Determinants of Microfinance Bank Lending in Nigeria
Abstract
The study examined the determinants of microfinance bank lending in Nigeria for the period of 1994 – 2023. The study employed both the cointegration technique and the error correction mechanism to ascertain the short run and long run relationship between the dependent variable and the explanatory variables. The descriptive statistics was also used to describe the nature of variables in the data set. The data were sourced from the CBN Statistical Bulletin, 2023. The variables used in the study are Microfinance Banks’ Loans and Advances, Liquidity Ratio, Investments, Lending interest rate, cash reserve ratio and total deposits. Investment has a positive and significant impact on micro-finance bank lending in both the short and long-runs, The current total deposit has a positive and significant impact on microfinance bank lending in the short-run, while total deposit has positive and not statistically significant impact on microfinance bank lending, Liquidity ratio has a positive and not statistically significant impact on microfinance bank lending in Nigeria in the short-run, while the impact of liquidity ratio is negative and not statistically significant in the long-run, that lending rate has a negative and not statistically significant impact on microfinance bank lending in the short-run, while the lending rate has a positive and not statistically significant impact on microfinance bank lending in the long-run, Cash reserve ratio (current and previous) has a negative and not significant impact on microfinance bank lending in the short-run, although cash reserve ratio impact on microfinance bank lending in the long-run is positive and not statistically significant. The study recommends that Microfinance institutions should increase their investments in order to increase the size of their credit portfolio. This will give them more repository resources from which they can lend to the real sector of the economy which contribute to the overall economy.
