The principle of financial inclusion has gained a great level of importance in recent times, owing to its perceived role as a driver of economic growth. Globally, it has received immeasurable attention as a clear strategy for accelerating all-encompassing growth, particularly in the area of poverty reduction, employment generation, wealth creation and improving welfare and general standard of living in any country.

Financially- excluded class of citizens possess untapped valuable potentials which can play a huge role in the growth and development of Nigeria. Therefore, the extension of banking and financial services to them will be of tremendous benefits to the country. Generally, it has been established that the low-income earner made up of micro and small enterprises, constitute the largest proportion of the population in Nigeria and so control huge chunk of the economy’s indolent fund, although such funds are held in insignificant amounts in the hands of each of the several individuals in this category.

Studies have shown that harnessing and accumulating these resources is likely to provide a huge source of cheap long-term investable capital. What tool can then be used to drive this agenda in Nigeria? Clearly, microfinance appears to be the answer, having been accepted as a democratisation tool for funding entrepreneurship. With its increased popularity, it has become a contested terrain where different operators including, commercial banks compete for the share of the market.

Additionally, microfinance has been affirmed as one of the most important instruments of economic policy in seeding and improving entrepreneurial activity, since it spurs entrepreneurship and empowers borrowers. In fact, it can be said that microfinance was introduced to address the level of poverty in the country by providing needed financial help to support small businesses.

Micro-finance banks and institutions by providing credit facilities to individuals and businesses are playing a huge role in helping the government achieve its primary objective of creating means of income generation and employment opportunities, whilst seeking poverty alleviation.

Notable amongst the feats of microfinance in Nigeria is the involvement of various institutions in the provision of skill acquisition and adult literacy, which has led to an improvement in the conditions of young people and women in some parts of the country. Also, they have provided suitable platforms for micro, small and medium enterprises to bring their dreams into reality with the message that business is not only for the most privileged population of the society. With the existence of microfinance as an alternative financing mechanism to the traditional methods, anyone can approach any microfinance bank for a loan to start a business.

In spite of the many benefits of microfinance in promoting all-inclusive growth in any nation, the microfinance sector in Nigeria and like many other countries is being criticized for its interest rates. The more distressing aspect is that this is not just the opinion of a few, as in the past, but becomes a more or less general perception among citizens, current clients and potential clients.

If such perception, and even more an increasing trend is allowed, it would significantly undermine the sustainability of the microfinance sector, in the medium or long run. The question of what actions the sector should embark on now emerges. In our opinion, such reputational issues would require a joint action by all institutions to demonstrate the impact of microfinancing, especially with respect to operational, social and financial efficiency.

In the dynamic situation of Nigeria today, we consider the role of microfinance to be a permanent work in progress, anticipating that practices would need to be adapted as new developments in financial services emerge. Therefore, our hope is that the players in the microfinance sector will continue to play an active role in promoting entrepreneurship and the financial inclusion agenda, no matter what method is being used to deliver services to clients.

About the Author

The Nigerian Microfinance Platform(NMP) is the leading network of all major stakeholders of the Nigerian Microfinance sub-sector. In its few years of existence, it has grown to 32 members across the Nigerian Microfinance Space. NMP provides a unified Nigerian platform for facilitating systematic exchanges amongst major stakeholders, in order to build synergy in the individual interventions for the development of the microfinance sector. Its vision is to become the leading microfinance platform working towards the goal of financial inclusion in Nigeria.