Impact Analysis of Microfinance in Nigeria
This study applies the financing constraints approach to examine whether MFIs improve access to credit for microenterprises in Nigeria. It compares investment sensitivity to internal funds of micro enterprises in Lagos State (a municipal with significant presence of Microfinance Banks (MFBs) to that of micro enterprises in Ekiti State (a municipal with limited presence of MFBs) using a cross sectional survey method and MFI branch location data.
The paper studies whether MFBs collectively serving a local market improve credit access for the entrepreneurial poor. Results are consistent with more traditional impact studies in Nigeria for the same period. They demonstrate that:
- MFBs improve access to credit for microenterprises in locations where more MFBs offer financial products;
- Investment in local microenterprises was not very sensitive to the availability of internal funds in financially unconstrained locations;
- Investment in microenterprises was more sensitive to the availability of internal funds in locations where microfinance activities were limited or non existent.
The popularity of microfinance forces MFBs to be more transparent. This decreases the cost of assembling a database with MFBs branch distribution, making the financing constraints approach more attractive for use in the future.