American Journal of Business, Economics and Management 2018; 6(3): 57-65 http://www.openscienceonline.com/journal/ajbem ISSN: 2381-4462 (Print); ISSN: 2381-4470 (Online) Banks’ Intermediation Role and Small Scale Enterprises Performance: Empirical Evidence from Vector Error Correction Mechanism Yusuf Olatunji Oyedeko Department of Banking and Finance, Achievers University, Owo, Nigeria Email address To cite this article Yusuf Olatunji Oyedeko. Banks’ Intermediation Role and Small Scale Enterprises Performance: Empirical Evidence from Vector Error Correction Mechanism. American Journal of Business, Economics and Management. Vol. 6, No. 3, 2018, pp. 57-65. Received: June 9, 2018; Accepted: July 12, 2018; Published: September 21, 2018 Abstract Financial intermediaries such as banks, acting as agents specifically fill the information gaps between ultimate savers and investors. The funds mobilized from numerous customers are aggregated and disbursed as credit facilities to the deficit sector usually the investors. These facilities in form of loans and advances facilitate the exploration and expansion of productive investment by small, medium and large scale industries. Thus, the study examines effect of banks’ intermediation role on performance of small scale enterprises in Nigeria. Expos-facto research design was used and the population of the study comprises all the deposit money banks operating in Nigeria as 31st December, 2017. This study used secondary data, extracted from the CBN Statistical Bulletin. The data are time series in nature which cover thirty-six years period from 1981 to 2016 and were analyzed through Vector Error Correction Mechanism. The study found that in the long run banks’ loan and advance and lending rate have positive significant effect on performance of small scale enterprises while the inflation rate has negative significant effect on performance of small scale enterprises in the long run. The study concluded banks intermediation role through granting of credit facility has a long-run effect on the performance of the small enterprises and this will enhance the Nigerian economy in the long run. The implication of this study is that an increase in the loan and advances in the long-run will promote more productive investment activities to increase capital formation in the country. In view of this, the study recommends that Central bank of Nigeria should adopt appropriate mechanism to control the inflation rate in the economy as this has a great effect on the loan and advances given to the small scale enterprises. Keywords Banks’ Intermediation Role, VECM, Expos-Facto, Performance of Small Scale Enterprise 1. Introduction Development of small scale enterprises is an instrument through which sustainable development can be attained. It ensures that the general population can attain an acceptable level of welfare both at present and in the future. This corroborate with the assertion of [3] who view that one of the instruments that have been utilized to reduce poverty and promote economic development is the promotion of small and medium scale enterprises. In recognition of the above statement, one of the major sources of funds for the survival of the small and medium enterprises to perform their expected role of rapid industrialization and economic growth is commercial banks’ credit. Commercial banks through their financial intermediation role are expected to provide financial leverage for small and medium scale enterprises. Contrary to this, in most developing countries in Sub-Sahara Africa including Nigeria, small and medium scale enterprises are plagued with paucity of capital, thus affecting their ability to grow ([17]). Given the fact that small and medium enterprises have been generally acknowledged as the bedrock of industrial development of nations across the globe and financial institutions especially Deposit Money Banks are theoretically expected to provide financial succour for their growth. The significant role played by small and medium scale enterprises in the economic growth process of nations propel the need for more researches in this area. Thus, vast researches have been conducted on roles of commercial banks on the performance of small and medium enterprises