IMPACT ASSESSMENT OF MICROFINANCE BANKS ON NIGERIA'SECONOMIC DEVELOPMENT: (AN ARDL CO-INTEGRATION TECHNIQUE)

Abstract

This study investigates effect of Microfinance bank on Economic Development in Nigeria
over the period 21 years (2003 to 2024). The proxies of Microfinance bank are Microfinance
bank total Assets, Microfinance bank total Liability, and Microfinance bank Loans, while that
of Human Development is Human Development Index. Ex-post facto research design was
adopted in the study, with the use of secondary time series data, the data were source from
CBN Statistical Bulletin 2024; the data are analyzed using descriptive and inferential
statistic as well as ARDL method. Based on the findings, the study conclude that
Microfinance bank has significant effect on Human Development in Nigeria. The study
recommends that Regulatory policies should incentivize MFBs to expand their Assets
portfolios in underserved rural areas, not just accumulate assets in a concentrated area. Also
the regulatory authority should mandate that a small percentage (e.g., 0.5–1%) of annual
growth in microfinance bank assets be redirected into a pooled technical assistance fund,
jointly managed by the central bank and microfinance industry associations. Under
implementation mechanism, the microfinance bank allocates 0.5% of any year-on-year
increase in total assets to a regional fund whenever that increase reaches 10% or more. The
fund disbursed are then used to support community-based training centers run by local
cooperatives. Reevaluate microfinance bank strategy and assess whether microfinance
banks are effectively targeting the right sector or population. Also the Central Bank of
Nigeria (CBN) and development partners should foster linkages between MFBs and sectors
like primary healthcare and vocational education. Microfinance bank should also be
required to recycle a set minimum share typically 40-60% of their locally mobilized deposits
into working capital advances for formal sector sector enterprises. These advance would
carry zero collateral requirement and ultra- low fees, and be restricted to businesses
operating within a 15 kilometer radius. Financial literacy programs must be integrated with
credit access to ensure loans are used for productive, human-capital-enhancing activities. It
is also recommended that microfinance bank loans and advances be differentiated not solely
by risk or interest rate, but statutory minimum tenors aligned with the estimated breakeven
horizon of the financed activity. For instance, shorter tenors of 3-6 months would apply to
trade, while longer tenors of 12-24 months would suit light manufacturing or agroprocessing.