Impact Of Microfinance Banks' Credit On The Growth Of The Nigerian Economy

ABSTRACT

This study investigated the impact of microfinance banks' credit on economic growth in Nigeria over a period of twenty five years from 1992-2016. The study utilized secondary data sourced from the Central Bank of Nigeria (CBN) statistical bulletin, CBN annual reports and World Bank Development Index. An ex-post facto design was used to validate the link between microfinance banks' credit and economic growth. The Augmented Dickey-Fuller Unit Root Test was employed to ascertain data stationarity and Cointegration test was also conducted to determine long-run relationship of variables studied. The coefficient of multiple determination (R297.73%) indicated a high level of goodness of fit. Empirical evidence from the study showed that microfinance banks' credit significantly influenced economic growth of Nigeria within the reference period. The results of the study indicated that microfinance banks' performing loans, non-performing loans and other variables used in the model significantly affected the growth of Nigeria's economy based on their magnitude and the levels of significance. This study therefore recommends that regulatory institution should set up and implement effective policies that will address the issue of non-performing loans in microfinance banks to reduce its dampening and withdrawal effect on the economy. This will enable borrowers take repayment of microfinance loans very seriously considering the role microfinance banks play in accomplishing financial inclusion targets. Microfinance institutions should continue to channel more proportion of their credits to the productive and real sectors of the economy as they have always done which will guarantee sustainable growth in the Nigerian economy. Also existing credit evaluation and administration policies of Microfinance banks should be reviewed to include special rewards system to credit approving officers for timely loan recovery. Microfinance banks (MFBs) should be on the lead in terms of ethical and professional conduct by ensuring that soft loans are given to credible and promising entrepreneurs.