Abstract:

Microfinance banks (MFBs) were established to help fill financing gap by making provision of funds to groups and people that are lower-income group. This group of people usually take part in small and micro business activities, In Nigeria the liquidity crisis that struck the banking sector has made a reasonable percentage of over 990 MFBs currently operating in the country to be in bad shape due to factors such as high exposure to non-performing loans and lack of corporate governance. This explains why Microfinance banks performance largely hinges on the efficiency in loan management. Therefore, this study aims to examine how loan management affect the performance of MFBs. Therefore to analyse this study empirically, panel data consists of five Microfinance Banks in Nigeria for the period of five years (2012–2016). The panel fixed effect, pooled Ordinary least square regression and panel random effect was employed for the model, which was used as a proxy for MFBs performance, such as return on asset (ROA) to examine the best measure for bank profitability, with the indicators of loan management; Loan to Deposit Ratio, Ratio of Non-performing loans, current ratio, Debt to Equity Ratio. The results of the study revealed that Loan management has a significant effect on the performance of the selected Microfinance banks and that ROA is the best in measuring for bank profitability. This study, therefore recommends that the Central Bank of Nigeria should implement stringent regulatory practices in other to enhance loan management in microfinance banks.