Impact of Regulatory Influence on Financial Performance of National Microfinance Banks in Nigeria

Abstract

While existing literature has acknowledged the pivotal role of regulatory measures in shaping the operational landscape of financial institutions, there remains a notable gap in understanding the direct consequences of such regulations on the financial performance of NMBs in Nigeria. This study explores the impact of regulatory measures, specifically sanctions, penalties, and Minimum Capital Requirement (MCR), imposed by the Central Bank of Nigeria (CBN) on the financial performance of NMBs. This research adopts an ex-post facto research design, using data from the past six years of seven operational NMBs. The Agency Theory and Pecking Order Theory provide theoretical frameworks to interpret these relationships. The study reveals that regulatory measures significantly influence the allocation of micro loans within NMBs, reflecting the alignment of managers’ interests with those of stakeholders. However, regulatory factors alone do not adequately explain variations in ROA, indicating the presence of complex and unexamined factors affecting financial performance. Individual regulatory variables, such as sanctions, penalties, and MCR, also do not have a significant multivariate impact on RMLT or ROA. The study recommends that Nigerian National Microfinance Banks (NMBs) should closely monitor and adapt to Central Bank regulations, particularly regarding sanctions, penalties, and Minimum Capital Requirement, despite the absence of a direct multivariate link to financial performance indicators; it also advises diversifying strategies to enhance Returns on Assets (ROA) and suggests further research for a deeper understanding of NMB sustainability dynamics.