Research & Analysis

Access to Finance in Nigeria: Microfinance

Nigeria has a long history of community finance, microfinance, and Small and Medium Enterprises (SME) finance initiatives to provide financial services to the unbanked population. However, performance has been mixed. The Government is cognizant of the need to strengthen the financial sector and has developed a comprehensive long-term strategic plan for its development: the Financial System Strategy 2020 ("FSS 2020"). The plan aims to build on the success of the recent banking sector reforms to promote greater stability, depth and diversity of the entire financial system.

Given significant financial sector reforms and private sector innovations, there are encouraging signs that access to finance is poised for growth in Nigeria. This report provides a diagnostic of access to finance and identifies key issues for microfinance, branchless banking and SME finance. The over-arching issues across all three sectors include the following:

  • Greater transparency of financial performance and market information: There is little data on market demand for microfinance, SME finance or branchless banking. Likewise, data on financial performance or outreach is scarce for microfinance banks, SME finance providers, and branchless banking providers.
  • Strengthen capacity at all levels: Providers of microfinance, SME finance and branchless banking all noted challenges to manage current levels of rapid growth, develop new products, expand in new geographic areas, and address other strategic and operational challenges. Likewise, the CBN would benefit from increased capacity to conduct both off-site and on-site supervision.
  • Promote financial infrastructure: Considerable attention has been given to designing new laws, regulations and guidelines to upgrade the payments system, private credit registries, and collateral registries. Moving quickly and surely on these core components of the financial infrastructure could help Nigeria’s financial sector modernize and significantly expand access to finance. 
  • Promote consumer protection: As more financial service providers enter the market, competition is starting to appear in some urban areas. Given the growing diversity and complexity of services across microfinance, SME finance and branchless banking, it may be time to introduce consumer protection for financial services.
  • Coordinate efforts: Several programs have been launched by funders, the Federal Government and several State Governments to promote microfinance, SME finance and branchless banking. In particular, concessional funding to promote microcredit or SME lending can damage the long-term development of the sector. The FSS 2020 and national programs such as EFInA and the MSME program are excellent opportunities to coordinate efforts, share information across programs, ensure that good international practices are incorporated in programs, and improve aid effectiveness.