Unemployment Menace and the Fallacy of Microcredit Policy in Nigeria

Abstract

This study examined the issue of unemployment and the impact of microfinance  banks’ credit facilities on its reduction for the period of 22 years between 1992 and 2014. The study employed secondary data obtained from Central Bank of Nigeria and National Bureau of Statistics. The data obtained was subjected to stationarity and cointegration tests with the use of Augmented Dickey-Fuller (ADF) and  Phillips-Perron (PP) tests. Furthermore, ordinary least square regression was  employed in analyzing the relationship between the dependent variable  (unemployment rate) and the independent variables (microfinance banks’ credit facilities, gross domestic product, interest rate and inflation). The outcomes of the study show that three independent variables (microfinance banks’ credit facilities, interest rate and inflation) at 5% alpha level have significant impact on  unemployment while gross domestic product was found not to have any significant impact on unemployment. The study concludes that credit facilities provided by microfinance banks do not actually go to deserving individuals or borrowers, thus, having no impact on reducing the menace of unemployment in the country. The study therefore recommends that the Central Bank of Nigeria re-evaluate the  performances of the operating microfinance banks in order to ascertain the  proportion of their loan portfolio that actually goes to the “unemployed but creative youths”. In addition, the CBN must as a matter of urgency take necessary action in ensuring that loans granted by microfinance banks are serviced at a single digit  interest rate as applied in countries like Kenya and Bangladesh. This is because  employment generation and overall economic development can only be achieved  when entrepreneurial youths can access credit facilities at affordable interest rate.

Keywords: unemployment, microcredit, interest rate, inflation, gross domestic product
JEL Codes: E24, G21