Microfinance Credit and Economic Growth in Nigeria: Assessing the Role of Microfinance Bank Lending in Promoting Economic Development

Abstract Microfinance banking in Nigeria was established to extend credit to the economically excluded and stimulate grassroots development. Despite the sector's dramatic expansion, with credit rising from ₦42.8 billion in 2008 to ₦1.3 trillion in 2025, poverty and unemployment have persisted, raising serious doubts about whether microfinance credit actually promotes economic growth. This disconnects between policy intent and development outcomes constitutes the central problem of this study. The need for the study arises from unresolved contradictions in the existing literature, where some studies report positive growth effects of microfinance credit while others find insignificant or even negative effects, leaving the microfinance-growth nexus in Nigeria empirically unsettled. The study therefore aims to assess the effect of microfinance bank credit on economic growth in Nigeria over the period 2008–2025. The study adopts a quantitative design using annual secondary time-series data from the Central Bank of Nigeria, the IMF Financial Access Survey, and the World Bank. Economic growth is measured by real GDP growth, and microfinance bank credit is measured by loans and advances. The Autoregressive Distributed Lag bounds-testing approach is employed to examine short-run and long-run relationships, supported by unit root tests, diagnostic tests, and stability tests. The results show that microfinance bank credit has no statistically significant effect on economic growth in Nigeria. The ARDL bounds test F-statistic of 1.931 fell below the lower bound critical value of 4.04 at the 10% level, confirming the absence of a long-run relationship. The short-run coefficient was also insignificant (p = 0.548), and the error correction term (−0.418) was only weakly significant (p = 0.101). The study concludes that microfinance bank credit, as currently deployed, does not drive economic growth in Nigeria. The expansion of credit has not translated into productive investment or measurable development gains. Policymakers must complement credit delivery with financial literacy, business development services, and monitoring mechanisms to ensure that microcredit finances productive activities rather than consumption. Keywords: Micro economy; Credit development; Banking; Finance