Microfinance is a culturally based activity in Nigeria that predates the modern banking age. Traditional microfinance institutions provide credit to low-income individuals in rural and urban areas. Self-Help Groups (SHGs) and Rotating Savings and Credit Associations (ROSCAs) are the most common. Informal financial groups can be found throughout the country in the form of traditional groups that collaborate for the mutual benefit of its members. In Nigeria, micro and small business owners rely significantly on the informal financial market for financing.

This situation creates an opportunity for informal institutions to try to fill the void left by informal social networks. People in many nations have relied on the mutually supportive and benefit-sharing character of these sectors’ social networking to meet their economic, social, and cultural requirements, as well as to improve their quality of life (Portes, 1998).

The Federal Reserve Board is working to improve the flow of financial services to the country’s micro, small, and medium businesses.

The Federal Government of Nigeria (FGN) has announced the establishment of a new Microfinance Policy, Regulatory, and Supervisory Framework.

(MPRSF) was founded in December of 2005. The MPRSF attempted to bring existing informal institutions under the supervision of the Central Bank of Nigeria, among other things (CBN). By doing so, the country’s monetary stability is improved, and the country’s financial infrastructure is developed to fulfill the Micro’s financial needs.

MSMEs (Middle-Sized Enterprises) in the country (CBN, 2005). The strategy is also intended to address the issue of small business owners’ lack of access to loans.

“Microfinance is about delivering financial services to the underprivileged who are typically not served by mainstream banking institutions,” according to CBN (2005). Microfinance is distinguished from other formal financial products by three characteristics.

The following are examples: I the lack of asset-based collateral; (ii) the small size of loans advanced and/or savings collected; and (iii) the ease of operations.

Microfinance is defined as “the provision of financial services to low-income poor and very poor self-employed people,” according to Otero (1999). Small loans, savings, current accounts, and financing small businesses are among the financial services available to the active poor in both rural and urban sections of the country. Microfinance is a term that refers to a variety of approaches for providing financial services to the poor. Microfinance is the provision of timely, inexpensive, diverse, and dependable financial services to the active poor who would otherwise have little or no access to them. It is a financial intervention aimed towards the low-income population. In the past, lending institutions’ credit risk evaluations and lending decisions placed a greater focus on security than on other related significant concerns (Santomero, 1997). There have been times in the past when getting a loan from a financial institution was easier if the borrower possessed security to be charged rather than the ability to repay the debt. Cash flow predictions, project viability, borrower character, past loan completion, and ability to repay were not deemed essential. As a result of inadequate, poor, and unprofessional credit risk assessment and valuation, particularly employing the five C’s of the credit appraisal model (capacity, credibility, capital, and collateral), a number of lending institutions have had a high number of loan defaults. Any examination of risk management techniques should begin with an explanation of why these companies handle risk. Managers of value-maximizing enterprises, according to mainstream economic theory, should maximize projected profit regardless of the variability around that value. However, there is now a growing literature on the reasons for active risk management, with notable contributions from Parrenas (2005), Sundarajan (2007), and Fallon (1996), to name a few.


Controlling loan non-performance is crucial for a bank’s performance as well as the financial environment of the economy. Undercapitalization, inefficient management, and regulatory and supervisory loopholes are some of the issues that microfinance institutions confront that impair their ability to function, according to Adeyemi, K. S. (2008). Usurious interest rates and poor outreach were added by Mohammed, A. D., and Hassan, Z. (2009) to this list. Nwanyanwu, O. J., (2011) highlighted diversion of money, insufficient funding, and frequent changes in government policies, as well as high transaction costs, large loan losses, limited capacity, and low technical expertise in the industry as barriers to the growth of this subsector. Previous microfinance banks have failed as a result of these constraints.

Previous microfinance banks have failed as a result of these constraints.

Waruinge (2009) conducted a study of the factors that contribute to loan non-performance across Nigerian commercial banks and found that economic reasons and inadequate credit management have a significant role in the large portfolio of nonperforming loans among Nigerian commercial banks. These researches focused on microfinance businesses, which employ different operational and marketing techniques than microfinance banks.


The overall goal of this research is to look into the factors that influence loan repayment in microfinance institutions in Nigeria, with a focus on Idemili North in Anambra State. The following are some of the specific goals:

1. To investigate the impact of socioeconomic determinants on loan repayment among microfinance bank clients in Nigeria.

2. To ascertain the impact of lenders’ factors on loan repayment among microfinance bank clients in Nigeria.

3. To determine the extent to which borrowers’ variables influence loan repayment among microfinance bank clients in Nigeria.

4. To determine the impact of loan variables on loan repayment among microfinance bank clients in Nigeria.

5. To look at a suggestion on how to increase loan repayment among microfinance bank customers.


The following are some of the pertinent research questions for this study:

1. What effect do socioeconomic characteristics have on loan repayment among microfinance bank customers in Nigeria?


2. What effect do lenders’ factors have on loan repayment among microfinance bank clients in Nigeria?


3. To what extent do borrowers’ factors influence loan repayment among microfinance bank clients in Nigeria?



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