Risk Management in Microfinance: How Customer Financial Profiles Can Improve Loan Repayment Strategies in Kwara State, Nigeria
DOI:
https://doi.org/10.51137/wrp.ijarbm.856Keywords:
Customer Financial Profiles, Loan Repayment Strategy, Default Tendency, Financial BehaviourAbstract
This study examined the effect of customer financial profiles on loan repayment strategy effectiveness and loan default tendency among active borrowers of licensed microfinance banks in Kwara State, Nigeria. A quantitative cross-sectional survey design was adopted using primary data from 214 active loan customers drawn from the sampling frames of participating microfinance institutions. The relationships were estimated using simple linear regression and binary logistic regression, with the composite customer financial profile constructed as an equally weighted index of income stability, financial behaviour, and financial education. The composite customer financial profile had a positive and statistically significant effect on loan repayment strategy effectiveness indicating that systematic borrower profiling improves the alignment between loan terms and repayment capacity. The composite profile also had a negative and statistically significant effect on loan default tendency, with an odds ratio of 0.325, meaning a one‑unit increase in the profile score reduces the odds of default by approximately 67.5 per cent. The study concludes that customer financial profiling is not merely a data‑collection exercise but a core risk management instrument with measurable portfolio quality consequences. Microfinance institutions in Kwara State that integrate structured profiling across income stability, financial behaviour, and financial education into their credit appraisal processes can reduce information asymmetry, improve repayment strategy alignment, and lower default rates without requiring additional capital or regulatory changes. Loan officers, audit committees, and prudential authorities should prioritise the assessment of behavioural indicators and financial knowledge alongside income stability and consider minimum profiling standards for the microfinance subsector.
References
Abdulrauf, L. A. O., Rabiu, S. A., & Akande, J. O. (2024). How does financial risk management impact financial performance of microfinance banks? Danubius University Journal, 12(2), 45–62. https://dj.univ-danubius.ro/index.php/JD/article/view/2678
Adem, T. S., & Seid, E. M. (2021). Credit scoring for microfinance: Can it work? Journal of Microfinance and Financial Inclusion, 8(1), 34–52. (No DOI available – verify via institutional repository)
Ahlin, C., & Townsend, R. M. (2007). Using repayment data to test across models of joint liability lending. The Economic Journal, 117(517), F11–F51. https://doi.org/10.1111/j.1468-0297.2007.02014.x
Akerlof, G. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500. https://doi.org/10.2307/1879431
Armendáriz, B., & Morduch, J. (2010). The economics of microfinance (2nd ed.). MIT Press.
Asongu, S. A., & Nwachukwu, J. C. (2021). Fintech, financial inclusion and income inequality nexus in Africa. African Governance and Development Institute Working Paper, 21(2), 1–28. (Working paper – DOI not applicable)
Blanco-Oliver, A., Reguera-Alvarado, N., & Veronesi, G. (2023). Credit risk in the microfinance industry: The role of gender affinity. Journal of Business Research, 156, Article 113456. https://doi.org/10.1016/j.jbusres.2022.113456
Bongomin, G. O. C., Ntayi, J. M., Mpeera, J., & Munene, J. C. (2022). Institutional framework in developing economies: Do all dimensions matter for financial intermediation by microfinance deposit-taking institutions? International Journal of Emerging Markets, 17(5), 1122–1145. https://doi.org/10.1108/IJOEM-04-2020-0358
Central Bank of Nigeria. (2022). Microfinance policy framework for Nigeria. Central Bank of Nigeria. https://www.cbn.gov.ng/Out/2022/CCD/MICROFINANCE%20POLICY%20FRAMEWORK%20FOR%20NIGERIA.pdf
Cochran, W. G. (1977). Sampling techniques (3rd ed.). John Wiley & Sons.
Creswell, J. W. (2014). Research design: Qualitative, quantitative, and mixed methods approaches (4th ed.). SAGE Publications.
D‘Espallier, B., Guérin, I., & Mersland, R. (2020). Group lending and social capital: Evidence from microfinance institutions. Journal of Business Ethics, 162(2), 477–490.
Dorfleitner, G., Forcella, D., & Nguyen, Q. A. (2021). A machine learning approach for micro-credit scoring. Risks, 9(3), Article 50. https://doi.org/10.3390/risks9030050
Friedman, M. (1957). A theory of the consumption function. Princeton University Press.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning.
Hasan, M., Le, T., & Hoque, A. (2021). How does financial literacy impact on inclusive finance? Financial Innovation, 7(1), Article 40. https://doi.org/10.1186/s40854-021-00259-9
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Jimoh, I. (2025). Institutional factors and loan repayment culture among SMEs credit takers of microfinance banks in Kwara State, Nigeria. UMYU Journal of Accounting and Finance Research, 6(2), 112–128. (No DOI available – verify via institutional repository)
Kaiser, T., Lusardi, A., Menkhoff, L., & Urban, C. (2022). Financial education affects financial knowledge and downstream behaviors. Journal of Financial Economics, 145(2a), 255–272. https://doi.org/10.1016/j.jfineco.2021.10.006
Kurnia, K., & Setiawan, R. (2021). Banking on cooperation: An evolutionary analysis of microfinance loan repayment behaviour. International Journal of Finance & Economics, 26(4), 5623–5641. https://doi.org/10.1002/ijfe.2345
Likert, R. (1932). A technique for the measurement of attitudes. Archives of Psychology, 22(140), 1–55.
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5–44. https://doi.org/10.1257/jel.52.1.5
Mukherjee, S., Karmakar, A. K., & Das, S. (2023). A tri-variate nexus of microfinance-growth-inequality: The South-Asian experience. In Handbook of research on microfinancial impacts on women empowerment, poverty, and sustainability (pp. 145–168). IGI Global. (No DOI available – verify via publisher)
Nawai, N., & Shariff, M. N. M. (2012). Factors affecting repayment performance in microfinance programs in Malaysia. Procedia – Social and Behavioral Sciences, 62, 806–811. https://doi.org/10.1016/j.sbspro.2012.09.136
Osuma, G. O., Adesina, O. S., & Adeyemi, B. A. (2025). Governance mechanisms and risk management as determinants of financial sustainability in microfinance of emerging economies: Evidence from Nigerian microfinance institutions. Journal of African Business, 26(1), 78–98.
Oyasor, E. I. (2024). Impact of microfinance bank on the growth and sustenance of SMEs: A case study of Kwara State. ASEI Academic Journal of Business and Finance, 8(2), 45–67.
Saunders, M., Lewis, P., & Thornhill, A. (2019). Research methods for business students (8th ed.). Pearson Education.
Ssebagala, R. (2020). What matters more for South African households‘ debt repayment difficulties? Development Southern Africa, 33(6), 721–738. https://doi.org/10.1080/0376835X.2016.1203763
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410. https://www.jstor.org/stable/1802787
Tchuigoua, H. T. (2023). Loan officer gender and loan repayment performance: Evidence from greenfield microfinance institutions in Cameroon. Annals of Public and Cooperative Economics, 94(2), 345–367. https://doi.org/10.1111/apce.12367
Tran, T. H., Nguyen, T. M., & Pham, H. C. (2023). Credit management as a predictor to the sustainability of microfinance institutions. Cogent Economics & Finance, 11(1), Article 2184589. https://doi.org/10.1080/23322039.2023.2184589
Udohaya, N., & Fifield, S. G. M. (2025). Sustainable financial inclusion in Nigeria: A need to go beyond access to impact. Qualitative Research in Financial Markets, 17(3), 532–556. https://doi.org/10.1108/QRFM-06-2024-0152
Xiao, J. J., & Porto, N. (2017). Financial education and financial satisfaction: Financial literacy, behavior, and capability as mediators. International Journal of Bank Marketing, 35(5), 805–827. https://doi.org/10.1108/IJBM-01-2016-0009
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Ahmed Adekunle (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
