Customer Financial Literacy and Loan Repayment Behavior in Microfinance Institutions: Evidence From Kwara State, Nigeria

This study examined the effect of customer financial literacy on loan repayment outcomes among clients of licensed microfinance banks in Kwara State, Nigeria, grounded in Human Capital Theory and Information Asymmetry Theory. A quantitative cross-sectional survey design was adopted, and primary data was collected in 2026 through a structured questionnaire administered to 218 valid respondents drawn from active loan customers of participating microfinance banks in the state. Data was analysed using descriptive statistics, Pearson correlation, simple linear regression, and binary logistic regression in SPSS v23. The linear regression model was statistically significant (F = 126.17, p < 0.001) and showed that financial literacy explained 36.9 percent of the variation in loan repayment behaviour (R² = 0.369). Customer financial literacy exerted a positive and statistically significant effect on loan repayment behaviour (B = 0.662, β = 0.607, p < 0.001). The logistic regression results further showed that financial literacy had a negative and statistically significant effect on loan default tendency (B = −1.046, p < 0.001), with an odds ratio of 0.351, indicating that stronger financial literacy substantially reduced the likelihood of default. The study concludes that customer financial literacy is a significant determinant of repayment outcomes in Kwara State microfinance institutions, improving repayment behaviour while reducing default risk. The study recommends that microfinance banks integrate short pre-disbursement financial literacy training into their lending processes and incorporate borrower financial literacy assessment into credit appraisal and monitoring systems.