Enterprise-Wide Risk Management and Risk Governance of Microfinance Banks in Nigeria

Abstract

interest rate risk, or strategic risk, top the list. According to Clementine and Gabriel (2015), specifically to Abstract: Purpose: Proactive risk management is indispensable to the long-term growth and sustainability of a business, however the practice of enterprise-wide risk management (EWRM) among microfinance banks is limited by its knowledge. Hence, the motivation of this study to examine the effect of current practices of EWRM on risk governance in MFBs in Nigeria. Design/Methodology: The study adopted survey research design to define the structure and strategy of the study. Targeting microfinance banks in the north east region of Nigeria, 222 MFBs were selected as at 31 st December, 2020. The required data were collected from respondents using structured questionnaire and financial statement of the banks. The data collected were analyzed using both descriptive and inferential statistics. Findings: The analyses of the study revealed that board of directors’ oversight, human resources competence, internal audit effectiveness, and top management commitment have positive and significant effect on risk management effectiveness of the microfinance banks in Nigeria. Furthermore, regular risk compliance was found to have positively moderates the relationship between human resource competence and risk management effectiveness, and the relationship between top management commitment and risk management effectiveness. However, the results indicates that regular risk management negatively moderates the relationship between internal audit effectiveness and risk management effectiveness and the relationship between board of directors’ oversight and risk management effectiveness. Implications: The current enterprise-wide risk management practices among MFBs in the North East Nigeria has a positive and significant effect on risk governance of the banks, which invariably enhance the performance of the banks. Furthermore, the internal control mechanism instituted by the regularity authority and the Board of Directors has enhance EWRM practices and MFBs performance. Hence, the study recommended the effective implementation of CBN Risk Management Framework for Microfinance Institutions to assist the MFIs identify their risk exposures with a view of monitoring and controlling them.