Credit Risk Management and Loan Performance of Microfinance Banks in Nigeria

The concept of micro-finance in Nigeria has evolved over the years following other well developed like Kenya in the sub-Saharan Africa. Given the importance of credit risk in microfinance operations, it is expected that the effectiveness of microfinance risk management systems, processes, procedures, activities, methods, and incentives would have a significant influence on loan performance. As a result, the purpose of this research was to examine the link between credit risk management and loan performance in Nigerian microfinance banks (MFBs), using Lagos and Ogun State as case studies. A descriptive research design was used. The target population comprised the staff of 230 Microfinance Banks in Lagos and Ogun State of Nigeria and a sample size of Three Hundred and Twelve (330) respondents obtained by purposive sampling. Through the use of questionnaires, data was gathered and analyzed using SPSS, which provides both descriptive and inferential statistics. The study found a favourable and statistically significant correlation between loan performance and the internal controls over credit risk, the credit administration, measurement, and monitoring systems, and the credit risk environment of the microfinance banks. It is imperative for the boards of the Microfinance banks oversee institutions where credit policies and procedures are developed and put in place with effective monitoring mechanism and virile system of internal control, reporting and continuous process reengineering in tune with dynamic business environment.