RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS
This study, Risk Management Strategies for Microfinance Banks in Nigeria with a Credit Risk Focus, explores the critical role of credit risk management in sustaining capital adequacy and promoting financial stability among Nigerian microfinance banks a sector fundamental to financial inclusion but...
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| Format: | Article |
| Language: | English |
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Department of Accounting and Finance, Federal University Gusau
2025-07-01
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| Series: | Gusau Journal of Accounting and Finance |
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| Online Access: | https://www.journals.gujaf.com.ng/index.php/gujaf/article/view/387 |
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| author | Ehiogu Chizoba Perpetua Kologa Inebimowei Freedom |
| author_facet | Ehiogu Chizoba Perpetua Kologa Inebimowei Freedom |
| author_sort | Ehiogu Chizoba Perpetua |
| collection | DOAJ |
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This study, Risk Management Strategies for Microfinance Banks in Nigeria with a Credit Risk Focus, explores the critical role of credit risk management in sustaining capital adequacy and promoting financial stability among Nigerian microfinance banks a sector fundamental to financial inclusion but often overlooked in mainstream banking research. Drawing on a comprehensive 19-year dataset (2005-2023), the study empirically investigates the effects of three key credit risk mitigation instruments: Loan Loss Reserves, Collateralization, and Credit Insurance. Using advanced econometric techniques, including cointegration analysis and the Vector Error Correction Model (VECM), the findings reveal that Loan Loss Reserves and Collateralization significantly influence capital adequacy in the short term, while Credit Insurance demonstrates both short-term and long-term effects, making it an essential tool for sustained financial stability. By focusing specifically on microfinance institutions rather than commercial banks, the study addresses a critical gap in the literature and regulatory discourse. The results highlight the importance of strengthening reserve provisioning frameworks, minimizing over-reliance on collateral through diversified credit risk assessments, and expanding the adoption of credit insurance to reduce default exposure and enhance solvency. Furthermore, the study emphasizes the integration of credit risk practices into broader institutional and regulatory mechanisms aimed at reinforcing both capital adequacy and the financial stability of the microfinance sector. The research contributes to theory by applying the Financial Stability Hypothesis within the microfinance context and offers actionable insights to policymakers and financial institutions seeking to build a more resilient, inclusive banking system.
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| format | Article |
| id | doaj-art-a44921ede43d415a8d3010d7dd1fbd93 |
| institution | DOAJ |
| issn | 2756-665X 2756-6897 |
| language | English |
| publishDate | 2025-07-01 |
| publisher | Department of Accounting and Finance, Federal University Gusau |
| record_format | Article |
| series | Gusau Journal of Accounting and Finance |
| spelling | doaj-art-a44921ede43d415a8d3010d7dd1fbd932025-08-20T02:52:37ZengDepartment of Accounting and Finance, Federal University GusauGusau Journal of Accounting and Finance2756-665X2756-68972025-07-0161RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUSEhiogu Chizoba Perpetua 0Kologa Inebimowei Freedom1College of Insurance and Financial Management Ogun State, NigeriaDepartment of Insurance, Niger Delta University, Wilberforce Island, Bayelsa State, Nigeria This study, Risk Management Strategies for Microfinance Banks in Nigeria with a Credit Risk Focus, explores the critical role of credit risk management in sustaining capital adequacy and promoting financial stability among Nigerian microfinance banks a sector fundamental to financial inclusion but often overlooked in mainstream banking research. Drawing on a comprehensive 19-year dataset (2005-2023), the study empirically investigates the effects of three key credit risk mitigation instruments: Loan Loss Reserves, Collateralization, and Credit Insurance. Using advanced econometric techniques, including cointegration analysis and the Vector Error Correction Model (VECM), the findings reveal that Loan Loss Reserves and Collateralization significantly influence capital adequacy in the short term, while Credit Insurance demonstrates both short-term and long-term effects, making it an essential tool for sustained financial stability. By focusing specifically on microfinance institutions rather than commercial banks, the study addresses a critical gap in the literature and regulatory discourse. The results highlight the importance of strengthening reserve provisioning frameworks, minimizing over-reliance on collateral through diversified credit risk assessments, and expanding the adoption of credit insurance to reduce default exposure and enhance solvency. Furthermore, the study emphasizes the integration of credit risk practices into broader institutional and regulatory mechanisms aimed at reinforcing both capital adequacy and the financial stability of the microfinance sector. The research contributes to theory by applying the Financial Stability Hypothesis within the microfinance context and offers actionable insights to policymakers and financial institutions seeking to build a more resilient, inclusive banking system. https://www.journals.gujaf.com.ng/index.php/gujaf/article/view/387Credit risk managementcapital adequacyfinancial stabilitymicrofinance banksloan loss reservescredit insurance |
| spellingShingle | Ehiogu Chizoba Perpetua Kologa Inebimowei Freedom RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS Gusau Journal of Accounting and Finance Credit risk management capital adequacy financial stability microfinance banks loan loss reserves credit insurance |
| title | RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS |
| title_full | RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS |
| title_fullStr | RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS |
| title_full_unstemmed | RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS |
| title_short | RISK MANAGEMENT STRATEGIES FOR MICROFINANCE BANKS IN NIGERIA: A CREDIT RISK FOCUS |
| title_sort | risk management strategies for microfinance banks in nigeria a credit risk focus |
| topic | Credit risk management capital adequacy financial stability microfinance banks loan loss reserves credit insurance |
| url | https://www.journals.gujaf.com.ng/index.php/gujaf/article/view/387 |
| work_keys_str_mv | AT ehioguchizobaperpetua riskmanagementstrategiesformicrofinancebanksinnigeriaacreditriskfocus AT kologainebimoweifreedom riskmanagementstrategiesformicrofinancebanksinnigeriaacreditriskfocus |