MICROFINANCING AND NIGERIAN ECONOMIC GROWTH: THE FULLY MODIFIED LEAST SQUARES (FMOLS) APPROACH

Abstract

 Microfinance has emerged as a vital tool for promoting inclusive economic growth and poverty reduction, particularly in developing countries like Nigeria. This study investigated the impact of microfinance interventions on economic development in Nigeria and focused on their contributions to poverty alleviation, financial inclusion, and overall economic growth. Employing quantitative methods and drawing on a comprehensive literature review, the study examines microfinance development indicators, such as loan disbursements and the number of microfinance institutions, about the real Gross Domestic Product (GDP) growth rate. The Fully Modified Least Squares (FMOLS) estimation conducted for the period 2003 to 2022, with 20 observations, revealed significant positive relationships between microfinance development indicators and the GDP growth rate in Nigeria. Specifically, the coefficients for Microfinance Loan Disbursements (MFLD) and the Number of Microfinance Institutions per Capita (NMFI) were both statistically significant, with estimates of 0.804184 and 4.091506, respectively. The results revealed significant positive relationships between these microfinance indicators and GDP growth rate, indicating the substantial impact of microfinance interventions on economic development. Based on these findings, several recommendations are proposed to enhance the effectiveness and inclusiveness of microfinance interventions in Nigeria. These recommendations include improving microfinance accessibility in rural areas, providing capacity-building programs for practitioners and borrowers, strengthening regulatory frameworks for transparency and stability, implementing supportive policies for sector growth, conducting further research and impact evaluations, and fostering collaboration among stakeholders for knowledge sharing and innovation.