Impact of Risk Assessment and Monitoring on the Operational Efficiency of Microfinance Banks

Abstract

This study investigates the effect of risk assessment and monitoring systems on the operational efficiency of microfinance banks (MFBs) in Nigeria. It addressed some of the key challenges, including inefficiencies, non-performing loans, and fraud that hamper corporate sustainability and growth. A sample of ninety-nine (99) microfinance managers across diverse departments, including risk management, operations, and audit, were surveyed. Data were collected using structured questionnaire and data analysis was informed by the Committee of Sponsoring Organizations of the Treadway Commission Framework (COSO), which identified two out of the five critical components of internal control: risk assessment, and monitoring (independent variables). A quantitative research methodology was used, and the data were analysed using multiple-regression analysis with SPSS 30 to examine the relationship between these components and operational efficiency. Findings suggest that risk assessment and internal control monitoring significantly enhance operational efficiency. However, the models demonstrate a low overall R-squared value which suggest additional variables may affect operational outcomes which further highlights the need for investing in technology-driven, tailored control systems and fostering ethical practices which are key challenges faced by the microfinance banks in Nigeria. The findings further suggest that thorough and robust internal control systems are vital for improving efficiency, building confidence, and strengthening organizational structures. This study contributes to the extant literature on financial inclusion, institutional sustainability, and internal controls, offering practical guidelines for financial institutions desiring to improve their operations. Importantly, strengthening risk assessment enhances financial performance and governance, which helps to reinforce the necessity for regulatory improvements in microfinance banking.