Financial Management Practices in Nigerian Micro, Small and Medium Enterprises: Challenges, Constraints, and Pathways to Sustainability

Abstract

In Nigeria, Micro, Small and Medium-Scale Enterprises (MSMEs) are widely regarded as the backbone of the country’s economy, contributing 46.32% of GDP and accounting for 96.9% of businesses and 87.9% of employment as of 2024. Yet a large share of Nigerian SMEs fails within their first five years, a pattern that scholars consistently link not to a shortage of entrepreneurial ambition but to weak financial management practices. This study examines financial management in Nigerian MSMEs across five interlocking dimensions: working capital and cash management, budgeting and financial planning, record-keeping and accounting information systems, access to credit and capital structure, and financial literacy and digital financial tool adoption. Drawing on empirical studies between 2024 and 2026, the study finds that financial management practices exert a significant, positive effect on SME performance and profitability, with budgeting practices frequently identified as the strongest predictor of profitability. At the same time, structural constraints, including a prolonged high-interest-rate environment, collateral requirements, weak documentation, and uneven digital and financial literacy, continue to restrict SMEs' ability to translate sound financial management into sustainable growth. The study reviews government and development-finance interventions designed to close the financing gap and concludes with practical recommendations for SME owner-managers, financial institutions, and policymakers. The analysis contributes to the broader literature on MSME sustainability in emerging economies and offers evidence-based guidance for strengthening the financial resilience of Nigeria's dominant enterprise sector.