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Effect of Bank Characteristics on Loan Default in Selected Microfinance Banks in Southwest, Nigeria

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  • Tunde Samson Babalola

    (Department Of Banking and Finance Olabisi Onabanjo University, Ago-Iwoye)

Abstract

Loan default has become rampant in microfinance banks in Nigeria, the ratio of non-performing loan to total loans of 11% for the period 2014-2023 far exceeded the maximum 5% specified by the Central Bank of Nigeria. The huge volume of loan default has been affecting the outreach, profitability and sustainability of microfinance banks in Nigeria. This aspect of microfinance operations appears to have been sparsely investigated in Nigeria despite its negative consequences on microfinance banks. Therefore, this study investigated the of Bank Characteristics- Loan Appraisal, Loan Monitoring, Disbursement Lag and Bank Size on Loan Default in microfinance banks in Southwest, Nigeria. The study employed survey research design. Four hundred (400) structured questionnaires were administered through on-line survey as well as in-person distribution. Binary logistic regression model was used for analysis at 5% level of significance. The findings revealed that loan appraisal (β = -0.004, p = 0.032) and loan monitoring β = -0.036, p = 0.031) have significant and negative influence on loan default in microfinance banks in Southwest, Nigeria. The study concluded that bank-related factors are key micro-macro determinants of loan default in Nigerian microfinance banks. The study recommended strengthening borrower profiling, diversifying loan portfolio, enhancing loan monitoring, adopting digital credit assessment tools, leveraging credit guarantee services, and implementing the global standing instruction initiative to mitigate loan defaults.

Suggested Citation

  • Tunde Samson Babalola, 2025. "Effect of Bank Characteristics on Loan Default in Selected Microfinance Banks in Southwest, Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(7), pages 4445-4457, July.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-7:p:4445-4457
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    References listed on IDEAS

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    1. Solomon Enimu & Emmanuel O. Eyo & Eucharia A. Ajah, 2017. "Determinants of loan repayment among agricultural microcredit finance group members in Delta state, Nigeria," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-12, December.
    2. Kamel Bel Hadj Miled & Moheddine Younsi & Monia Landolsi, 2022. "Does microfinance program innovation reduce income inequality? Cross-country and panel data analysis," Journal of Innovation and Entrepreneurship, Springer, vol. 11(1), pages 1-15, December.
    3. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
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