Microfinance Banks and Economic Growth in Nigeria (1992-2018): An Autoregressive Model

This study investigates the effect of microfinance banks on economic growth in Nigeria from 1992- 2018 using annual time series data. It adopts autoregressive (AR) model, Granger causality test and correlation analysis test as methods of analysis. The AR model results reveal that microfinance loans, microfinance deposits, microfinance investments, government expenditure and inflation rate have positive effect on economic growth in Nigeria. However, only microfinance investment and government expenditure are statistically significant. This implies that though microfinance loans, microfinance deposits and inflation rate have positive impact on the economy of Nigeria over the study period but they are not significant determinants of economic growth in Nigeria. There is unidirectional causality running from economic growth to each of microfinance loans, and microfinance deposit. A bidirectional causality was also confirmed between microfinance investment and economic growth; and, also between government expenditure and economic growth. The study therefore concludes that microfinance banks have positive impact on the economic growth in Nigeria with the latter Granger-causing the former. There is a need for government of Nigeria to empower microfinance banks through funding and capacity building to facilitate increased microfinance investments in the economy. Government of Nigeria should create enable environment for economic growth which will further enhance the performance of the microfinance in Nigeria.