How Do Formal and Informal Financial Arrangements Influence the Growth and Routines of Small and Medium Scale Enterprises? A Qualitative Investigation of The Manufacturing Sector in Southwest Nigeria

There is a substantial body of empirical research on institutional arrangements through which financial relationships are structured in Africa. Although current literature on formal and informal financial institutional arrangement has advanced our understanding of their comparative importance, there is a dearth of empirical investigations on the implications of loan preconditions on the growth of/adoption of routines in small and medium enterprises (SMEs).. Thus, this study investigates the impact of formal and informal financial arrangements on SMEs growth and routine change in the Nigerian manufacturing sector. Semi-structured interviews were conducted with representatives of eleven SMEs that are beneficiaries of loans from formal and informal financial lenders were targeted. Nine representatives of formal and informal lenders were also interviewed. The outcome sheds light on how financial arrangements may impact growth and routine change amongst SMEs in Nigeria. The growth and routine change experienced by SME are shown to vary according to the loan attributes and preconditions associated with the type of lender respectively. Also, the findings reveal the nature of the interplay between formal and informal financial lenders and its consequences; such as improved access to loans, better enforcement, savings and disbursement; while also helping the government to achieve its lending target and easing the challenges of trust and quality relationships. These results contribute to the theoretical debate regarding the origins of routines and the mechanisms of routine change. Furthermore, it emphasises that further quantitative studies would be essential in investigating its relevance for (on) policy.