Speaking of the Nigerian business environment, running a Microfinance business can be a highly profitable and importantly can also be a huge challenge.
There are many obstacles, problems and threats which could both slow down or even stifle your success in the business.
For instance;
1. Internal Bank Fraud
While the CBN, EFCC, NDIC, NDLEA and the police have played crucial roles in limiting internal fraud in many Microfinance bodies, there are still instances of where bank staff make away with depositors funds.
Some Microfinance banks have even folded up because a director made away with huge sums of money under various pretext.
This is a reality which still happens till date.
2. Loan Defaults from some Customers
In comparison to commercial banks MFBs tend to record less loan defaults.
Sometimes Farmers, petty traders and artisans who are less educated seem more likely to repay a loan than a formal business run by educated people, depending on determining factors.
But there are indications that loan defaults among Nigerian microfinance have been on the increase year on year by very small margins.
Loan defaulting has a way of frustrating revolving loan schemes which in turn can discourage further savings.
3. Misapplication of Loans
Some people will approach a bank to raise a loan for their business but divert it to pay house rent, splash on wedding or cater to another non-business need which could lead to them either not repaying the loan or taking longer than they should.
4. Mini Commercial Bank Syndrome
A newspaper report quoting the CEO of an Microfinance noted how many MFBs in Nigeria are struggling to stay afloat.
In fact most of them are close to closing down as over 40% of the entire market is captured by just 10 out of 991 existing MFBs.
This was attributed to ‘mini commercial bank syndrome’ where the MFBs function like commercial banks and target more of middle level customers than low income earners and micro businesses.
According to the CEO when you neglect the core microfinance practice you are heading for insolvency which most Micro Finance Banks in Nigeria are currently doing.
Setting up a Microfinance Bank offers great Returns
You can actually start a microfinance bank in Nigeria with about N10 million operating from just one unit location within a state.
Alternatively, you can startup as a state Micro Finance with about N50 to N100 million startup capital or N1 billion for national Microfinance bank.
The return on investment (if you manage the business well) can be as high as 30% and this can be realized by your 3rd t 4th year.
Your first year is capable of generating over 20% ROI.
Setting up a Microfinance in Nigeria has stringent requirements but they are not too difficult for serious minded individuals who want to invest in it.
Secondly while the market is growing, there are challenges to deal with and but sound management practices can handle most of them.
Have a good time.
There are many obstacles, problems and threats which could both slow down or even stifle your success in the business.
For instance;
1. Internal Bank Fraud
While the CBN, EFCC, NDIC, NDLEA and the police have played crucial roles in limiting internal fraud in many Microfinance bodies, there are still instances of where bank staff make away with depositors funds.
Some Microfinance banks have even folded up because a director made away with huge sums of money under various pretext.
This is a reality which still happens till date.
2. Loan Defaults from some Customers
In comparison to commercial banks MFBs tend to record less loan defaults.
Sometimes Farmers, petty traders and artisans who are less educated seem more likely to repay a loan than a formal business run by educated people, depending on determining factors.
But there are indications that loan defaults among Nigerian microfinance have been on the increase year on year by very small margins.
Loan defaulting has a way of frustrating revolving loan schemes which in turn can discourage further savings.
3. Misapplication of Loans
Some people will approach a bank to raise a loan for their business but divert it to pay house rent, splash on wedding or cater to another non-business need which could lead to them either not repaying the loan or taking longer than they should.
4. Mini Commercial Bank Syndrome
A newspaper report quoting the CEO of an Microfinance noted how many MFBs in Nigeria are struggling to stay afloat.
In fact most of them are close to closing down as over 40% of the entire market is captured by just 10 out of 991 existing MFBs.
This was attributed to ‘mini commercial bank syndrome’ where the MFBs function like commercial banks and target more of middle level customers than low income earners and micro businesses.
According to the CEO when you neglect the core microfinance practice you are heading for insolvency which most Micro Finance Banks in Nigeria are currently doing.
Setting up a Microfinance Bank offers great Returns
You can actually start a microfinance bank in Nigeria with about N10 million operating from just one unit location within a state.
Alternatively, you can startup as a state Micro Finance with about N50 to N100 million startup capital or N1 billion for national Microfinance bank.
The return on investment (if you manage the business well) can be as high as 30% and this can be realized by your 3rd t 4th year.
Your first year is capable of generating over 20% ROI.
Setting up a Microfinance in Nigeria has stringent requirements but they are not too difficult for serious minded individuals who want to invest in it.
Secondly while the market is growing, there are challenges to deal with and but sound management practices can handle most of them.
Have a good time.
I hope to learn more about this topic on your next posts. But good point you pointed out here!
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