Microfinance bank survival and credit risk management

Abstract

The study examines the effect of credit risk management on microfinance bank survival through loan default. Longitudinal data on credit management covering 2011 to 2020 is collected from fourteen microfinance banks in Nigeria and analyze using various survival analysis techniques, such as the Kaplan-Mier method, the log-rank test and Cox regression analysis. The results show that the loan amount given by the microfinance bank decreases the hazard ratio by 0.043%, but if the loan amount doubles, the hazard ratio will increase by 95.7%. Interest and default rates also increase the hazard ratio, while the number of bank customers is insignificant. The study aligns with the original microfinance theory of multiple small account holders rather than a few big ones and loan repayment in high-frequent small installments enhances microfinance bank survival. Effective credit risk management is therefore recommended for the survival of microfinance banks.