Determinants of Corporate Failure in Nigeria: An Examination of Microfinance Banks Using a Pragmatic Approach

Abstract

Microfinance banks in Nigeria were created in 2005 to provide credit facilities to the economically active rural dwellers, low-income earners and so on. However, some few years after their creation, some of them started experiencing corporate failure which consequently resulted to some been closed down and their licenses revoked by the central bank of Nigeria (CBN). The objective of the research is to establish whether or not inadequate capital, poor asset quality, management inefficiency, poor earnings ability and illiquidity are determinants of Microfinance banks failure in Nigeria. This study is aligned with the pragmatic paradigm or mixed approach philosophy. In this regard the research combines the constructivism and post positivism philosophies. The mixed design adopted is exploratory sequential and the research method is interpretive and post action cross sectional case study. The research used both primary and secondary sources of data, semi structured interview and ratios were the technique used for data collection and extraction. Explicitation, panel logit and corrected standard error multiple regressions were employed as the techniques of analysis. The finding on inadequate capital was significant at <5%. The study concludes that inadequate capital is significantly a determinant of failure of microfinance banks in Nigerian. This implies that the CBN policy on mandating microfinance banks to shore up their capital base by meeting their peculiar capital requirement by April 2021 and April 2022 is adequate and in the right direction. The study strongly recommends that CBN should sanction banks that could not meet the deadline of April 2021 and April 2022 on minimum capital requirement as this will make banks have adequate capital.