The Impact of Microfinance Institution on Economic Growth in Nigeria

ABSTRACT

The main objective of the study was to examine the effects of microfinance institution on economic growth in Nigeria. To achieve this, two hypotheses were formulated for testing and data were collected from the Central Bank of Nigeria annual statistical bulletin from 1992 to 2018. A multiple regression model was specified while Fully Modified Ordinary Least Sqaure (FMOLS) was used as the data estimation technique at 5% significance level. Descriptive analysis, Unit root and cointegration tests were conducted. Findings from the FMOLS result shows that That microfinance Assets has a significant positive impact on short run economic performance in Nigeria. The findings also show that Microfinance bank loan to deposit ratio have significant impact on economic performance in the long run in Nigeria. However, Microfinance banks liquidity ratio does not have a significant impact on economic growth in the long run. The coefficient of microfinance LIQR failed the significance test in the long run model. The study recommends that The initial focus of microfinance institutions should be providing loans to improve consumption in the short run. The long run goal should then be to improve investment and other capital accumulation. It is these channels of participation in the economy that will ensure optimal use of the microfinance resources in the country with the target of achieving sustainable growth. Thus, for sustainable growth to take place in Nigeria, loans from MFBs should be channeled for short term issues while investment should be channeled to long term issues. That micro finance banks do not ensure rapid long run consumption equilibrium. Boosting consumption and increasing income streams should be the main focus of microfinance loans so as to address short term challenges.

Keywords: Microfinance institution, Economic growth, Fully Modified Ordinary Least Square Model, Nigeria.