Abstract
This study examined the relationship between microfinance banking and Nigerian financial system development for a period of 25 years (1992 to 2017). The main objective of the study was to determine the impact of microfinance banking system on Nigerian financial system development overtime. The study employs statistical and econometric tool of descriptive statistics, correlation test, the Augmented Dickey-Fuller (ADF) unit root test, co-integration test, Ordinary least square techniques and error correction model (ECM) to determine both the short-run and long-run dynamics among the hypothesized variables.
The result from the analysis indicate that microfinance banks loans have significant positive impact on Nigerian financial system development in the short-run in Nigeria. Microfinance banks’ shareholders’ funds have significant impact on Nigerian financial system development. Microfinance banks’ investments have a positive impact on Nigerian financial system development on the long-run. Microfinance banks’ deposits have significant positive impact on Nigerian financial system development in the short-run in Nigeria. Number of microfinance banks have a significant impact on Nigerian financial system development in the short-run and in the long-run in Nigeria.
The study recommends amongst others that microfinance banks should give more loans and advances to the MSMEs in order to increase production, microfinance banks’ investments, microfinance banks’ shareholders’ funds, number of microfinance banks, and microfinance banks’ deposits should be increased because they have positive impact on Nigerian financial system development. The Central Bank of Nigeria (CBN) should formulate appropriate policies that will ensure capital adequacy and good corporate governance in microfinance banks. Microfinance banks should do more to empower petty traders, farmers, artisans, women and low income earners in the rural areas in order to boost Nigeria financial system development. It is this channels of participation in the Nigerian financial system that will ensure optimal use of the microfinance banks’ resources in the country with the target of achieving sustainable financial system development overtime.
