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Microeconomic Determinants of Loan Defaults in Ogun State, Nigeria

BELAU Kazeem Seun, Bamidele M Ilo PhD, ILEMOBAYO Akinwumi Simeon

Abstract

The Nigerian society is predominantly rural, with many people facing poverty-related challenges arising from inadequate financial provisions and financial exclusion. These issues have remained largely unresolved despite numerous government intervention programs. Consequently, loan defaults have become widespread among Nigerian microfinance banks, leading to the collapse of several institutions. This study examined the impact of borrower factors, loan factors, and business factors on loan defaults in Ogun State. A case study research design was employed with a population of 51 microfinance banks (MFBs) in the state, 18 were selected using a stratified random sampling technique. Questionnaires were administered to credit officers, customer relations officers, and microfinance bank customers. Out of 180 questionnaires distributed, 156 were deemed valid for analysis. Data were analyzed using descriptive statistics and logit regression. The descriptive analysis revealed a high loan default rate of 74 percent, with inadequate loan appraisal identified as the most critical cause. The logit regression results indicated that number of dependents, death of borrowers, unwillingness of customers to repay, loan diversion, and repayment terms all had positive and significant effects on loan default in microfinance banks. In contrast, sufficient funds, favorable business location, and higher profit levels were found to have negative and significant effects on loan default. Additionally, literacy level and obsolete technology were found to partially contribute to loan defaults, while gender and business age partially reduced the likelihood of default. The study concluded that borrower characteristics, loan factors, and business factors significantly influenced loan default in Ogun State microfinance banks. The policy implication is that a comprehensive loan appraisal framework should be implemented, one that assesses borrowers’ health status,

Keywords

Borrowers’ factorsbusiness factorsloan factorsMFBs.

References

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