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The study seeks to examine the impact of microfinance institution on economic growth of a country, thus using Nigeria as a case study. The study employs the multiple regression analysis given that the data are cross-sectional and time series in nature. Secondary data of all commercial banks were extracted from the Central Bank of Nigeria statistical Bulletin and Annual Reports. Data used in this model are time series secondary data for the period 1992 to 2012.The findings of the study show that microfinance loans have a significant positive impact on the short run economic performance in Nigeria. Microfinance loans enhanced consumption per capita in short run with an impressive coefficient, although these banks‘ loans do not have a significant impact on economic growth in the long run. Microfinance investment however, has a significant impact on economic performance in Nigeria in the long run. Although micro finance loans are relevant in growth process in Nigeria, other measures such as boosting agricultural production and taking appropriate steps to enhance per capita income are equally important in boosting the Nigerian economic growth. We recommend that, microfinance institutions should loan to improve consumption in the short run, while the long run goal should be to improve investment and other capital accumulation.



1.1 The Background of the Study

 Microfinance banking today in Nigeria and the world over, occupies a very strategic position in the enhancement of the socio-economic well-being of the poor who are -2- typically self–employed low income entrepreneurs such as traders, street vendors, small farmers, hairdressers, barbers, GSM commercial operators, artisans and a host of others. Microfinance literally means building finance system that effectively and efficiently serves the needs of the poor. It is a powerful tool for fighting poverty the world over. This is true because when poor people have access to financial services, they can earn more, build their assets and cushion themselves against external shocks as they arise (Drechsel et al., 2012). According to Central Bank of Nigeria (2013), microfinance bank is the provision of a broad range of financial services such as savings, loans payment services, money transfers and insurance to the poor and low income persons, households and their microenterprises. According to Robinson (2002), microfinance enables clients to protect, diversify and increase their incomes as well as to accumulate assets and reduce vulnerability to income and consumption shocks. Seibel (2001) sees microfinance banking in a wider term as comprising banking and non-banking, formal and non-formal financial institutions with financial services of a small scale mostly to low income people and that the term micro banking is used for regulated microfinance institution belonging to the banking sector. According to the United Nations (2012), Nigeria has a total population of about 160 million people with approximately 70% (98 million) living below the poverty level estimated at US $1.25 per day. GNI per Capita is approximatey US$ 1140 with life expectancy at 48. The total adult population (18 years and above) is 84.7million and 70% of adults live in rural areas with 51% male and 49% female. According to Osamwonyi and Obayagbona (2012), the role of microfinance banking in the growth and development of the Nigerian economy cannot be underestimated in view of the astronomically growing population, coupled with the rising unemployment rate and youth restiveness; the government is facing a lot of challenges in providing enough jobs for the populace. One sure way to combating unemployment is to empower people with the necessary microfinance loans and services that will enable them start up or run business ventures of their choice . In this study we shall examine the impact of microfinance institutions on economic growth. Statement of Research Problem The development of a healthy national financial system is an important goal and catalyst for the broader goal of national economic development. In this era of globalization, generating economic growth in developing countries while reducing poverty is a fundamental challenge. Over time, inadequate supply of credit has been an important constraint on production in many developing countries where majority of the population lack access to financial services from formal institutions, either for credit or for savings. A serious problem however confronting many developing countries is the savings gap, which essentially means that these countries find it difficult to finance investments needed for growth from domestic saving (Walker, 1999).


The broad objective of the study is to determine the impact of microfinance bank on the economic growth in Nigeria. However, other sub-objectives are to: i. Determine the relationship between micro finance bank loans and economic growth in Nigeria. Accordingto Ademola & Arogundade (2014), credit delivery is one of the most important roles of microfinance banks as the loan extended are used to expand existing businesses and in some cases, to start new ones. Ketu (2008) observed that microfinance banks have disbursed more than 800 million micro credits to over 13000 farmers across the country to empower their production practices. He found that loans and advances have positive impact on economic growth and development and that microfinance loans are statistically significant in explaining changes in economic growth and development at 0.15 level of significance. ii. Determine the relationship between micro finance bank investment and economic growth in Nigeria. Ademola and Arogundede (2014) examined the impact of microfinance to economy growth and development in Nigeria laying emphases on the primary role of microfinance institutions which is poverty reduction and small scale enterprise financing. Using secondary data, the OLS multiple regression revealed that microfinance activities have a significant impact on economic growth and development in Nigeria. If this is true, it therefore means that more investments by microfinance institutions will mean more reduction in poverty, more employment generation and more contribution to economic growth. iii. Examine the relationship between microfinance bank deposit and economic growth in Nigeria. Microfinance bank deposits are products of customers‘ savings which are a source of loans to microfinance customers. Reddy & Malik (2011) asserted that savings mobilized from local depositors will ultimately be the largest source of Idewele, I. E. O. & Murad, A. B.: The Impact of Mıcrofınance Instıtutıon In Economıc Growth of A Country: -4- capital for microfinance. The public is encouraged to save so as to create deposits. If microfinance is successful by the measure of any of its aim in Nigeria, including raising income, promoting entrepreneurship, advancing loans, engaging in domestic fund transfer and encouraging savings, then over time, the impact assessment especially in the area of effects on savings mobilization can be gauged. iv. Determine the relationship between micro finance bank contributions to agricultural production and economic growth In Nigeria. Agriculture constitutes an indeed major part of developing countries‘ GDP and a large part of rural households‘ monetary income. Microfinance banks provide credit to the under banked sector of the economy and development of rural areas as well as the financial empowerment of those areas. It is believed that improved agricultural sector cannot be achieved without funds. Thus, through microfinance institution, funds are made available to the farmers in appropriately interpreted form to enhance the farmer‘s usage of loan. Research Hypotheses The following are the null hypotheses that were used for the study: Ho1. There is no significant relationship between micro finance bank loans and economic growth in Nigeria; Ho2 There is no significant relationship between micro finance bank investment and economic growth in Nigeria; Ho3 Microfinance deposit has no significant impact on economic growth in Nigeria; Ho4 There is no significant relationship between micro finance bank contributions to agricultural production and economic growth in Nigeria.


The results of this study will be of immense benefit to various stakeholders in the microfinance banking sector of the Nigerian economy, Secondly, it will also assist microfinance banks managers in the banking sector in managing their investment more effectively by adopting appropriate polices and strategies that will take cognizance of risks peculiar to the microfinance bank in the Nigerian banking sector.Thirdly, it will also enhance the knowledge of researchers and students in management sciences on the relevance of microfinance bank to economic growth and thus stimulate their interest in this area. Such interest could lead to further researches which may seek to verify the results of this study or to replicate same using different methodologies or different populations.


 This study focuses on the analyses of the relationship between microfinance bank and economic development in Nigeria. It covers an interval of 21 years (1992 to 2012). The International Journal of Development and Management Review (INJODEMAR) Vol.12 No. 1 June, 2017 -5- choice of this period is based on the fact that most of the reforms initiated by the Federal Government of Nigeria through the instrumentality of the apex bank (The Central Bank of Nigeria) in the microfinance banks took place during this era.


 One cannot gurantee a 100% accuracy of the information with a view to be used, its measurement, as well as the method of data analysis; as it may affect the robustness of the study.


Microfinance bank deposits and eonomic development Microfinance bank deposits are products of customers‘ savings which are a source of loans to microfinance customers. Ogunleye and Akanbi (2014) asserted that the low level of microfinance deposit can be attributed to the general low level of income and the low confidence of the saving public in microfinance institution. Taiwo (2005), found that the saving habits of microfinance customers improved with the provision of microfinance services and their monthly income increased as loan facilities were granted.


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