Financial Services and the Return on Equity of Microfinance Banks in Nigeria

Abstract

This study examined the relationship between financial services and the return on equity of microfinance banks in Nigeria. Data were sourced from financial statement of the microfinance banks. Return on equity was used as dependent variable while microcredit, micro savings, micro insurance and micro leasing were used as independent variables. Panel data ordinary least square was used to examined the relationship between financial services and the return on equity of microfinance banks. The study found that 86.9 percent variations in return on equity of the microfinance banks can be accounted for by the independent variables. micro saving, microcredit and micro insurance have positive relationship while micro leasing have negative relationship with return on equity of the micro finance banks. From the findings, the study concludes that financial services explained significant variation in return on equity of the microfinance banks. We recommend that management of the microfinance banks should increase the loan rate so that investors see microfinance banks as the number one source of funding, and the Central Bank of Nigeria should reduce the microfinance banks minimum reserve in order to increase micro credit in the economy. Management of the microfinance banks should ensure effective means of deposit mobilization by increasing services to the rural communities and microfinance banks should allocate proper credit to the real sector for productive purposes in order to increase performance. The management of the microfinance banks should ensure well formulated policies to manage micro insurance services to add positive to the performance.

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