A Decade of Microfinance Banks’ Operations and Economic Development in Nigeria

Abstract

This study looks at a decade of microfinance banking operations in Nigeria and its impact on Economic development. The main objective of this paper is to investigate empirically the impact of a decade of microfinance bank operations on economic development in Nigeria spanning from 2005 to 2014. The data were sourced from Central Bank of Nigeria while the Ordinary Least Squares method of multiple regression analysis and Granger Causality Test were employed to determine the short run relationship and the causality between the variables utilizing E-view 6 package.  Human Development Index (HDI) is used as proxy for economic development while the two most prominent variables; Deposits and Loans are used as regressors to proxy Microfinance bank operations. The result showed that Deposit mobilization remains the key mover in microfinance bank operations and contributes positively to economic development while banks Loans exhibited a negative contributions which could be explained away by the high interest rates, diversions, heavy fees and harsh economic conditions which saw many clients always struggling to meet up with loan repayments. Outreach sufficiency is to be encouraged by ensuring the establishment of more MFBs; this will also help access to loans and entrench competition which will naturally drive down the loan charges to clients.

Key Words: microfinance bank, Economic development, Human Development Index