Microfinance banks are small scale banks that support small scale businesses in Nigeria. They are semi-formal institutions and it can be non-governmental or a community development initiative. It is made up of a system that is made up of a wide range of structures which provide financial support to small scale businesses. Structures in each of the microfinance banks vary and this is dependent on the nature and type of the bank. There are also institutions which are traditional which offer credit and debit services to their members and this type of microfinance bank is very common in Nigeria. These banks help to promote the economy of Nigeria.
However microfinance banks has a lot of challenges which should be addressed as these banks support small scale businesses which has a capacity to turn the economy of Nigeria. Microfinance banks offer their services in such a way that the customers are able to support their small scale business.
1) Loans for small scale business: Microfinance banks in Nigeria have now made it easier for loans to be obtained for small scale businesses in Nigeria. These loans enable or support those who want to start a small scale business. The loans obtained enable starting businesses with the potential to generate mega income. This is one advantage of microfinance banks in Nigeria as other types of banks in Nigeria do not give such loans to small scale businesses. Microfinance banks are therefore better ways for starting small scale businesses to obtain loans in Nigeria.
2) Increasing job opportunities: Small scale businesses make up a reasonable percentage of the Nigerian economy. Since microfinance banks support these small scale businesses, they tend to increase job opportunities for Nigerians. The Nigerian economy is highly driven by these small scale businesses as these types of businesses make use of a reasonable quantity of manpower. Increasing these small scale businesses increase job opportunities. This is one advantage of microfinance banks that support these businesses.
3) Promotion of the Nigerian economy: The Nigerian economy is promoted by microfinance banks. Small scale business is among the best methods of promoting the Nigerian economy. This is also a way of reducing Nigeria’s too much dependence on crude oil as the main substance of the Nigerian economy. The more these small scale businesses are supported through loans from microfinance banks, the more the Nigerian economy is promoted.
1) Inadequate support: The Nigerian central banking system is yet to give microfinance banks the best support that they need in order to promote the economy of Nigeria. This is due to the fact that the central banking system in Nigeria is yet to realize that microfinance banks are one way of promoting the Nigerian economy. These microfinance banks in Nigeria need adequate support and the government has not yet given appropriate support to these banks as they are under the Nigerian central banking system.
2) Poor mentality about loans in Nigeria: There is this poor mentality in Nigeria about loans for small scale businesses. This poor mentality in Nigeria that loans are too risky for Nigerians and that it is not a good way to start a business has actually reduced the performance of microfinance banks in Nigeria. Change in this mentality will improve the performance of microfinance banks in Nigeria.
3) Low banking culture: Nigerian small scale businesses are yet to fully implement an appropriate banking culture that is necessary for the advancement of their business potentials. The banking culture of Nigerians with respect to microfinance banks is still very low and needs a lot of improvement. This is one of the problems of microfinance banks in Nigeria.
4) Poor Finance Management: Some funds that are meant to serve as loans in microfinance banks are being smuggled into other purposes. This is very rampant in microfinance banks and this has dramatically reduced the functional ability of microfinance banks to disburse their loans to their staff. Measures should be taken to ensure the proper utility of funds in microfinance banks. This will make them more functional and more effective in their banking operations.
1) Government Support: The government of Nigeria should do more to support microfinance banks in Nigeria. This will go a long way to improve their performance and outreach upon Nigerians. The government can do this by improving the capital base of these banks in order to make them able to give loans to a wider number of Nigerians. These will make loans for accessible to small scale businesses in Nigeria. Government support will expand the functional capacity of microfinance banks in Nigeria.
2) Improved banking culture among small scale businesses: Nigerians who deal on small scale businesses ought to improve their banking culture. They ought to know the essence of loans and other functions of microfinance banks and the role it plays in developing their business. When the banking culture of Nigerians improve, it will have an effect on the performance of microfinance banks in Nigeria. Banking culture in Nigeria with respect to small scale businesses is still very low and needs a lot of improvement. This has an effect on the economy of Nigeria as the banking sector is one of the major factors that can develop the economy of Nigeria.
3) Spreading Loan Availability Awareness Among Nigerians: A lot of Nigerians are not yet fully aware of the function of microfinance banks in Nigeria. They are not yet aware of how they can participate effectively in the banking system of microfinance banks in such a way that they make positive impact on their businesses. Small scale businesses in Nigeria need to be made aware of the loans offered by microfinance banks so that they can benefit from them. The more Nigerians are made aware of the benefits of microfinance banks, the more they tend to participate in this form of banking. Awareness can be created by using the media. This will promote the outreach of these banks to Nigerians.