Effect of Credit Risk Management of Micro Finance Institutions on Economic Growth

Nwobilor; Kingsley; C lead author PhD Okwor Emmanuel; E Akpeh Caroline. O; Ugwu Ikechukwu

doi:10.56201/ijefm.v11.no5.2026.pg29.44

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Effect of Credit Risk Management of Micro Finance Institutions on Economic Growth

Nwobilor, Kingsley, C lead author PhD Okwor Emmanuel, E Akpeh Caroline. O, Ugwu Ikechukwu

Abstract

This study investigated the impact of credit risk management in microfinance institutions on economic growth in Nigeria, with a specific focus on small and medium-sized enterprises over the period 2014 to 2024. The study purposively selected five out of eight nationally recognized MFIs based on asset size. These include NPF Microfinance Bank, AB Microfinance Bank, ACCION Microfinance Bank, Mutual Trust Microfinance Bank, and Assets Microfinance Bank. The study aimed to assess the individual and collective effects of key credit risk indicators non-performing loan ratio, loan loss provisions to total loans , on economic growth in Nigeria, using ARDL model, the findings revealed that NPL ratio, LLPTL, individually had no statistically significant effect on economic growth. However, when analysed collectively, all two credit risk indicators jointly exerted a statistically significant influence on GDP growth. In particular, regulatory authorities such as the Central Bank of Nigeria should strengthen credit appraisal frameworks by requiring MFIs to adopt more rigorous, data-driven approaches to borrower assessment. The Central Bank of Nigeria should ensure that MFIs maintain sufficient capital buffers relative to their risk exposure, supported by periodic stress testing to enhance institutional resilience. Furthermore, loan monitoring and recovery processes need to be significantly improved. MFIs should adopt proactive monitoring systems that can detect early signs of loan distress and trigger timely interventions, such as restructuring or intensified borrower engagement. In addition, there is a need to promote integrated risk management practices within MFIs. Rather than assessing indicators such as non-performing loans, loan loss provisions in isolation, institutions should adopt a holistic framework that captures their combined effects on performance and stability. Key Words; Credit Risk, Non -Performing Laon, ARDL Model, Credit Appraisal, MFIs

Keywords

; Credit RiskNon -Performing LaonARDL ModelCredit AppraisalMFIs

References

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Effect of Credit Risk Management of Micro Finance Institutions on Economic Growth

Abstract

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