Effects of Deposit Mobilization on Financial Performance (Profitability) of Microfinance Banks in Nigeria

Abstract

The study examined the effects of deposit mobilization on the financial performance of microfinance banks in Nigeria between 2012 and 2021. The study employed real interest rate and gross capital formation as control variables. This study utilized the exploratory research design and the population of the study consisted of all the microfinance banks in Cross River State and Abia State. A purposive/judgment sampling technique was used. Data for the study were obtained from the annual reports of various microfinance banks in the selected states in Nigeria. Regression models were estimated and analyzed using panel random-effects, and fixed effects. From the result of these analyses, the findings of the research were summarized as follows: there was a positive and significant effect of the demand deposit variable on the financial performance of microfinance banks in Nigeria; there was a negative and significant effect of savings deposit variable on the financial performance of microfinance banks in Nigeria. The study therefore recommended that Commercial banks, and Microfinance banks in particular, should intensify efforts on deposit mobilization as one of their main financing options in the Nigerian financial system, as the study has confirmed that microfinance banks largely depended on deposits for financing their operations. Besides, banks should implement effective strategies promoting prize-linked-savings such as to mobilize more deposits from both the formal and informal sectors of the economy. Both strategies would enhance their profitability rating in the Nigerian banking environment in the years ahead.