. They play important roles in employment and income generation, innovation, and reduction of poverty, thus being the engines of inclusive development. This paper will examine the dynamic nexus between the macroeconomic variables and the development of SMEs in Nigeria using annual data and cutting-edge econometric methodology. The analysis using fully modified least squares (FMOLS) estimation and robustness checks demonstrates that money supply, inflation, interest rates, and exchange rates have a high long-run impact on the growth of SMEs. Although money supply shows the most positive impact, credit availability also plays a moderating role where the effects of macroeconomic stability are concerned and are critical. The results also establish that there is cointegration between SME performance as well as macroeconomic fundamentals, which indicates the persistence of the relationships. The accuracy of the model is tested by the post-estimation diagnostics, which reflects that the model is reliable to draw policy insights. The paper concludes that the performance of the SME in Nigeria is not entirely based on macroeconomic policies but on the effectiveness of the financial intermediation and access to credit. The paper advises integration of monetary and structural policies to help in making the SMEs drivers of inclusive growth and sustainable development. Keywords: SME Growth, Macroeconomic Variables, Credit Availability, Cointegration, Nigeria, FMOLS. JEL Codes: C22, E44, L26, O55. International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 603 1.Introduction Small and medium size enterprises (SMEs) have become part and parcel of economic growth and structural change as seen in the developing economies like Nigeria. They play important roles in employment and income generation, innovation, and reduction of poverty, thus being the engines of inclusive development (Ajuwon et al. 2017). With their profound strategic significance, the Nigerian SMEs still have to be functioning in the environment of macroeconomic instability in the “form of high inflation rates, fluctuated interest rates, depreciated exchange rates, and lack of consistent growth of money supply. Such macroeconomic shocks cause uncertainty, increase the cost of operation and negatively affect the potential of SMEs to contribute effectively to the national output (Zongo, 2024). The dynamic between macroeconomic environment and the ability of SMEs to grow is thus very instrumental in formulating policies that make them more sustainable and resilient. The financial sector plays an important direct and indirect role in helping SMEs scale up through its intermediation function: effective intermediaries not only mobilize savings for productive investment but also deliver credit and other non-price services such as advisory support and risk management tools, which are critical to the success of these businesses operating within competitive markets. Evidence suggests that well-functioning financial intermediation is better able to mobilize resources for enterprise development under stable macroeconomic conditions, while the reverse is also true: poor macroeconomic stability will constrain effective financial intermediation. This study examines how the interaction between these variables has affected SME growth in Nigeria and explores ways of structuring its financial systems and policy frameworks that can enhance their resilience and performance as they continue to be a critical component for long-term economic transformation. The aim of this research project, as it is first stated, is to consider the impact of money supply on the development of SMEs in Nigeria. A sufficient and stable amount of money promotes liquidity, lower transaction costs, and access to credit, which in turn promotes the expansion of business and investment in the productive capacity (Okonkwo & Nwanna, 2021). Nevertheless, monetary growth may become excessive hence giving rise to inflationary pressures which distort the price signals and weakens competitiveness of SME. This paper thus aims to determine whether the path of money supply in Nigeria enhances or limits the growth of SME by placing the analysis under the umbrella of monetary transmission theory that argues that monetary supply variation impacts on output during growth in terms of interest rates and investment avenue (Demirguc-Kunt and Levine, 2009). The second International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 604 objective is to investigate the influence of inflation on SME operations. Inflation is a doubleedged sword: while moderate inflation may stimulate investment by reducing the real burden of debt, excessive and volatile inflation erodes purchasing power, escalates production costs, and discourages long-term planning (Ojo, Aruwa, & Chukwuma, 2024). SMEs, which typically operate with limited financial buffers, are disproportionately vulnerable to inflationary shocks, often experiencing reduced profitability and increased risk of closure (Onwumere & Ezeaku, 2021). By assessing the long-run relationship between inflation and SME growth, this study contributes to the ongoing debate on whether Nigeria’s inflationary trends act as catalysts or impediments to SME development. The third aim of the study is to examine how interest rates influence the performance of SMEs. The cost of borrowing depends on interest rates and, therefore, the possibility of SMEs to finance the growth, innovation, and working capital (Egbetunde et al., 2017). SMEs are usually discouraged to access credit due to the high interest rates especially because they have less collateral, and are classified as high-risk clients. On the contrary, a reduction in interest rates may develop credit being taken up, however, when not handled with care, may lead to over-leverage and wasteful capital allocation. By using the theory of loanable funds to describe the relationship between interest rate dynamics and investment choices by SMEs and macroeconomic growth, the study fills an essential gap in the policy discussion in Nigeria. The fourth goal is to assess the effect of exchange rate changes on SMEs development. Exchange rate volatility has extensive implications on SMEs, particularly those that depend on imported inputs or those that are involved in export activities (Onwuka, 2021). When the exchange rate is depreciating, the cost of inputs is up, the supply chains are upset, and the inflationary pressure is ignited, whereas an appreciated exchange rate may reduce the competitiveness of exports. According to the empirical data, a volatile exchange rate in Nigeria has posed a major problem to the activities of SMEs by increasing uncertainty levels and decreasing the level of investment confidence (Fasanya and Akinwale, 2022). This study sheds new light about the dynamics of the impacts of currency fluctuations on the growth path of SMEs in the open economy environment in Nigeria. Lastly, the paper takes into consideration the moderating effects of loans to SMEs in enhancing or alleviating the effects of macroeconomic variables on the performance of SMEs. Credit is a very necessary factor in increasing productive capacity, risk management and competitiveness. Nevertheless, the effective lending is usually inhibited by structural challenges in the financial system of Nigeria, including high collateral requirements, poor International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 605 credit penetration, and riskiness of SMEs (Diop et al., 2025). The sensitivity analysis of this research thus will examine the relationship between loans and the macroeconomic variables that influence the outcomes of the SMEs and thus fill a serious gap in both the academic and policy literature. The present research is part of the wider discussion on the development of SMEs in emerging economies, with a focus on macroeconomic management, financial intermediation, and entrepreneurial resilience as an intersection. The findings are expected to provide actionable policy recommendations for strengthening Nigeria’s SME sector, aligning with recent calls for evidence-based strategies to promote inclusive growth and structural transformation across Africa (Emmanuel, 2024; Ibitomi et al., 2024). 2.Empirical Review Empirical work has intensified on the role of liquidity and financial depth in shaping SME dynamics. Cross-country and country-level studies consistently show that broader money aggregates and financial deepening raise the probability of SME survival and expansion through improved access to formal credit and lower transaction costs (Brixiová et al., 2020; Beck & Demirgüç-Kunt, 2006). Country studies for sub-Saharan Africa show that measures of money supply (often M2 or private credit to GDP) are positively correlated with SME output and employment, controlling for firm and sectoral characteristics (Brixiová et al., 2020; Asongu & Odhiambo, 2021). These findings corroborate the monetary transmission channel emphasised in macroeconomic theory: liquidity fosters investment and workingcapital availability, which are binding constraints for many SMEs (Demirguc-Kunt & Levine, 2009). A second large strand of the literature examines inflation’s ambiguous effects on SMEs. Empirical analyses find that moderate, predictable inflation can coexist with firm growth, sometimes even stimulating nominal demand, reducing the real burden of debt, and encouraging investment by indebted firms, while high or volatile inflation harms SMEs through input-cost shocks and planning uncertainty (Barro, 2020; Anidiobu, Okolie, & Oleka, 2018). Panel studies using firm-level data show that inflation volatility (rather than the level alone) is particularly damaging to small firms that lack hedging instruments (Aghion et al., 2021; Onwumere & Ezeaku, 2021). Several country papers (including micro-survey evidence from Nigeria) document how inventory management costs and the inability to pass on price increases compress margins for SMEs when inflation is high and erratic. International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 606 Interest rates and the cost of credit remain central in empirical investigations. A common empirical regularity is that high nominal lending rates are associated with lower investment and slower SME growth in micro-level studies (Akinruwa et al., 2017; Egbetunde et al., 2017). However, macro-level time-series analyses sometimes report positive correlations between observed higher interest rates and lending to SMEs, especially in contexts of weak intermediation where rate liberalization signals financial deepening and banks’ willingness to lend (Ogunlokun & Adeleke, 2021; Ajayi et al., 2021). Empirical work typically resolves this apparent paradox by distinguishing between the price of credit and credit availability: SMEs are harmed by high rates when credit access is poor, but if higher rates accompany improved credit supply and institutional reform, SME outcomes can improve. Exchange rate movements have heterogeneous effects on SMEs depending on their input structure and market orientation. Several econometric studies for Nigeria and other emerging markets show that depreciation benefits export-oriented SMEs by improving price competitiveness, while import-dependent SMEs suffer from higher input costs and inflationary pass-through (Osazevbaru, 2021; Onwuka, 2021). Empirical research using firmlevel panels and sectoral decomposition finds that exchange-rate shocks increase dispersion in firm performance: exporters and import-substituting producers may gain, whereas firms reliant on imported capital goods and inputs contract (Asongu & Odhiambo, 2021; Fasanya & Akinwale, 2022). Access to credit, such as loans, guarantees and non-bank finance, is a dominant moderator in the literature. Cross-country and within-country investigations show that credit availability not only has a direct positive effect on SME growth but also conditions how macroeconomic shocks translate into firm outcomes (Beck & Demirgüç-Kunt, 2006; AFI, 2020). Recent Nigerian panel studies and program-evaluation papers show that targeted lending schemes, credit guarantee facilities and fintech credit platforms increase investment, employment and survival probabilities among SMEs Ajayi et al., 2021; World Bank SME finance reports, 2020–2023). The consensus is that credit arranges the mechanism through which monetary expansion and exchange-rate developments affect SMEs. Institutional quality, governance and financial infrastructure consistently appear as amplifiers or mitigators of macroeconomic effects. Empirical studies show that countries (and regions) with stronger creditor rights, better contract enforcement, and improved credit information systems have far higher pass-through of macroeconomic policy into productive SME lending (AFI, 2020; Asongu et al., 2020). In Nigeria, micro-evidence indicates that regulatory International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 607 bottlenecks, weak contract enforcement and high collateral requirements limit the transmission of monetary easing into SME credit (Diop et al., 2025). Studies using difference-in-differences and instrumental-variable strategies indicate that improvements in registry systems and credit bureaus materially raise SME access to formal credit, and thereby cushioning SMEs from adverse macro shocks. Methodologically, the field has matured: researchers increasingly combine firm-level microdata with macro-time series, use panel cointegration techniques (FMOLS, DOLS, panel unit roots), IV strategies to address endogeneity, and quasi-experimental designs where possible. For example, studies that exploit policy discontinuities, regional differential exposure to monetary and exchange-rate shocks, or staggered credit programs provide stronger causal evidence that money supply expansions and credit interventions promote SME growth (Phillips & Hansen, 1990; Jack & Suri, 2014 for financial innovations; recent Nigerian studies use FMOLS and DOLS to estimate long-run relationships). Meta-analyses and systematic reviews underline heterogeneity: effects vary by sector, firm age, formality status and region (Brixiová et al., 2020; Iddrisu, 2023). Attention to digital finance, mobile money and fintech has produced an important subset of recent studies. Mobile money and digital credit platforms have been shown to lower transaction costs, substitute for informal remittance channels, and improve working-capital flows for micro and small firms, particularly where traditional banking is thin (Asongu & le Roux, 2023; World Bank, 2021). In Nigeria, fintech adoption correlates with higher turnover among microenterprises, though concerns remain about interest rates, data privacy and overindebtedness (AFI, 2020; recent country studies 2022–2024). Several policy-oriented studies evaluate targeted interventions, including credit guarantees, subsidised SME windows, and capacity building, and find that when credit programs are coupled with technical assistance and market access initiatives, they produce larger, more persistent firm-level gains (World Bank SME Finance, 2020–2023; Ajayi et al., 2021). Conversely, credit alone, without addressing infrastructure, regulatory hurdles and productivity bottlenecks, yields modest effects. Across the literature there is growing emphasis on heterogeneity and distributional effects. Newer firm-level work demonstrates that macroeconomic shocks widen the performance gap between formal and informal SMEs, older and younger firms, and between urban and rural enterprises (Demirguc-Kunt & Levine, 2009). Consequently, policy design must be nuanced: International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 608 a one-size-fits-all monetary or credit policy risks benefitting some SMEs while leaving others behind. 3. Methodology 3.1 Theoretical Framework The relationship between macroeconomic variables and the growth of small and mediumsized enterprises (SMEs) can be theoretically anchored in both Keynesian and neoclassical traditions. Keynesian theory suggests that aggregate demand, influenced by monetary aggregates and credit availability, stimulates investment and output expansion, which extends to SMEs. Neoclassical growth theory, in contrast, emphasizes capital accumulation and the role of factor costs, such as interest rates and inflation, in shaping productive efficiency and firm-level growth (Solow, 1956; Romer, 1990). SME growth can be modeled as a function of key macroeconomic indicators that influence cost structures, investment decisions, and market expansion. Let 𝐺𝑆𝑀𝐸𝑡 denote the growth of SMEs at time 𝑡. The structural form may be expressed as: 𝐺𝑆𝑀𝐸𝑡= 𝑓(𝑀𝑆𝑈𝑃𝑡, 𝐼𝑁𝐹𝐿𝑡, 𝐼𝑁𝑇𝑅𝑡, 𝐸𝑋𝑅𝑇𝑡, 𝐿𝑆𝑀𝐸𝑡) (1) where 𝑀𝑆𝑈𝑃𝑡 represents money supply, 𝐼𝑁𝐹𝐿𝑡 denotes the inflation rate, 𝐼𝑁𝑇𝑅𝑡 is the interest rate, 𝐸𝑋𝑅𝑇𝑡 refers to the exchange rate, and 𝐿𝑆𝑀𝐸𝑡 captures loans and advances to SMEs. Monetary transmission theory postulates that an expansion in money supply reduces interest rates and increases credit availability, thereby lowering financing constraints for SMEs. This can be formalized through an investment function: 𝐼𝑡= 𝛼0+ 𝛼1𝑀𝑆𝑈𝑃𝑡− 𝛼2𝐼𝑁𝑇𝑅𝑡+ 𝜈𝑡 (2) where 𝐼𝑡 is investment in SMEs, 𝛼1> 0 reflects the positive influence of monetary expansion, and 𝛼2< 0 reflects the dampening effect of high interest rates. Investment subsequently translates into SME growth through capital accumulation: 𝐺𝑆𝑀𝐸𝑡= 𝛿0+ 𝛿1𝐼𝑡+ 𝜖𝑡 (3) Thus, combining (2) and (3), SME growth is positively related to money supply and negatively related to interest rates, holding other factors constant. Inflation affects SMEs through both cost-push and demand-pull channels. Moderate inflation may raise demand and revenues, while excessive inflation distorts relative prices and raises input costs (Fischer, 1993). A simplified representation is: 𝐺𝑆𝑀𝐸𝑡= 𝜃0+ 𝜃1𝐼𝑁𝐹𝐿𝑡+ 𝜂𝑡 (4) International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 609 where the sign of 𝜃1 is theoretically ambiguous, depending on whether inflation enhances demand (positive) or imposes cost pressures (negative). Exchange rate fluctuations influence SMEs through import costs, export competitiveness, and access to foreign inputs. A depreciation of the domestic currency may benefit SMEs producing tradables but hurt those reliant on imported inputs (Osazevbaru, 2021). This can be modeled as: 𝐺𝑆𝑀𝐸𝑡= 𝜆0+ 𝜆1𝐸𝑋𝑅𝑇𝑡+ 𝜉𝑡 (5) where 𝜆1> 0 if exchange rate depreciation enhances SME competitiveness in tradable sectors, and 𝜆1< 0 assuming that it increases the cost of production by using imported goods. Lastly, credit to the SMEs is an important facilitating element, which alleviates liquidity pressures and exerts greater impacts on the macroeconomic conditions (Beck and DemirgucKunt, 2006). Borrowing by the SMEs levels off the impact of other macroeconomic variable which can be expressed in terms of interactions: 𝐺𝑆𝑀𝐸𝑡= 𝜙0+ 𝜙1𝐿𝑆𝑀𝐸𝑡+ 𝜙2(𝑀𝑆𝑈𝑃𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝜙3(𝐼𝑁𝐹𝐿𝑡× 𝐿𝑆𝑀𝐸𝑡) + 𝜙4(𝐼𝑁𝑇𝑅𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝜙5(𝐸𝑋𝑅𝑇𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝜁𝑡 (6) Equation (6) brings out the fact that the influence of macroeconomic indicators on the growth of SMEs is conditional on a level of credit pushed to SMEs. Increased credit improves absorbency capacity of SMEs so that they can take advantage of good monetary and exchange rate environment and absorb negative inflation and financial shocks. 3.2. Data and Methods The paper used annual time-series annual data of Nigeria between 1990-2023 based on the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS), and World Development Indicators (WDI). The data were analyzed in relation to the influence of the main macroeconomic variables, including money supply (MSUP), inflation (INFL), interest rate (INTR), exchange rate (EXRT) and loans to SMEs (LSME) on development of small and medium-sized enterprises (GSME), represented by the growth rate of the contribution of SMEs to gross domestic product (GDP). Table 1 gives the definition and measurement of the variables under the model and their sources of data. International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 610 Table 1: Variable definition and data sources Variable Abbreviation Measurement/Proxy Source Growth of SMEs GSME Growth rate of SMEs’ contribution to GDP NBS, CBN Loans to SMEs LSME Ratio of loans and advances to SMEs relative to total credit (%) CBN Statistical Bulletin Money Supply MSUP Broad money supply (M2) as a percentage of GDP CBN, WDI Inflation INFL Annual consumer price index (CPI, %) CBN, WDI Interest Rate INTR Lending interest rate (%) CBN Statistical Bulletin Exchange Rate EXRT Naira to US Dollar nominal exchange rate CBN Statistical Bulletin Source: Author (2024) To investigate the long-run impact of macroeconomic variables on SME growth, the baseline model is specified as: 𝐺𝑆𝑀𝐸𝑡= 𝛽0+ 𝛽1𝐿𝑆𝑀𝐸𝑡+ 𝛽2𝑀𝑆𝑈𝑃𝑡+ 𝛽3𝐼𝑁𝐹𝐿𝑡+ 𝛽4𝐼𝑁𝑇𝑅𝑡+ 𝛽5𝐸𝑋𝑅𝑇𝑡+ 𝜇𝑡 (7) where 𝐺𝑆𝑀𝐸𝑡 represents SME growth at time 𝑡, 𝐿𝑆𝑀𝐸𝑡 denotes loans and advances to SMEs, 𝑀𝑆𝑈𝑃𝑡 is money supply, 𝐼𝑁𝐹𝐿𝑡 is the inflation rate, 𝐼𝑁𝑇𝑅𝑡 is the interest rate, and 𝐸𝑋𝑅𝑇𝑡 is the exchange rate. 𝜇𝑡 is the error term. Given the possibility of non-stationarity in macroeconomic time series, preliminary tests for unit roots were performed using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests. Once the order of integration was confirmed, cointegration tests following EngleGranger and Phillips-Ouliaris approaches were used to verify the presence of a long-run equilibrium relationship among the variables. A sensitivity specification was also estimated to examine the moderating role of loans to SMEs on the relationship between macroeconomic variables and SME growth: 𝐺𝑆𝑀𝐸𝑡= 𝛼0+ 𝛼1𝐿𝑆𝑀𝐸𝑡+ 𝛼2(𝑀𝑆𝑈𝑃𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝛼3(𝐼𝑁𝐹𝐿𝑡× 𝐿𝑆𝑀𝐸𝑡) + 𝛼4(𝐼𝑁𝑇𝑅𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝛼5(𝐸𝑋𝑅𝑇𝑡× 𝐿𝑆𝑀𝐸𝑡)+ 𝜖𝑡 (8) Equation (2) enables the assessment of whether SME-targeted credit policies condition the impact of macroeconomic variables on growth. The Fully Modified Ordinary Least Squares (FMOLS) estimator was employed to estimate equations (1) and (2). FMOLS is particularly suitable for cointegrated time-series models as it corrects for both serial correlation and endogeneity arising from the existence of a long-run relationship between dependent and explanatory variables (Phillips & Hansen, 1990). Unlike Ordinary Least Squares (OLS), FMOLS provides unbiased and consistent long-run estimates in the presence of non-stationary regressors, which is common in macroeconomic data. International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 617 view of interest rates as merely a financing cost and reflects the Nigerian context, where higher rates can incentivize banks to extend more credit to SMEs. Policy should therefore focus on deepening financial intermediation by creating incentives for commercial banks to expand SME lending portfolios while also developing alternative financing mechanisms such as venture capital, credit guarantees, and fintech platforms. Strengthening the regulatory framework for credit information sharing will also reduce asymmetry and expand access to affordable loans (Ogunlokun & Adeleke, 2021). Fourth, the positive impact of exchange rate depreciation on SME growth highlights the importance of supporting export-oriented and tradable sector SMEs. A weaker currency can enhance competitiveness in international markets, provided SMEs are sufficiently integrated into export value chains. However, SMEs heavily reliant on imported raw materials may face adverse cost pressures. Thus, policymakers should promote local sourcing of inputs through targeted industrial policies, subsidies, and capacity-building initiatives to reduce external dependence. This approach aligns with broader strategies of structural transformation aimed at building resilience against external shocks (Asongu & Odhiambo, 2021). Fifth, the robustness analysis demonstrates that access to loans amplifies the positive effects of macroeconomic variables on SME growth, indicating that credit is not only a direct driver of performance but also a moderator of macroeconomic shocks. Policymakers should, therefore, focus on increasing access to cheap credit to the SMEs by creating sustainable intervention programs like the Agricultural Credit Guarantee Scheme and development finance schemes that are targeted at the SMEs. Furthermore, it is possible to popularize digital lending facilities and empower microfinance organizations to expand coverage to rural and peri-urban underserved enterprises (Ajayi et al., 2021). Lastly, the validity of these policy prescriptions is supported by the validity of the diagnostic results proving the fact that a regression model is valid. Nigeria can achieve this by ensuring that the monetary, financial and exchange rate policies are coordinated to enable the establishment of stable macroeconomic environment to support SME growth. Notably, institutional reforms to augment governance, minimize policy uncertainty, and improved infrastructure should match such policies and they are unavoidable to the survival and longterm development of SMEs (Oyadeyi, 2024). International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 618 5. Conclusion This paper has looked at how macroeconomic factors, including money supply, inflation, interest rates, and the exchange rates influence the growth of SMEs in Nigeria without disregarding the moderating factor of credit supply. The estimates of FMOLS, the findings indicate that the macroeconomic dynamics exert considerable effects on SME growth, and money supply, as well as access to credit, have especially great impacts. The results highlight that macroeconomic shocks are here to stay, as the tests of the stationarity depict, and that long-run cointegrated configurations exist to tie the performance of SMEs to the monetary and financial states of affairs. Regression analysis proves that money supply has a strong positive effect on SME growth, which justifies the Keynesian statement that liquidity expansion contributes to aggregate demand and investment. Interestingly, there are also positive effects on the inflation and interest rates, which indicate that, in the Nigerian context, a moderately increasing inflation will attract demand and an adjustment of interest rates will be an incentive to banks to lend. Additionally, the depreciation of the exchange rate promotes the growth of SMEs especially in the trade sectors but this depends on the ability of the firms to contain input costs. These findings support previous findings according to which effects of macroeconomic factors in emerging markets are contextual and determined by structural factors (Akpan and Atan, 2015; Anidiobu, Okolie, and Oleka, 2018). It is important to note that the robustness analysis indicates that credit availability does not only directly determine SME growth but is also very crucial in moderating macroeconomic impacts. The more SMEs have access to loans, the more they can enjoy the monetary expansion, resist the pressure of inflation, and take the opportunities that emerge due to the change in the exchange rates. This supports the position that financial inclusion plays a crucial role in the process of applying macroeconomic stability to firm-level growth (Ajayi et al., 2021). The post-estimation diagnostics also form another assurance that the results are reliable and the policy recommendations that will be made are based on strong evidence. Out of these findings, a number of recommendations can be made. To begin with, financial institutions are encouraged to engage in specific liquidity policies that will increase the credit to SMEs by providing special financing programs. These policies must be well measured so as to prevent excessive inflationary pressures. Second, inflation management must aim at ensuring moderate and stable rates that promote productive investment without jeopardizing the purchasing power. This requires the tightening of the inflation-targeting system of the International Journal of Social and Educational Innovation (IJSEIro) Volume 12/ Issue 23/ 2025 619 Central Bank of Nigeria, and a better coordination of fiscal and monetary policies (Alymkulova and Ohaegbu, 2023). Third, the policies must intensify financial intermediation and expand access to cheap credit by the SMEs. This is possible by using new products like credit guarantees, fintech lending products, and regulatory reforms to mitigate information asymmetries. Moreover, it is possible to support microfinance organizations and cooperative banks that will allow them to offer credits to SMEs in low-density regions (Ogunlokun and Adeleke, 2021). Fourth policies that govern exchange rate management are to be structured to reduce volatility and increase competitiveness of SMEs on the trading sectors. The resilience of SMEs to external shocks will be enhanced by complementary strategies to decrease dependence on imported inputs with the assistance of industrial policies and the development of local value chains (Asongu & Odhiambo, 2021). Lastly, the policies targeted at SMEs should be part and parcel of the development agenda in Nigeria. In addition to macroeconomic management, institutional reforms in good governance, lessening policy uncertainty, and enabling infrastructure are also essential in realizing the growth potential of SMEs. Based on recent evidence, to ensure sustainable development” of SMEs, it is necessary to have not only the macroeconomic environment but also favorable institutional environment to encourage innovation, productivity and competitiveness (Oyadeyi, 2024). References Aghion, P., Antonin, C., & Bunel, S. (2021). The power of creative destruction: Economic upheaval and the wealth of nations. Belknap Press of Harvard University Press. Ajayi, O. I., Ajuwon, O., & Ikhide, S. (2021). Access to finance and performance of services sector MSMEs in Nigeria. Oradea Journal of Business and Economics, 6(2), 8–20. https://doi.org/10.47535/1991ojbe125 Ajuwon, O., Ikhide, S., & Akotey, J. O. (2017). MSMEs and employment generation in Nigeria. 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