ABSTRACT:

The study evaluated the impact of capital structure on financial and social performance of microfinance banks (MFBs) in Nigeria. The objectives were to investigate effect of capital structure on financial performance of MFBs; and appraise the impact of capital structure on social outreach of MFBs in Nigeria. The study used panel data for the period of 2004-2018 sampled 19 MFBs out of 69 MFBs and sourced from MIX-Market. The data were analyzed with autoregressive distributed lag (ARDL) framework and the properties of panel data were checked with normality tests and panel unit root tests. On effect of capital structure on financial performance, the coefficients of debt-to-equity ratio and total assets are positive and significant (p<0.01) in explaining financial performance of MFBs. On the other hand, coefficient of debt–to-equity ratio is negative and significant (p<0.004) in explaining social outreach of MFBs in Nigeria. Moreover, the error correction term coefficient is signified that short-run disturbance is adjusted in the long-run and the results suggest the existence of a rebound effect. The errors or disturbances were corrected at the different speeds per annum in long-run. The study recommends policy that will promote financial sustainability because it influences financial inclusion in the long run should be promoted by policy makers.