The COVID-19 pandemic and the lockdown restrictions enforced around the world to stem the spread severely worsened the state of the global economy, with a deterioration from reduced growth in 2019 to negative growth in 2020. According to the Microfinance Centre, Poland, the majority of Microfinance Finance Institutions across the world witnessed a deterioration in asset quality during the pandemic with operators in Africa, Middle East and South Asia the worst hit. The Microfinance Industry in Nigeria was also adversely impacted as many of the Industry’s customers, particularly in sectors such as education, non-essential goods and services, aviation and hospitality, were among the most affected.
One of the primary objectives of the Microfinance Industry in Nigeria continues to be the provision of financial services to the poor and economically disadvantaged, who are not usually served by traditional financial institutions. The CBN Microfinance Policy, Regulatory and Supervisory Framework provides the legal and regulatory foundation for microfinance in Nigeria. Unlocking the full potential of the Industry requires more efficient financial markets, particularly with regards to access to finance. Other challenges the Industry faces include weak risk management practices, poor adoption of technology and stiff competition from other financial service operators.
The Microfinance Industry in Nigeria comprises a host of different operators including banks, non-governmental organisations and cooperative societies. There is significant competition in the Industry with over 900 active Microfinance Banks (MFBs) in Nigeria according to the CBN. The Industry has strong potential given Nigeria’s huge MSME market and large unbanked population. The Industry faced a setback due to the COVID-19 pandemic, with the vast majority of MFBs halting loan disbursement and collection activities during the six-week lockdown in 2020. Notwithstanding, MFBs returned to business gradually in the second half of 2020, employing a more cautious approach to risk asset creation.
Agusto & Co.’s 2021 Microfinance Report includes: