The Impact of Microfinance Banks on Economic Growth in Nigeria

Abstract

This paper investigates the impact of microfinance banks on economic growth in Nigeria over the period of 1992-2013. This study made use of quantitative secondary data from the Central Bank of Nigeria (CBN) statistical bulletin (2013) to carry out this study. The empirical perspective of this study employed the Augmented Dickey-Fuller Unit Root Test, cointegration test, error correction model (ECM) and the parsimonious test. Empirical evidence from the study has shown that the activities of microfinance bank has the capacity to influence the entire economy if it is well coordinated. The results of the study indicate that microfinance bank loans and domestic investment significantly and positively affect the growth of Nigeria's economy based on the magnitude and the level of significance of the coefficient and p-value and, there is a long-run relationship between microfinance bank loans, investment and economic growth in Nigeria. The implication of this finding is that if loans extended by the microfinance banks to the business sector do not increase it will not generate a corresponding increase in the growth of Nigerian economy. This study therefore recommends that Microfinance banks (MFBs) should be front-liners of ethical and professional conduct by ensuring that soft loans are given to credible and promising entrepreneurs.