ECONOMIC GROWTH IMPLICATIONS OF FINANCIAL INTERMEDIATION OPERATIONS OF MICROFINANCE BANKS IN NIGERIA

This study assessed the economic growth implications of microfinance banks’ financial intermediation operations in Nigeria, using quarterly time series data from 2010:Q1 to 2025:Q4, and employed the Autoregressive Distributed Lag (ARDL) approach. The result of the bound test indicates theexistence of a long-run cointegration relationship between economic growth and the MFBs intermediation variables included in the model.This was supported by the coefficient of the ECT, which is negative and statistically significant at 5% significance level, further confirming the existence of a long-run convergence between the variables.The short-run analysis shows a mixed result, while the coefficient of MFBs' loans/GDP and MFBs' investment/GDPare both positive, however, MFBs' loans/GDPis statistically insignificant, the coefficients of MFBs' deposits, lending rates, and liquidity ratios are negative and statistically significant. The result of the long-run analysis indicatesno significant long run effect between economic growth and the intermediation variables, implying that MFBs lack the macro-level scale to drive aggregate long-run economic growth in Nigeria during the study period.The study recommends for enhanced the financial intermediation capacity of MFBs by creating a enabling environment, specifically, MFB Refinancing Facility at single-digit rate to solve negative deposit effect; For the CBN and SMEDAN to link MFBs lending to productive sector, thereby reducing loan diversion to achieve loan impact; and the need to increase MFBs minimum capital to achieve scale for liquidity impact and to boost their long-run investment capacity.