This research is focused on impact of microfinance bank on unemployment in Nigeria. Microfinance provides people with capital to start and/or expand their businesses, as small businesses with microfinance support have grown into medium enterprises creating employment opportunities for others. Survey research design was used to carry out the study. This study reveals that there is a casual relationship between lending and loan recovery in microfinance banks and there is a significant positive correlation between lending and loan recovery in Nigerian microfinance banks. It recommends that banks should device appropriate strategies to ensure adequate lending and loan recovery management, since not doing so could spell doom for the banks in terms of profitability.

Title page i
Approval ii
Certification iii
Dedication iv
Acknowledge v
Abstract vi

1.1 Background of the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 5
1.4 Research Questions 5
1.5 Statement of Hypothesis 6
1.6 Significant of the Problems 6
1.7 Scope of the Study 7
1.8 Limitations of the Study 7
2.1 Conceptual framework 9
2.1.1 Concept of Micro-Finance 9
2.1.2 Microfinance in Nigeria 11
2.1.3 Loan performance 13
2.1.4 Causes of loan repayment default 15
2.1.5 Five Cs of Credit Management 17
2.2.0 Theoretical Literature 19
2.3 Financial Constraint Theory and Model Generation 23
2.4 Financial growth theory 26
2.5 Empirical Literature 27
2.6 Summary of the Literature Review 30
3.1 Introduction 32
3.2 Research Design 32
3.3 Sources of Data Collection 33
3.3.1 Primary Source of Data 33
3.4.2 Secondary Source of Data 34
3.4 Tools for Data Collection 34
3.5 Population of the Study 35
3.6 Sample and Sampling Techniques 36
3.7 Instrument for Data Collection 37
3.8 Reliability and Validity of Data and Test Instruments 38
3.9 Data Analysis Techniques 39
4.0 Introduction 40
4.1 Presentation of data 40
4.2 Analysis of Data 40
4.3 Discussion of Results 65
5.1 Introduction 66
5.2 Summary of Findings 66
5.3 Conclusion 66
5.4 Recommendations 67
5.5 Area for Further Research 67

Table 4.1 sex 41
Table 4.2 Martial Status of the Respondents 42
Table 4.3 Age bracket of the respondents 42
Table 4.4 Experience 43
Table 4.5 qualifications 44
Table 4.6 position in the organization 45
Table 4.7 Lending and loan recovery have great significant impact
on the Nigeria Microfinance bank 46
Table 4.8 Lending and loan recovery affect the performance of the
Nigeria Microfinance bank. 47
Table 4.9 Increase in the lending and loan recovery increases the
performance of the Nigeria microfinance bank 48
Table 4.10 Lending has no correlation with loan recovery
in microfinance bank 49
Table 4.11 Promoting lending and loan recovery promotes the performance
of the Nigeria Microfinance bank. 50
Table 4.12 Inadequate business plan causes default in loan repayment in
Nigeria Microfinance bank. 51

Table 4.13 Lack of service of internal financial auditor causes default in loan repayment in Nigeria Microfinance bank. 53
Table 4.14 Lack of service of internal financial auditor causes default in loan repayment in Nigeria Microfinance bank. 54
Table 4.15 Business failure causes default in loan repayment in Nigeria bank 55
Table 4.16 Increase in lending increases the chances of loan recovery in
Nigeria Microfinance bank. 56
Table 4.17 Changes in lending ability of the Nigeria Microfinance
bank causes the loan recovery to change in the positive direction 57
Table 4.18 Microfinance bank lending has causality relationship with
the loan recovery 58
Table 4.19 Loan recovery of the Nigeria Microfinance bank causes
lending ability to increase 59
Table 4.20 The rate of credit advances of the Nigeria Microfinance
bank is high. 60
Table 4.21 The rate of credit advances of the Nigeria Microfinance
bank is not encouraging 61
Table : 4.22 Loan advances of the Nigeria microfinance bank is relatively Low 62


1.1 Background of the Study
The word microfinance is being used very often in development vocabulary today. Although the word is literally comprised of two words: micro and finance which literally mean small credit; the concept of microfinance goes beyond the provision of small credit to the poor. Christen (1997) defines microfinance as ‘the means of providing a variety of financial services to the poor based on market-driven and commercial approaches. However microfinance practices today still focus on micro-credit: providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes.
Microfinance bank as noted by (UNDP 2003) is a set of innovative and alternative financial service to the poor who do not have access to formal institution, it is a banking institution established to provide financial aid in the areas of micro credit, micro insurance to individuals, group and institutions, non-governmental organization for the purpose of development.
According to CBN (2005), “microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions’. Microfinance bank is featured by three distinguishing factors these are:

  1. The absence of asset-based collateral.
  2. The smallness of loans advanced and or savings collected.
  3. Ease of operations.
    Microfinance is strictly based on providing of timely, affordable, diversified, and dependable financial services to the active poor which otherwise would have little or no access to financial services. It is a financial intervention that focuses on the low income group of a given society.
    Microfinance perceived as a financially sustainable instrument meant to reach significant number of poor people of which most are not able to access financial service because of the lack of strong retailing financial intermediaries. Access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development (World Bank-Africa Region, 1999). Microfinance as a sector has the potential to reduce poverty by bringing a significant improvement in the lives of the active poor who are largely women. The introduction of microfinance into the Country has made it possible for operators of small businesses to access credit facilities which hitherto were difficult to access due to difficult modalities by the formal financial institutions. Even though the amount involved are modest not huge, it supports their businesses to some extent.
    Microfinance provides people with capital to start and or expand their businesses. Small businesses with microfinance support have grown into Medium Enterprises creating employment opportunities for others. Microfinance projects and programs have gone a long way in building the capacity of clients in the areas of loan management, customer care, pricing, marketing and selling on credit as well as on social and community issues.
  4. Extension of credit facilities is one of the major activities of all Microfinance institutions including Savings and Loans Companies, Rural banks, Financial Non-Governmental Organizations (FNGOs) and credit Unions. This is usually evidenced by the large proportion that loans constitute in the overall operating assets of these lending institutions. Healthy loan portfolios are therefore vital for lending institutions in view of their impact on Liquidity, lending capacity, earnings and profitability of the Microfinance Institutions.
  5. Nonetheless some of the loans given out by the lending institutions unfortunately are not paid back and eventually result in bad debts with adverse consequences for the overall financial performance of the institutions. The issue of loan defaults becoming an increasing problem that threatens the sustainability of microfinance institutions. The causes of the problem are multi-dimensional and non-uniform among different literatures.
    Unsettled loans are always a source of misery for lenders because if a microfinance has too much of it on its balance sheet, it can adversely affect its operations in terms of liquidity, profitability, debt- servicing capacity, Lending capacity and ability to raise additional capital. The incidence of non-performing loans in the Nigeria banking and non-banking industries including microfinances has been on the rise in recent years as their loan portfolio increases despite efforts by these financial institutions to deal with it.
    1.2 Statement of the Problem
    The sustainability of microfinance institutions depends largely on their ability to collect their loans as efficiently and effectively as possible. In other words to be financially viable or sustainable, microfinance institutions must ensure high portfolio quality based on 100% repayment ,or at worst low delinquency/default, cost recovery and efficient lending.
    However of late, there have been complaints by the microfinance institutions regarding high rate of default/delinquency by their clients; which presupposes that most microfinance institutions are not achieving the internationally accepted standard portfolio at risk of 3%, which is a cause for concern because of its consequences on businesses, individuals, and the economy of Nigeria at large. Delinquency and hence default have started creeping deeply into the operations of microfinance institutions in Nigeria hence the study into the causes and control of loan delinquency/default in microfinance institutions in Nigeria.