Effect of Informal Finance on the Performance of Small Business in Yola Metropolis, Adamawa State Nigeria

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Authors: Mohammed Zhulqarnaini Mustapha, Hauwa Modu Kumshe

Abstract

This study examines the effect of informal finance sources on the performance of small businesses in Yola Metropolis, Adamawa State. Informal finance is operationalized using contributory savings groups, family and friends, trade credit, and loan sharks. Business performance is measured through customer satisfaction, customer loyalty, customer patronage, and competitive advantage. Product quality is introduced as a mediating variable to explain how informal financing influences business outcomes. A descriptive survey design was adopted, and data were collected using structured questionnaires administered to 150 small business operators selected through stratified random sampling. Data were analyzed using descriptive statistics, multiple regression, and mediation analysis. Results show that contributory savings, family and friends, and trade credit have positive and significant effects on performance, while loan sharks exhibit a negative significant effect. Product quality significantly mediates the relationship between informal finance and performance, indicating that businesses with access to supportive informal finance invest more in quality improvements that enhance customer-based outcomes. The study recommends strengthening community-based financing structures, discouraging exploitative lending practices, and integrating informal finance into MSME development frameworks.

Keywords: Informal finance, small business performance, contributory savings, customer loyalty, product quality, Yola Metropolis

6. 2025 - NIJAF - 17 - 206 Mohammed & Kumshe.pdf

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