THE RELATIONSHIP BETWEEN MACROECONOMICS VARIABLES AND MICRO FINANCE BANKS DEPOSITS PERFORMANCES IN NIGERIA
ABSTRACT
This study has look at the macroeconomics variables and microfinance banks deposits performances in Nigeria. This is a survey study that captured the responses of macroeconomics variables to microfinance bank deposits in Nigeria. Secondary data was source and Eview 7 software was used to run the statistical regression to . We used a simple ordinary regression analyses for the purpose of estimation and econometric examinations. The results of the study showed that Gross domestic product (GDP) has a positive and significant relationship with micro-finance bank deposit (MDEPOSIT). Which represent growth in economy and has an impact micro-finance bank deposit positively, Inflation rate (INFL) has a positive and non-significant relationship with micro-finance bank deposit (MDEPOSIT) in Nigeria Interest rate (INTRATE) has an insignificant and positive relationship with micro-finance bank deposits (MDEPOSIT) in Nigeria Exchange rate (EXCHRATE) is found to have a positive and non-significant relationship with micro-finance bank deposit (MDEPOSIT). Money supply (MSS) has a significant positive relationship with micro-finance bank deposit (MDEPOSIT) in Nigeria. In conclusionIt has been evident that micro-finance institutions in Nigeria have played a great role in financing small and medium scale enterprises and poverty reduction in Nigeria. It was  recommendations that the regulatory body like the Central Bank of Nigeria should showed how microfinance institutions can succeed in reaching the poorest of the poor in a more effective way than formal financial sector by devising innovative strategies, such as group lending, dynamic incentive, collateral substitutes, regular repayment schedule and the provision of nonfinancial services and  Nigerian microcredit institutions should lay very high emphasis on marketing of their services and also, engage in extensive development of sector-specific microcredit and deposit products. These are necessary for them to tap into the growing sectorial business opportunities created by micro entrepreneurship also the government should, through appropriate.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
       The history of the Nigeria banking system connects with growth and burst cycles in the number of operating banks. Signs of growth are usually experienced when the policy environment presents business opportunities within the banking sector. In other words, there seems a sudden policy shift that makes it easy for ordinary business people to initiate processes that creates access to public funds in the name of bank deposits. The banking industry as regulated by the Central Bank of Nigeria is made up of Deposit Money Banks usually referred to as Commercial Banks and other Financial Institutions which includes Micro-Finance Banks, Finance Companies, Bureau De Change, Discount Houses and Primary Mortgage Institutions.
          Since the 1970s microfinance has been growing rapidly with the aim to lift people out of poverty and promote economic growth. Over the past decades, however, microfinance transformed vastly and nowadays represents a significant and self-sustaining industry of more than 3000 reported microfinance finance institutions (MFIs) servicing 154 million clients worldwide (Microcredit Summit Campaign, 2009). Nowadays microfinance is no more perceived being a “magic bullet” automatically lifting poor people out of poverty through microenterprise. Rather it focuses on the “poverty graduation” of low-income households by delivering them a variety of good-quality financial services.
The currently observed dramatic changes in the microfinance landscape are driven by two important phenomena. First, there is a growing trend of mature microfinance banks transforming from being NGOs to licensed and regulated financial institutions, thus integrating more with national financial systems. Second, the observed profitability and new market niche lures the entry of commercial banks into the microfinance segment by offering new products, establishing separate branches or providing external financing for micro financing  (for example first micro finance). All of these factors signal that microfinance is no more an isolated marginal sector of informal means of financing but rather constitutes a separate, lower-end segment of the broader financial system and hence a locomotive of economic growth. Despite the fact, the net contribution of microfinance to the broader economy remains ambiguous given complementary or rivalry relationships. Additional negative externalities come from excessive risk-taking behavior, increasing delinquency, cross-subsidy of microfinance loans and the deteriorating management quality of certain microfinance institutions (Chen et al., 2010).
            Despite the global promotion of financial inclusion current estimates show that still 2.5 billion adults, roughly half of the world, are unbanked. Of these, 62% (or 2.2 billion) reside in Africa, Latin America and the Middle East Asia (Dalal et al., 2009). Such drastic figures signal a large untapped demand for banking services and profit opportunities indicating that microfinance will continue to expand diffusing through specialist microfinance and banks. The analysis of the macroeconomic factors influencing microfinance banks deposits is an emerging trend in the mainstream literature. The focus of existing studies so far can be divided into three broad categories: (a) the analysis of MFI specific determinants of performance such as contract design, lending methodology and corporate governance (Hartarska, 2005; Hartarska & Nadolnyak, 2007, 2008; Hermes et al., 2008, 2009; Caudill et al., 2009), (b) macroeconomic variables determining the uneven distribution of Microfinance bank deposits and the impact of country-level aggregates such as growth, inflation, poverty and corruption (Marconi & Mosley, 2005; Honohan, 2004, 2008; Vanroose, 2007, 2008; Vanroose&D’Espallier, 2009) and (c) the analysis of macro-institutional determinants of Microfinance bank deposits success by disentangling the impact of  Microfinance bank deposits sustainability factors and the external environment they operate in (Krauss & Walter, 2008; Ahlin et al., 2010)..
            The impact of microfinance banks deposits to economic growth is perceived through direct and indirect channels. The direct channel of microfinance banks is based on poverty reduction, welfare increase and production value added from entrepreneurship activities of the poor. Therefore it is believe that economic growth as an aggregate measure captures the direct contribution of microfinance banks deposits. Under indirect channel to growth microfinance banks deposits contributes to an increase in liquid liabilities through financial deepening and the development of retail banking system.
Depending on complement/rival relationship of microfinance banks with mainstream banking the degree and the maturity of the financial sector is shaped which is then transferred to growth    
               According to Romer (2012) Macroeconomic is the study of the economy as a whole .That is it focuses on the behavior of an entire economy-the “big picture” which can regional, national or international. In macroeconomics we worry about such national goals or aggregate indicators also referred to as variables. These variables include interest rates, economic output, employment and unemployment, huge population, inflation, government budget balances and finance, international trade balances and finance, and productivity (Muchiri, 2012).These macroeconomic variables play a major role in determining the financial position of both banking and microfinance banks.
In today’s world, we have to innovatively interpret macroeconomic variables quite differently within the parameters of the global economic crisis and other external economic shocks as they occur, and we cannot apply the directly-observed macroeconomic variables in crisis situations in the same way as we do in a tranquil period. Aguiar and Broner (2006) believe that emerging market predicaments may be associated with huge movements in macroeconomic fundamentals and asset prices, and so there is all the more reason for making a distinction between directly-observed macroeconomic variables and a computed series of innovations to the macroeconomic fundamentals.
Inflation can be referred to a sustained or persistent increase in the general prices of goods and services in the long run. This is primarily brought about by the increase in earning which is not proportionate with the increase in the production of goods and services. Due to the case of more money chasing few goods general prices of goods and services are bound to increase leading to significant reduction in disposable income and the purchasing power of the low income earners bracket of population who comprise the majority and this ultimately leads to low level of savings and high rate of loan defaults. This ultimately affects the financial performances of lenders including the NBFIs.
Interest rate is the cost usually expressed as a percentage of the amount borrowed (principal) charged by a lender to the borrower for lending money .To the lender (NBFIs) it is a return or a source of revenue while to the borrower it is a cost. The interest rate is usually charged per month or per annum and is determined by and directly proportion to the risk levels
1.2    STATEMENT OF THE RESEARCH PROBLEM    
    Many microfinance banks lack mechanisms for adequate monitoring of activities and operations of macroeconomic variables, thereby not giving room for easy achievement of the business goals (Adeniji, 2004). Flaws and loopholes may still exist in most micro finance banks despite the existence of control system of deposits, interest rate fixing on loans which can easily be circumvented by individuals who are inclined towards fraudulent activities such as taking loan and not paying back that will lead to  low deposits of microfinance banks. As a result measures have to be put in place not just to checkmate such fraudsters but to also ensure high rate of deposit. One best way of increasing microfinance deposit is a good knowledge of macroeconomic variable.
This research is geared towards ascertaining the impact of macroeconomic variable and micro finance banks deposits in Nigeria. This gap is what the researcher intend to bridge with the current study. Following from the above, we itemize the research questions below:
    In light of the above the study will address the following research questions:
The main question is: what is the relationship between macroeconomics variables and the level of microfinance deposits?
To what extend does GDP affects the level of microfinance bank deposit performances?
How interest rate doesaffect the level of microfinance bank deposit performances?
What is the relationship between exchange rate and the level of microfinance bank deposit performances?
Is there a significant relationship between inflation rate and microfinance bank deposit?
To what extent doesmoney supply affect microfinance deposit bank deposit performances?
1.3    OBJECTIVES OF THE STUDY
    The broad objective of this study is to examine the relationship between macroeconomics variables and micro finance banks deposits performances in Nigeria. The specific objectives are:
To ascertain how GDP rates to the microfinance bank deposit performance.
To determine the relationship between interest rate and the level of microfinance banks deposit performances.
To ascertain how exchange rate affects the microfinance bank deposit performances.
To determine the relationship between inflation rate and microfinance banks deposits performances.
To determine the relationship betweenmoney supply and microfinance banks depositperformances.
1.4    HYPOTHESES OF THE STUDY
    In order to achieve the objectives raised above, the following hypotheses were formulated in null form to guide the study:
H1: GDP has no significant impact onmicrofinance banks deposit.
H2: inflation rate has no significant effect on microfinance banks deposit.
H3:interestrate does not significantly microfinance banks deposit.
H4:exchange rate has no significant impact on  microfinance banksdeposit
H5: money supply does not significantly affect the rate of microfinance banks deposit.
1.5     SCOPE OF THE STUDY
    The researcher examines macroeconomics variables and micro finance banks performances.  The scope of this study covers the period 2010-2013
 1.6    SIGNIFICANCE OF STUDY
The importance of a secured microfinance banks deposit has not been fully appreciated in the economy. It is hoped that the result of this study will serve as a practical tool to guide microfinance banks in the assessment of the usefulness of macroeconomics variables. There is the need for the appropriate knowledge of macroeconomics variables behavior to know if it deposit will increases or decreases because the level of the deposit determines the lending of loans to individual and firms. Positive improvements in microfinance deposits will definitely benefit the citizenry of the Nigerian nation.
1.7     THE LIMITATIONS OF THE STUDY
     It is doubtful if there has been or will ever be any research work that runs smoothly through without presenting some problems to the researcher. There was challenge in terms dearth of relevant literatures. More so, time and finance constitutes limitations face by the researcher. In contrast, this limitation did not in the end invalidate the findings of this study as the set back was controlled.

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