DETERMINANTS OF MICROFINANCE BANKS LENDING IN NIGERIA

ABSTRACT
This study empirically examined the determinants of microfinance lending in Nigeria for the period 1988 to 2019. The study proceeded by first testing for stationarity and cointegration of the variables used in the estimation process. The macroeconomic variables considered in this study were Microfinance Banks total loans, interest rates, naira exchange rate, lending to deposit ratio, liquidity ratio and share holders’ fund, these variables were tested on how they affect microfinance bank lending in Nigeria. The data for analysis was gotten from the Central Bank Statistical Bulletin for 2019. The unit root results using Augmented Dickey Fuller (ADF) and Phillip-Perron (P-P) tests showed that the variables were integrated of order one. The residual-based cointegration tests showed that a long-run relationship exists between microfinance loan and the hypothesized determinants. The estimated regression results showed that in the short-run, increases in microfinance lending-deposit ratio and shareholders’ fund will spur higher lending for microfinance banks. In the long-run, higher prime lending rate of deposit money banks, higher lending-deposit ratio and liquidity ratio will encourage high lending for microfinance banks. The pairwise granger causality tests showed a one-way causality tests flowing from shareholders’ fund to microfinance bank lending. The study made the following recommendations: (i) Policies should be used to encourage higher microfinance bank lending-deposit ratio and higher liquidity ratio (ii) encourage strong coordination between microfinance banks and deposit money banks.