MACROECONOMIC DETERMINANTS OF MICROFINANCE BANKS’ CAPITAL STRUCTURE IN NIGERIA

Abstract

The financial stability of Microfinance Banks (MFBs) in Nigeria is pivotal to advancing financial inclusion and stimulating economic development, particularly among underserved populations. However, these institutions operate in a dynamic and often unstable macroeconomic environment, which significantly influences their capital structure decisions. This study investigates the macroeconomic determinants of capital structure among Nigerian MFBs, focusing specifically on inflation, exchange rates, gross domestic product (GDP), and lending rates. Adopting an ex-post facto research design, the study utilizes aggregated secondary data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin, covering the period from 1992 to 2022. The analysis employs the Auto Regressive Distributed Lag (ARDL) regression technique to examine both short-run and long-run dynamics. The findings show that the inflation rate has a positive association with MFBs' capital structure (coefficient = 0.018, p = 0.016) in the short run and (coefficient = 0.008, p = 0.033) in the long run. Similarly, GDP negatively impacts capital structure of MFBs with (coefficient = -0.024, p = 0.035) in the long run. Other variables, such as exchange rates and lending rates, were not statistical significant. The study concludes that macroeconomic conditions substantially shape the capital structure decisions of MFBs in Nigeria. It recommends among others that MFBs should adopt strategic measures to manage macroeconomic fluctuations, such as implementing inflation-hedging strategies by increasing reliance on equity financing during periods of high inflation.