Microfinance banks in Nigeria even though they help in encouraging entrepreneurial activity and business development in poverty–stricken areas still have their problems.
Microfinance banks are the banks that provide financial services to low–income individuals.
Microfinance banks are not new in Nigeria, they have been in existence for some decades and like every other institutions in Nigeria, there faced with many challenges and problems.
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They are not your traditional banks. They majorly 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.
This write up highlights some of the numerous problems that are confronting Nigerian microfinance banks.
Infrastructure deficit
One of the problems the microfinance banks in Nigeria encounter is the absence of basic infrastructures such as water, electricity, good road networks 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.
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
Awareness problem
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.
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Mis-appropriation of funs by the managements
Microfinance banks managers and other management staff mismanagement and abuse funds at their disposal. Some abuse 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 area
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.
In conclusion, 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.
