EFFECT OF COLLATERAL REQUIREMENT AND HUMAN CAPITAL ON THE PERFORMANCE OF MSMEs IN GOMBE STATE

Abstract

The aim of this paper is to investigate the effect of collateral requirement and human capital on SMEs’ performance in Gombe state. There are 1745 registered MSMEs in Gombe state as at 2024 which serve as the population of this study. Accordingly, sample of 324 were computed using Taro Yamane formula and selected using convenience sampling technique. Based on that, the study collects data using primary method with self-administered questionnaire and analyzed with Partial Least Square Structural Equation Modeling (PLS-SEM) via SmartPLS software. The study found that collateral requirement has significant positive effect on SMEs’ performance in Gombe state of Nigeria, while human capital has an insignificant effect on MSMEs performance. In view of the aforementioned result, this study recommends the need for authorities and financial institutions to recognize non-traditional forms of collaterals such as inventory, receivables or intellectual property to accommodate MSMEs that may not have significant physical assets. Also, financial service providers should develop collateral-free loans especially for very micro or new MSMEs exclusively in high-potential sectors. Lastly, MSMEs are advised to establish training and development programs for their management personnel and tailor these programs to meet specific needs of their industry and market requirement and ensure that the participants acquire skills that exclusively contribute to their business objectives.