Assessing the Barriers to Green Finance Access among Small and Medium Enterprises in South-West Nigeria

Abstract

This research work examined the barriers that shape access to green finance among small and medium enterprises (SMEs) in South-West Nigeria. The study is positioned within Nigeria's broader low-carbon transition, where SMEs are expected to contribute to climate action, green innovation and inclusive economic growth, yet remain constrained by information gaps, regulatory uncertainty, institutional risk assessment practices, capacity-related challenges and uneven readiness among financial institutions. Drawing on Pecking Order Theory and Stakeholder Theory, the study adopted a survey design across selected commercial hubs in Ekiti, Lagos, Ogun, Ondo, Osun and Oyo states. The sampling frame comprised approximately 8,826 registered SMEs, with a target sample of 422 enterprises derived from Taro Yamane's formula with a non-response allowance. Data were analyzed using descriptive statistics and structural equation modelling. The descriptive results show high mean scores across all constructs, with capacity-related challenges (M = 4.50), financial institution challenges (M = 4.49), institutional barriers (M = 4.43), regulatory and policy barriers (M = 4.34), access to green finance (M = 4.30) and awareness of green finance (M = 4.27). The measurement model reported acceptable loadings, Cronbach's alpha coefficients, average variance extracted values and full collinearity VIFs, while the structural model demonstrated substantial explanatory power (ARS = 0.477; GoF = 0.511). The hypothesis results show that awareness of green finance (beta = 0.398, t = 7.709, p < 0.001), regulatory and policy barriers (beta = 0.321, t = 6.121, p < 0.001), institutional barriers (beta = -0.428, t = -2.258, p < 0.001), capacity-related challenges (beta = 0.282, t = 5.690, p < 0.001) and financial institution readiness (beta = 0.174, t = 3.458, p < 0.001) significantly predict access to green finance. The paper contributes to the literature by integrating firm-level SME evidence with recent empirical and policy research on green finance mechanisms, sustainable industrialization, renewable energy transition and inclusive green finance in Africa. It recommends sustained SME awareness, reduction of regulatory and policy barriers, capacity-building and a favourable operating environment for financial institutions to support SME access to green finance.