ABSTRACT

Microfinance Bank (MFB) was stabled and licensed by the Central Bank of Nigeria (CBN) to carry on the business of providing financial services such as savings and deposits, loans, domestic fund transfers, other financial and non financial services to microfinance clients. This study present the impact of microfinance banks on Nigeria economy. Times series data gotten from Central Bank of Nigeria (CBN) statistical bulletin spanning between 1990 and 2016 were adopted. The long run Relationship among the variables was determined using the Johansen Co-integration technique while the Error Correction Mechanism was used to examine the speed of adjustment of the variables from the short run dynamics to the long run. The Johansen Co-integration test showed that there is long run relationship between gross domestic product, asset of microfinance bank, deposit, liabilities of micro finance bank, and loans and advances microfinance banks in Nigeria. The error correction result showed that the economy needs 25.6% mechanical adjustment for it to be at equilibrium. The a-priori expectation reveals that there is negative and insignificant relationship between assets of micro finance bank gross domestic product in Nigeria. This means an increase in the asset of micro finance bank affect gross domestic product negatively. There is positive but insignificant relationship between loans and advances microfinance banks and gross domestic product in Nigeria. There is positive but insignificant relationship between deposit, liabilities of microfinance bank and real gross domestic product in Nigeria. This means an increase in deposit, liabilities of microfinance bank leads to increase in real gross domestic product in Nigeria. The study recommend that microfinance institutions should channel very high proportion of their credits to the productive and real sectors of the economy for valuable impact of their operations on Nigeria’s economic growth.