Microfinance Institutions in Nigeria: Policy, Practice and Potentials

This study examines the outreach performance of MFIs in Nigeria, assesses their performance based on a survey of ten major MFIs, and highlights the potential of the sector.The paper provides an overview of the characteristics and policy of MFI's in Nigeria and proposes development financial institutions (DFIs) as an additional funding source to MFIs. The study finds that:

• Operations of MFIs have grown phenomenally in the last ten years, driven largely by expanding informal sector activities and the reluctance of banks to fund emerging microenterprises;
• MFI growth has been as follows:
  • The number of MFI branches increased five-fold and the employees ten times;
  • Their asset base and clients rose six and sixty-seven times respectively;
  • The value of outstanding loans and savings increased in multiples.
• The number of beneficiaries of MFI operators is an insignificant proportion of the people that are in need of microfinance services;
• Official financial statistics have not captured explicitly or given any publicity to the financial services provided by MFIs.

The paper concludes by listing the following challenges that the MFI sector faces:

• The lack of a policy framework to regulate and standardize MFI operations;
• Access to medium to long-term sustainable commercial sources of funds and increased mobilization of savings;
• Shifting of a proportion of the credit portfolio to the promotion of real sector activities, especially in agriculture and manufacturing.