Micro-Finance review

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what do micro-finance organizations do?

Microfinance services refer to loans, deposits, insurance, fund transfer and other ancillary non-financial products targeted at low-income clients. Three features distinguish microfinance from other formal financial products:

  • smallness of loans and savings,
  • absence or reduced emphasis on collateral, and
  • simplicity of operations.

The National Association of Microfinance Banks NAMB’s 900 member banks in 2012 generated NGN 125 billion (USD 770 million) in revenue for a total  of NGN 97 billion (USD 600 million) in disbursed microloans to a client list of approximately 6 million members

Currently there is a vast array of MFBs in Nigeria (over 1000 with over 200 in Lagos) which include unit MFBs, state MFBs and national MFBs. Collectively MFBs are much smaller than the banks with a total lending portfolio of N 53 billion (USD 342 million)16 to the sector. Regulations by the Central Bank of Nigeria (CBN) require MFBs to lend at least 80% of their loan portfolio to micro enterprises

  1. In a survey on constraints to their operations, MFBs cited the lack of credible information on borrowers as one of their constraining factors and they argued that a credit registry that covers their customers would be of huge benefit to their businesses.

Although the MSME sector represents a sizeable market, financial institutions are wary of providing credit to this market for a number of reasons.26

  • MSMEs lack the requisite collateral (and most banks continue to require collateral for lending purposes).
  • MSMEs lack a formally recorded and audited financial history to be used to assess the profitability and cash flow of the business (and thus evaluate likelihood of loan repayment).
  • MSMEs may lack formal registration documents for their businesses and rent agreements for their plots or buildings to help identify and locate the business.
  • The absence of a unique national ID system is problematic for institutions attempting to follow up businesses and their owners.


Nigeria Micro-finance banks issues

  • weak internal controls and lack of deposit insurance schemes
  • absence of ICT
  • weak capital base
  • low training level of staff
  • high interest rate charged
  • low financial inclusion rate
  • low financial literacy
  • lending to unsuitable customers