More Nigerians turn to Microfinance Banks as economy tightens

Microfinance in Nigeria has grown from humble beginnings in community savings groups to a key player in today’s financial sector.

First formalised through the Community Bank programme in the late 1990s and given a nationwide framework in 2005, microfinance banks (MFBs) were designed to provide financial services to the unbanked, reduce poverty, and support small businesses.

Today, the sector has expanded significantly. According to the Central Bank of Nigeria (CBN), as of late 2024 there are 729 licensed microfinance banks, including nine national, 121 state-level, and 599 unit-level banks. The rise of digital players such as Kuda MFB, Fairmoney MFB, and Moniepoint MFB has also reshaped the landscape, making borrowing even more accessible.

For many Nigerians, the worsening economy—marked by high inflation, rising unemployment, and the increasing cost of living—has made access to quick credit more urgent. Borrowers say microfinance banks have stepped in where commercial banks often fall short.

Daniel, a borrower, explained that speed and accessibility were the main reasons he chose a microfinance bank. “They are fast when it comes to processing,” he said. “Unlike commercial banks that may take three months, I was able to access ₦2 million without collateral.” While repayment was demanding—he was given just a week to balance up—he noted that the loan helped him manage priorities: “I don’t spend money on things that are not important.”

Glory shared a similar experience, pointing to flexibility as the deciding factor. “They were more approachable and willing to consider my financial situation than bigger banks,” she said. With her loan, she was able to restock her shop and cover urgent family needs. She added that when repayment delays occurred, the bank allowed her to reschedule. Her advice was cautious: “Yes, I would encourage others, but they should borrow only what they can repay and use the funds wisely.”

Olusegun emphasized the personal connection that MFBs foster with customers. “The workers are approachable and have built relationships with their customers,” he said. In his case, bank officials even visited his shop before approving the loan. The funds enabled him to buy goods in bulk at lower prices, giving his business a cushion during tough times. However, repayment came with pressure. “I was unable to pay back on the deadline, so I was allowed another day, but the bank was on my neck,” he recalled. His advice was direct: “Don’t do more than yourself. Only borrow what you can return.”

From these accounts, a pattern emerges. Borrowers choose microfinance banks not because the loans are easier to repay, but because they are easier to access. Shorter processes, fewer collateral requirements, and flexible terms make them attractive to small business owners and low-income earners who often feel shut out by commercial banks.

As the economy worsens, this accessibility explains why more Nigerians are turning to microfinance institutions. Yet, borrowers are also clear about the risks: repayment can be stressful, and only careful financial discipline prevents loans from becoming burdens.