ABSTRACT

Microfinance Institutions (MFIs) in Nigeria currently provide significant financial services

including microcredit facilities particularly to the rural and urban areas across the country.

Granting of microcredit facility (Loan) is a major activity of the MFIs and the loan portfolio

constitute a significant proportion of the assets of the MFIs. Undoubtedly, the MFIs derive most

of their interest incomes from loans, however, not all loans granted to beneficiaries perform well

and earn the expected returns and this tend to have adverse effect on the quality of the loan

portfolio. In the light of key role that the MFIs have assumed in the national economy, the study

was conducted to establish the causes and the effect of Non-Performing Loans (NPLs) on the

performance of MFIs with particular focus on Lift Above Poverty Organization (LAPO)

Microfinance bank. The study specifically focused on the impact of NPLs on earnings per share

and the net asset of LAPO microfinance bank In terms of data, the secondary data which

covered a period of seven years (2009 — 2015) were used for the study. The Ordinary Least

Square Regression (OLS) was employed to estimate the effect of non-performing loans on bank

performance. The OLS result revealed that non-performing loans which comprises of bad,

doubtful and substandard loans when regressed against the EPS and the net asset have

significant effect on the performance of microfinance banks in Nigeria. The study also found out

that the bank under study has the characteristics of one that is pragmatic in loan and advances

management but has fluctuating results over time. In order to address the menace of NPLs in the

MFIs, the following measures are recommended to the management of(LAPO). These measures

include vibrant credit policy, balanced approach for profit maximization and risk management,

clear policy framework ,effective and regular monitoring of loan disbursement, giving due

emphasis in order to develop the competency of credit operators and demanding of security in

the form of collateral.