Microfinance
banks as we have them today evolved from pre-2000 community banks and
cooperative societies which carried out informal financial services to the
benefit of low income, rural dwellers who were too far from accessing retail banking
services from commercial banks or earned too little to even be worth saving or
approaching them for loans.
The
Central Bank of Nigeria saw this situation and noticed that despite the huge
acceptance of the Esusu System (local/informal revolving, interest free loan
scheme) was very well received in Nigeria only a few corporate organization
were tapping into this.
Nigeria’s rural poor cumulatively could generate over N280 billion in savings annually (as at around 2005) and cheap access to loans and other business funding meant a lot of people could move out of poverty as they fund their micro businesses – especially rural subsistence farmer, petty traders, artisans, low income salary earners and other unskilled labour.
1. Huge demand for affordable Loans to Micro, Small and Medium sized Businesses
The number of small and medium sized businesses in the economy that need finance to fund their operations but are unable to do so is really huge.
Less than 54% of Nigerians have bank accounts and interestingly many of these people not captured own farms, run small sized commercial ventures and have their eyes set on doing bigger business which without additional funding they will be unable to do.
At least over N500 billion is requested for by SMEs annually but less than N300 billion is granted.
2. Increase in Population of SME Businesses Captured in the Formal Sector
More hitherto informal businesses are migrating into the formal sector.
For instance, small food retailers like 5 years ago would have grown into medium sized businesses employing from a few to dozens of employees.
These employees would somehow need to be captured in a payroll system which would require documentation.
The business would need to start paying taxes, pensions etc.
But this same business may be better served by a microfinance bank which is closer and more compatible than a commercial bank.
3. Microfinance Banks are strong drivers of savings among low income earners
Many low income earners may be know the benefits of savings but microfinance banks offer greater services in mobilizing them to save than commercial banks.
Low income earners who prefer Esusu scheme for target savings are more likely to patronize an MFB than a commercial bank to open and operate a savings account - the reason being that savings can be a major source of credit and financing to them, which commercial banks are less likely to deliver on.
The future of Microfinance in Nigeria will likely improve as more people in the informal sector have increased access to financial services.
Nigeria’s rural poor cumulatively could generate over N280 billion in savings annually (as at around 2005) and cheap access to loans and other business funding meant a lot of people could move out of poverty as they fund their micro businesses – especially rural subsistence farmer, petty traders, artisans, low income salary earners and other unskilled labour.
1. Huge demand for affordable Loans to Micro, Small and Medium sized Businesses
The number of small and medium sized businesses in the economy that need finance to fund their operations but are unable to do so is really huge.
Less than 54% of Nigerians have bank accounts and interestingly many of these people not captured own farms, run small sized commercial ventures and have their eyes set on doing bigger business which without additional funding they will be unable to do.
At least over N500 billion is requested for by SMEs annually but less than N300 billion is granted.
2. Increase in Population of SME Businesses Captured in the Formal Sector
More hitherto informal businesses are migrating into the formal sector.
For instance, small food retailers like 5 years ago would have grown into medium sized businesses employing from a few to dozens of employees.
These employees would somehow need to be captured in a payroll system which would require documentation.
The business would need to start paying taxes, pensions etc.
But this same business may be better served by a microfinance bank which is closer and more compatible than a commercial bank.
3. Microfinance Banks are strong drivers of savings among low income earners
Many low income earners may be know the benefits of savings but microfinance banks offer greater services in mobilizing them to save than commercial banks.
Low income earners who prefer Esusu scheme for target savings are more likely to patronize an MFB than a commercial bank to open and operate a savings account - the reason being that savings can be a major source of credit and financing to them, which commercial banks are less likely to deliver on.
The future of Microfinance in Nigeria will likely improve as more people in the informal sector have increased access to financial services.
Interesting post Ayojide. I see big savings potential through these banks.
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