Micro Finance Banks in Nigeria

Topics: Bank, Microfinance, Poverty Pages: 14 (4530 words) Published: May 31, 2013
Microfinance Banking in Nigeria: Problems and Prospects
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Acha Ikechukwu A.
Department of Banking and Finance, University of Uyo, AkwaIbom State, Nigeria Correspondence to: Acha Ikechukwu A. , Department of Banking and Finance, University of Uyo, AkwaIbom State, Nigeria. |Email: |[pic] |

Copyright © 2012 Scientific & Academic Publishing. All Rights Reserved. Abstract
Since the advent of microfinance banking in Bangladesh in the mid 1970’s, several countries have copied this financing model. The seeming popularity of this model among developing countries is predicated on poverty reduction prospect it offers. The Nigerian government cued into this popular thinking in 2005 when it inaugurated the microfinance banking scheme. This was founded to provide finance to economically active poor excluded from financing by conventional banks, provide employment, engender rural development and reduce poverty. This paper theoretically examines the challenges these banks have had to grapple with from their inception. Furthermore, it scans the business environment to assess the prospects of microfinance banks in Nigeria. The paper shows that microfinance banking in Nigeria faces enormous challenges in infrastructural inadequacies, social misconception, poor legal and regulatory framework, unbridled competition from other financial institutions,abandonment of core microfinance function and paucity of qualified manpower. Despite this plethora of challenges, the study identified several areas where opportunities exist for these banks. The growing entrepreneurial awareness, increasing government interest, large unbanked rural area and high population of poor people were identified as some of these opportunities. The paper argues that with proper regulatory interventions and commitment of other stakeholders to the core mission of microfinance banking, its challenges can be addressed and its prospects enhanced. This paper therefore concludes that the future of microfinance banking in Nigeria is bright. Keywords: Rural Development, Poverty Alleviation, Micro Leasing

Article Outline

1. Introduction
2. Literature Review
    2.1. Microfinance Banks in Nigeria
3. The Challenges of Microfinance Banks in Nigeria
4. Prospects of Microfinance Banking in Nigeria
5. Conclusions
6. Recommendations

1. Introduction

One of Nigeria’s economic peculiarities is financial dualism. There is a formal financial sector made up of the ministry of finance, the Central Bank of Nigeria (CBN), banks, other financial institutions, Nigerian Stock Exchange (NSE), etc. Beside this formal sector exists an informal financial sector with people lending and borrowing directly from each other through methods like esusu, daily contributions and through cooperatives[1]. The presence of a large informal finance sector in Nigeria had been blamed on several factors, some of which are; population concentration in rural areas most of which are unbanked, low literary level, loss of confidence in the banking system due to distress, elitist banking practices and absence of other financial institutions in the rural areas[2]. A major consequence of a large informal sector is difficulty in economic management. The experience of Nigeria in this regard is not different as the monetary authorities have had to watch impotently as their monetary policy measures fall short of desired objectives[3],[4]. Apart from the difficulties experienced in monetary management, the Nigerian governments over the years have had to grapple with poverty and unemployment. The realization that many of these poor and/or unemployed persons are not without skills, ideas and willingness to work, must have propelled the government to make finance accessible to them. This, the government has tried to...
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