10 common problems with Nigerian microfinance banks


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10 common problems with Nigerian microfinance banks

Microfinance banks are the banks that provide financial services to low–income individuals.

This is because they are excluded from traditional banking. So they provide credit in the form of small working capital to their customers, offer savings account, and also give insurance and do money transfers as well.

The practice of microfinance banks is not new in Nigeria, they have been in existence for some decades but the truth is that it has been bedeviled with so many challenges and problems.

The failure of the community banking scheme and many previous governments’ micro financing schemes made microfinance banking endearing.

But like every good one, the microfinance bank is dotted with several problems. This piece is here to outline the 10 major problems that are confronting Nigerian microfinance banks.

Absence of basic infrastructure:

One of the outstanding problems the microfinance banks in Nigeria encounter is the absence of basic infrastructures.

The microfinance banks provide themselves with water and electricity. Even lack of good roads especially in the rural areas distorts the outreach and the ease by which microfinance will have functioned.

So with this their operational cost will be a lot higher than the conventional banks.

Corruption:

This is one cancer that has eaten deep into the different sectors in Nigeria and the microfinance banks are no exception.

Corruption here comes in different ways they include: frauds, corporate governance failures, theft, refusal of customers to repay loans, and forgeries.

All of these bring bankruptcy and the folding up of these banks.

The emergence of miracle or magic banks:

These kinds of banks have been a disservice to the reputation of microfinance banks.

They spring up with no license and promise to pay outlandish interest on deposits only to disappear with the customer’s money.

The bottom line here is that most of these customers were taken from the micro-finance banks

Demand for High-interest rate:

The high interest rate requested by the microfinance banks poses a huge problem for them. A lot of people needing loans are for small to medium-sized business.

So with a high-interest rate, the people will back off. Of course, without customers, they can’t be any microfinance bank.

Inadequate donor funding:

The microfinance banks unlike their other counterpart that might have external funding to help with their daily financial activities aren’t forthcoming.

So they are left to source for funds to meet their daily financial needs, which leaves that struggling endlessly

Insufficient support from governments:

The same fate of less financial support from the government also befalls the microfinance banks in Nigeria.

The financial support from the government might just be too small to cater to the needs of the microfinance banks

Lack of adequate loan capital to increase loan-able funds:

Microfinance banks can’t compete favorably with commercial banks when it comes to loan capital.

Their capital is inadequate to go round their customers that would need to get loans from them.

This might be due to the earlier discussed factors which are lack of support from external sources and the government

Inadequate awareness of the microfinance institutions to people:

Some people are not aware of the presence of microfinance banks and the need to have an account with them.

So with less awareness comes the problem of fewer customers and growth for the microfinance institutions.

Mis-management by the managements:

Microfinance banks managers and other management staff misuse the funds at their disposal..Some misuse their position and get credit facilities that are above the rule.

Buying themselves exotic cars, renting big complexes, and taking huge loans with no intention of repayment.

Lack of banking culture in the rural areas:

A lot of people especially those that are in the rural areas and the poor in the urban centers don’t understand the needs of having an account with the microfinance banks.

So this will hamper the progress microfinance banks would have made in their midst.

Summary:

The microfinance banks in Nigeria even though they help in encouraging entrepreneurial activity and business development in poverty–stricken areas still have their problems.

It will be great that the management and the government look into these problems and see how they can be tackled. It will help to grow and develop the institutions a lot better.

Chike Olisah

Chike Olisah is a Graduate of Economics with over 20 years working experience in the financial service sector. He has worked in research and marketing departments of five top commercial banks in Nigeria.

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