Abstract:
This study investigates the contribution of microfinance banks to the economic development of
Nigeria. The study used annual data of microfinance banks for fifteen years (1992-2006) to estimate the necessary parameters where ratio values of microfinance banks activities were used as the independent variable while Economic Growth, Intermediation Ratio and Loan Penetration Ratio were adopted as dependent variables. The regression results show a weak positive and non-significant relationship between microfinance banks activities and long run economic growth it Nigeria, and between microfinance banks activities and intermediation functions through capital formation. Microfinance banks activities had a large positive and significant impact on loans and advances penetration to the economy. The results suggest a net outflow of finance from the microfinance banks that may jeopardize the economic development of the nation. There should be a policy framework, that constrains the microfinance bulks to channel a minimum percentage of their deposit to productive sector of the economy in form of credit, and the productive sector must be properly defined and classified for easy compliance by the microfinance banks and monitoring by the regulatory authorities if the role of microfinance banks as catalyst for economic development is to be properly harnessed.
