Determinants of Microfinance Bank Loan Default in Niger State, Nigeria

Abstract

Microfinance Bank is important for poverty reduction and employment creation. However, one major threat to Microfinance banks’ sustainability is Loan Default. The objective of the study is to identify the socio-economic factors that determine the probability of loan default in Niger state. Data were collected using the multistage random sampling technique from 300 borrowers. Data obtained from survey were analysed using a Logit Model. The results show that borrower’s/sex, age, family size, income, interest rate and amortization period significantly determine borrower’s probability of loan default in the study area, whereas borrowers’ educational qualification and experience was found not statistically significant in the determination of Microfinance Banks loan default. The study recommends Banks should have perfect knowledge about borrower’s income status and family size, Bank should consider income of the borrowers, when determining the grace period and amortization period, administrative charges should be lower bearing in mind the rate of interest charge on loan and Quick follow-up visits after a missed payment would prevent high default rate.