FINANCIAL SERVICE SECTOR REFORMS AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA (2006-2018)

FINANCIAL SERVICE SECTOR REFORMS AND PERFORMANCE OF MICROFINANCE BANKS IN NIGERIA (2006-2018)

Abstract: The study examined financial service sector reforms and the performance of microfinance banks in Nigeria. The study is divided into the pre-reform 1994-2005 and post-reform era from 2006-2018, using secondary sourced data from Central Bank of Nigeria statistical bulletin, which was evaluated with test of difference. It was discovered that an insignificant difference exists between Return on asset before and after reform, while microfinance bank capital base has a significant difference before and after reform. Credit to private sector and deposit base has insignificant difference before and after reform. Based on the findings of the study, the study recommends that the central bank of Nigeria should increase the interest rates on savings in other to encourage deposits in microfinance banks in Nigeria and regulatory authorities should help manage the inflation rate in the country in other to encourage savings.

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Introduction

Robust economic growth cannot be achieved without putting in place well-focused programmes to reduce poverty by empowering the people by increasing their access to factors of production, especially credit. In line with this reasoning, therefore, it is no mere coincidence that the Central Bank of Nigeria (CBN) introduced Nigeria‘s first Microfinance Policy Framework in December 2005, barely three months after the United Nations General Assembly adopted 20051  as the International Year of Microcredit to address the constraints that exclude people from full participation in the financial sector.  The rationale was that no robust, people-based growth can be achieved without increasing the access of micro-enterprises and the economically active but poor citizens to factors of production, especially financial services to empower them. The entrepreneurial capacity of the poor which are capable of being developed, was believed, would be significantly enhanced through the provision of microfinance services to enable them to engage in economic activities and be more self-reliant, increase employment opportunities, enhance household income and create wealth. This, the traditional microfinance services practiced by this group could not give any meaningful outcome. After five years of operating this  Policy,  the  CBN  undertook a  comprehensive review of developments in the sub-sector and discovered that although some improvements such as a heightened awareness among stakeholders and broad service provisioning (as opposed to the narrow microcredit focus) had taken place, a large percentage of Nigerians are still excluded from financial services3, hence called for a revised of the policy framework in 2012.

It is in line with the foregoing, that this paper intends to examine financial service reforms and performance of microfinance bank in Nigeria.