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The Role Of Microfinance Banks In Nigeria

The Role Of Microfinance Banks In Nigeria
The Role Of Microfinance Banks In Nigeria

The major function of Microfinance banks all over the world is to provide assistance to small scale business . They also offer employment opportunities and can promote MSME, agriculture and all sectors of an economy.

Historical Overview of Microfinance Banks

Microfinance banks began in Nigeria in the year 2005 and was introduced by the former Central Bank of Nigeria (CBN) governor, Chukwuma Soludo. This policy was introduced to reduce the poverty level and promote small scale businesses of people living below the poverty line and who has the will to make a living for themselves and their families.. It was also create jobs and employment opportunity by reducing poverty level of the economy.

Commercial banks offer loan services but it is being offered on a smaller scale, hence the need for the creation of the microfinance banks. Microfinance banks use instruments like current, fixed deposits, loans or credit products, investment accounts, loans and the rest by offering less inexpensive, differentiated and other financial services in a way that promotes entrepreneurial activities. Microfinance banks today are among the major players in the financial industry.


What Roles Do Microfinance Banks Play In Nigeria?

1) Poverty reduction

The aim of the government is to offer more opportunities and assist small scale business owners and they do this through microfinance banks. Microfinance banks are major players since they provide credit facilities to businesses and individuals. Many of these microfinance banks offer loans without involving collateral and they grant these loans based on repaying with small installments.

2) Skill promotion

Microfinance banks in Nigeria have enabled youths and women to get relevant skills. These youths and women apply these skills in different jobs.

3) Encouraging small and micro enterprises (SME)

Microfinance banks offer a system where people can bring their business ideas to reality. One can open a small scale business and then go to a microfinance bank for loans. Petty traders, artisans and small scale businesses can get credit products from banks.

4) More opportunities for employment

Microfinance banks help to promote employment opportunities in Nigeria by creating jobs for a very large number of unemployed youth.

5) Promoting agricultural production

Agriculture is mostly practiced in rural areas in Nigeria and microfinance banks help farmers get loans. They function as an intermediary for the government to reach more farmers in Nigeria. Agriculture helps to promote the Nigerian economy and microfinance banks are tools for promoting agriculture.

6)  Monitoring and authorisation of credit

Micro lending is one of the functions of microfinance banks and this includes credit monitoring and authorisation. Microfinance banks authorise loans and ensure proper distribution. Equal distribution helps to get the loans to more and more people and offer them necessary information.

7) Increasing opportunities for lending

Microfinance banks offer some schemes that compensate borrowers and enable them access more loans with some interest rates and schedules for refund.

8) Recording loans

The formation of loan records are normally done by the loan officers of microfinance banks and this is normally from business stops .and from the debtor’s home. There is a lack of financial statement and the loan officers help to make records.

This record involves net worth and cash flows that depict the payback schedule and also credit the amount.


Challenges Of Microfinance Banks In Nigeria?

Below are some  of the challenges that microfinance banks undergo in Nigeria and they include:

i) Ineffective management; There is mismanagement of funds by top management staff and this is one of the biggest challenges that needs to be addressed.

ii) Risk for loans; Some people do not return these loans after collection and these is not healthy for the growth of the MFB.

iii) Irregular government policies; Government does not maintain its policy and most at times these policy does not confirm standard that will help microfinance practice.

iv) Inefficient finance; Most of these banks lack sufficient funds to reach more and more active borrowers who need these loans. This is caused often by inadequate assets, capital and inefficient landing.

v) Misappropriation of funds; Some funds meant for loans are diverted to other uses and this is one of the challenges that arises in situation when the government sponsors funding programs meant to alleviate the life of the citizens.



The role of microfinance banks in Nigeria today cannot be over-emphasized since it is vital for the growth of the Nigerian economy. The article discusses the role of microfinance banks in Nigeria.

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