Mitigation Technique and Microfinance Risk Exposure: The Role of Optimum Loan Amount in Plateau State – Nigeria

Hannatu Tsok Audu¹ , Joshua Solomon Adeyele²

Section:Research Paper, Product Type: Journal-Paper
Vol.10 , Issue.3 , pp.22-27, Sep-2022

Online published on Sep 30, 2022

Copyright © Hannatu Tsok Audu, Joshua Solomon Adeyele . This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
 

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Abstract :
Microfinance banks (MFBs) were created to provide credits to low-income workers, the poor, small businesses and household traders. This role has brought about credit risk exposure upon the MFBs which has led to financial distress and bankruptcy in most cases. As such, this study sought to contribute in addressing this issue by assessing the interaction of mitigation techniques of MFBs with optimum loan amount. Both primary (169 sampled staff) and secondary (credit default rates ranging 1-10 years) data were collected from MFBs in Plateau state to test three research hypotheses. These data were analyzed using multiple regression models and simple percentages on SPSS (Statistical Package for Social Science). The results revealed that mitigation technique is positively and significantly related with microfinance risk exposure, and that optimum loan amount did not moderate mitigation technique and microfinance risk exposure relationship. It equally resolved that the credit risk of the few microfinance banks in Plateau state resulting in 16.17% is not better than the 6.02% earlier established for Nigeria by the World Bank in 2020. The study was found to strengthen the assumptions of asymmetric information theories, but did not align with the theory of optimum financial structure as optimum loan amount could not moderate the existing relationship. Nevertheless, practitioners were advised to take the issue of optimum loan amount serious and also use it as a mediator, since it shows the potential of reducing credit risk exposure in the model.

Key-Words / Index Term :
Mitigation Technique, Optimum Loan Amount, Microfinance Risk Exposure, Credit Default

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