Microfinance Banks and Economic Development in Nigeria

Background: Microfinance banks play a crucial role in promoting economic growth and financial inclusion by offering credit and financial services to underserved populations. Aims: This study examines the relationships between Per Capita Income (PCI) and selected financial indicators, including Loans and Advances (LA), Deposit Liabilities (DL), Total Assets (TA), and Total Earnings (TE), to assess the contribution of microfinance banks to economic growth. Methods: Econometric techniques, including descriptive statistics, unit root tests, Johansen cointegration analysis, and the Fully Modified Ordinary Least Squares (FMOLS) model, are employed to examine both short- and long-term relationships among the variables. Sample: The dataset comprises quarterly financial records from microfinance banks, providing insights into the interaction between financial performance indicators and per capita income. Results: The cointegration analysis reveals no long-term equilibrium relationships. However, FMOLS results indicate that Loans and Advances and Total Assets have significant positive effects on Per Capita Income, while Deposit Liabilities and Total Earnings do not. Conclusions: Loans and Advances, along with Total Assets, are key drivers of per capita income growth in the microfinance sector. Implications: Policymakers should prioritise reforms to improve credit accessibility and asset management, fostering sustainable economic growth through microfinance institutions.