Ugbaja, Okafor Chukwu
Department of Business Management, Faculty of Management Sciences, Imo State University, Owerri, Nigeria
Abstract
This study conducts a comparative analysis of the performance of commercial banks and microfinance institutions (MFIs) in Nigeria, focusing on their profitability, risk management effectiveness, and financial resilience. Employing a mixed-method approach, data were collected through structured questionnaires from 693 respondents—398 from commercial banks and 295 from MFIs—and complemented with secondary data from financial reports and regulatory publications. Statistical tools including chi-square tests and regression analysis were used to evaluate key financial indicators such as Return on Assets (ROA), Return on Equity (ROE), Net Interest Margin (NIM), and Non-Performing Loan (NPL) ratios, alongside risk management strategies. The findings revealed that commercial banks recorded a higher ROA of 3.5% and ROE of 15.2%, compared to 1.8% and 8.6% respectively for MFIs, while MFIs outperformed banks in financial inclusion, allocating 78% of their loan portfolio to low-income borrowers versus 34% for banks. Additionally, commercial banks demonstrated lower NPL ratios (4.5%) and greater effectiveness in credit risk management (mean score of 4.2) and regulatory compliance (mean score of 4.1), compared to MFIs (3.5 and 3.0 respectively). Regression analysis confirmed that credit risk management (β = -0.48, p = 0.000) and liquidity management (β = -0.41, p = 0.000) significantly reduce financial distress. The study concludes that while commercial banks exhibit stronger financial performance and regulatory discipline, MFIs contribute substantially to economic inclusion, necessitating improved oversight and customized policy interventions to ensure the sustainability of both sectors.
Keywords: Commercial Banks, Microfinance Institutions, Financial Performance, Credit Risk, Financial Inclusion, Nigeria
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References
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Citation
Ugbaja, O. C. (2025). A comparative study of the performance of commercial banks and microfinance institutions in Nigeria. International Journal of Scholarly Resources, 18(2).