This research is focused on impact of microfinance bank on unemployment in Nigeria. Microfinance provides people with capital to start and/or expand their businesses, as small businesses with microfinance support have grown into medium enterprises creating employment opportunities for others. Survey research design was used to carry out the study. This study reveals that there is a casual relationship between lending and loan recovery in microfinance banks and there is a significant positive correlation between lending and loan recovery in Nigerian microfinance banks. It recommends that banks should device appropriate strategies to ensure adequate lending and loan recovery management, since not doing so could spell doom for the banks in terms of profitability. 


Title page                                                                                                    i

Approval                                                                                                    ii

Certification                                                                                                iii

Dedication                                                                                                  iv

Acknowledge                                                                                              v

Abstract                                                                                                      vi



  • Background of the Study                                                           1
  • Statement of the Problem                                                 4
  • Objectives of the Study           5
  • Research Questions                                                           5
  • Statement of Hypothesis           6

1.6     Significant of the Problems                                                      6

1.7     Scope of the Study                                                                                  7

1.8     Limitations of the Study                                                                    7


2.1     Conceptual framework                                                            9

2.1.1  Concept of Micro-Finance                                                       9

2.1.2  Microfinance in Nigeria                                                           11

2.1.3  Loan performance                                                                              13

2.1.4  Causes of loan repayment default                                            15

2.1.5  Five Cs of Credit Management                                                          17

2.2.0  Theoretical Literature                                                              19

2.3     Financial Constraint Theory and Model Generation                         23

2.4     Financial growth theory                                                          26

2.5     Empirical Literature                                                                 27

2.6     Summary of the Literature Review                                          30


3.1 Introduction                                                                                 32

3.2 Research Design                                                                          32

3.3     Sources of Data Collection                                                      33

3.3.1 Primary Source of Data                                                            33

3.4.2 Secondary Source of Data                                                                 34

3.4 Tools for Data Collection                                                            34

3.5 Population of the Study                                                              35

3.6     Sample and Sampling Techniques                                           36

3.7     Instrument for Data Collection                                                         37

3.8     Reliability and Validity of Data and Test Instruments            38

3.9     Data Analysis Techniques                                                       39


4.0      Introduction                                                                             40

4.1     Presentation of data                                                                 40

4.2     Analysis of Data                                                                     40

4.3     Discussion of Results                                                              65


5.1     Introduction                                                                                      66

  • Summary of Findings                                                             66
  • Conclusion           66
  • Recommendations           67

5.5     Area for Further Research                                                      67

REFERENCES                                                                                 68

APPENDIX                                                                                       71


Table 4.1 sex                                                                                              41

Table 4.2 Martial Status of the Respondents                                                       42

Table 4.3 Age bracket of the respondents                                                  42

Table 4.4 Experience                                                                                  43

Table 4.5 qualifications                                                                              44

Table 4.6 position in the organization                                                                  45

Table 4.7 Lending and loan recovery have great significant impact

on the Nigeria Microfinance bank                                                     46

Table 4.8 Lending and loan recovery affect the performance of the

Nigeria Microfinance bank.                                                               47

Table 4.9 Increase in the lending and loan recovery increases the

performance of the Nigeria microfinance bank                                48

Table 4.10 Lending has no correlation with loan recovery

in microfinance bank                                                                        49

Table 4.11 Promoting lending and loan recovery promotes the performance

of the Nigeria Microfinance bank.                                                    50

Table 4.12 Inadequate business plan causes default in loan repayment in

Nigeria Microfinance bank.                                                              51

Table 4.13 Lack of service of internal financial auditor causes default in loan repayment in Nigeria Microfinance bank.                                                  53

Table 4.14 Lack of service of internal financial auditor causes default in loan repayment in Nigeria Microfinance bank.                                                 54

Table 4.15 Business failure causes default in loan repayment in Nigeria bank.             Microfinance                                                                                     55

Table 4.16 Increase in lending increases the chances of loan recovery in

Nigeria Microfinance bank.                                                              56

Table 4.17 Changes in lending ability of the Nigeria Microfinance

bank causes the loan recovery to change in the positive direction              57

Table 4.18 Microfinance bank lending has causality relationship with

the loan recovery                                                                              58

Table 4.19 Loan recovery of the Nigeria Microfinance bank causes

lending ability to increase                                                                59

Table 4.20 The rate of credit advances of the Nigeria Microfinance

bank is high.                                                                                              60

Table 4.21 The rate of credit advances of the Nigeria Microfinance

bank is not encouraging                                                                    61

Table : 4.22  Loan advances of the Nigeria microfinance bank is relatively

Low                                                                                                  62




1.1     Background of the Study

The word microfinance is being used very often in development vocabulary today. Although the word is literally comprised of two words: micro and finance which literally mean small credit; the concept of microfinance goes beyond the provision of small credit to the poor. Christen (1997) defines microfinance as ‘the means of providing a variety of financial services to the poor based on market-driven and commercial approaches. However microfinance practices today still focus on micro-credit: providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes.

Microfinance bank as noted by (UNDP 2003) is a set of innovative and alternative financial service to the poor who do not have access to formal institution, it is a banking institution established to provide financial aid in the areas of micro credit, micro insurance to individuals, group and institutions, non-governmental organization for the purpose of development.

According to CBN (2005), “microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions’. Microfinance bank is featured by three distinguishing factors these are:

  1. The absence of asset-based collateral.
  2. The smallness of loans advanced and or savings collected.
  3. Ease of operations.

Microfinance is strictly based on providing of timely, affordable, diversified, and dependable financial services to the active poor which otherwise would have little or no access to financial services. It is a financial intervention that focuses on the low income group of a given society.

Microfinance perceived as a financially sustainable instrument meant to reach significant number of poor people of which most are not able to access financial service because of the lack of strong retailing financial intermediaries. Access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development (World Bank-Africa Region, 1999). Microfinance as a sector has the potential to reduce poverty by bringing a significant improvement in the lives of the active poor who are largely women. The introduction of microfinance into the Country has made it possible for operators of small businesses to access credit facilities which hitherto were difficult to access due to difficult modalities by the formal financial institutions. Even though the amount involved are modest not huge, it supports their businesses to some extent.

Microfinance provides people with capital to start and or expand their businesses. Small businesses with microfinance support have grown into Medium Enterprises creating employment opportunities for others. Microfinance projects and programs have gone a long way in building the capacity of clients in the areas of loan management, customer care, pricing, marketing and selling on credit as well as on social and community issues.

Extension of credit facilities is one of the major activities of all Microfinance institutions including Savings and Loans Companies, Rural banks, Financial Non-Governmental Organizations (FNGOs) and credit Unions. This is usually evidenced by the large proportion that loans constitute in the overall operating assets of these lending institutions. Healthy loan portfolios are therefore vital for lending institutions in view of their impact on Liquidity, lending capacity, earnings and profitability of the Microfinance Institutions.

Nonetheless some of the loans given out by the lending institutions unfortunately are not paid back and eventually result in bad debts with adverse consequences for the overall financial performance of the institutions. The issue of loan defaults becoming an increasing problem that threatens the sustainability of microfinance institutions. The causes of the problem are multi-dimensional and non-uniform among different literatures.

Unsettled loans are always a source of misery for lenders because if a microfinance has too much of it on its balance sheet, it can adversely affect its operations in terms of liquidity, profitability, debt- servicing capacity, Lending capacity and ability to raise additional capital. The incidence of non-performing loans in the Nigeria banking and non-banking industries including microfinances has been on the rise in recent years as their loan portfolio increases despite efforts by these financial institutions to deal with it.

1.2     Statement of the Problem

The sustainability of microfinance institutions depends largely on their ability to collect their loans as efficiently and effectively as possible. In other words to be financially viable or sustainable, microfinance institutions must ensure high portfolio quality based on 100% repayment ,or at worst low delinquency/default, cost recovery and efficient lending.

However of late, there have been complaints by the microfinance institutions regarding high rate of default/delinquency by their clients; which presupposes that most microfinance institutions are not achieving the internationally accepted standard portfolio at risk of 3%, which is a cause for concern because of its consequences on businesses, individuals, and the economy of Nigeria at large. Delinquency and hence default have started creeping deeply into the operations of microfinance institutions in Nigeria hence the study into the causes and control of loan delinquency/default in microfinance institutions in Nigeria.

1.3     Objectives of the Study

In the course of this analysis, the main objective of this work shall be, to determine the impact of lending and loan recovery on the performance of Nigeria Microfinance bank, while specific objectives shall be

  1. To determine the correlation between lending and loan recovery on the Nigeria Microfinance bank.
  2. To ascertain the causality relationship between lending and loan recovery in Nigeria microfinance bank.

1.4     Research Questions

From the aforementioned research objectives, these shall stand as the research questions

  1. What is the correlation between lending and loan recovery on the Nigeria Microfinance bank?
  2. What is the direction of causality relationship between lending and loan recovery in Nigeria microfinance bank?

1.5     Statement of Hypothesis

This research work will be conducted with a view of testing the following hypothesis

  1. H01: Lending and loan recovery have no significant correlation in Nigeria microfinance bank.
  2. H02: There is no causality relationship between lending and loan recovery in Nigeria microfinance bank.

1.6              Significant of the study

The significance of the study is derived from the basic feature of lending as an all-time important function of most banks. The finding of this study is believed would be of great value to the government, the industrial sector operators, other researchers, to students alike and the society at large.

Government: this research work shall serve as an eye opener to the government and its agencies, recommendations made on this work shall stand to direct them during policy making and review process.

Industrial Sector: industrial sector shall stand to benefit from this research work for it will educate them on the prospect of returns on investment on any loan they want to embark on.

Other researcher: potential researcher on this topic shall find this research work as a reference material and a guide to his/her own work.

1.7     Scope of the Study:

This work focuses on the impact of microfinance bank on unemployment between in Nigeria, with special reference to Bethel Microfinance Banks in Enugu for a period of 10 years, from 2007 to 2017. The study collects data on lending and loan recovery from the bank of concern and evaluates its correlation.

1.8     Limitations of the Study

The biggest challenges of this study were:-

Data availability: – The ability of a user to access information or resources in a specified location and in the correct format, this is the main problem of using questionnaires as a method of data collection. Due to the fact that this is not a face to face interview kind of questions, sometimes the respondents might not be willing to give exact answers for some questions and they may refuse to respond to a question on the grounds that they are scared on what will be done with the questionnaire, either will send direct to the responsible companies.

Bureaucracy: – This is another problem that the researcher was faced during the fieldwork. Some respondents were not able to provide data until they got permission from their superior. Even though bureaucracies sometimes seem inefficient or wasteful, setting up a bureaucracy helps ensure that thousands of people work together in compatible ways by defining everyone’s roles within a hierarchy.

Confidentiality of Data: – A property of data, usually resulting from legislative measures, which prevents it from unauthorized disclosure. The procedures in place to prevent disclosure of confidential data, including rules applying to staff, aggregation rules when disseminating data, provision of unit records some of the respondents were not providing their true opinions during the interviews because they regard some of the questions as sensitive. However, this group was small and the researcher assumed it did not affect the overall results and conclusions.