REGULATION OF NIGERIAN MICROFINANCE SECTOR: CHALLENGES AND PROSPECTS (A CASE STUDY OF LAPO MICROFINANCE)

ABSTRACT
The study empirically evaluate the reforms in the regulatory and supervisory framework in the Nigerian microfinance banking industry The Lift Above Poverty Organization (LAPO) microfinance bank was used as a case study in the empirical analysis due to its spread and states covered by in their operation (27 states out of 36) and its classification (category 3 –National Microfinance Banks). Using monthly data from the bank covering 2007 to 2012 period, the structural change in some bank indicator-variables were empirically examined. Analysis of Variance (ANOVA) and regression techniques were employed in the study.
The result shows that regulation-inspired transformation of the microfinance banks had a positive effect on banks’ client base. A structural break was demonstrated in the client base trend in the banks during the 2010 period, while the econometric investigation show that the response of the banks to regulation was a significant improvement in the banks’ client base; regulations caused a significant shift in the level of savings balance in the microfinance banks and loan portfolio of microfinance banks changed significantly following the tightening of regulations and supervision of microfinance banks in the country; that regulations caused a significant shift in the loan disbursement level of the microfinance bank; and the tightening in regulations did not seem to significantly affect the portfolio at risk (PAR) of the microfinance bank.
The study recommends among others that the reserve requirements for microfinance banks should be regulated to ensure smooth lending capability, supervisory framework should also be put in place to stabilize portfolios and ensure strict adherence to reserve requirements, and prudential standards must be adjusted to reflect the specialized nature of microfinance in the area of pro-poor financial dealings in Nigeria.