Publication: Nigeria's Microfinance Bank Sector: Review and Recommendations
Loading...
Published
2017-12
ISSN
Date
2019-02-25
Author(s)
Editor(s)
Abstract
The report analyzes the status of the Nigerian Microfinance Banks (MFBs) sector and aims to identify and address the challenges of its effective regulation and supervision. Ensuring the financial soundness of the MFB sector is regarded as a prerequisite for its further development. This report was prepared at the request of Other Financial Institutions Supervision Department (OFISD) of the Central Bank of Nigeria (CBN) to inform OFISD's efforts to develop a strategy for regulation of the MFB sector with emphasis on its consolidation. The report does not attempt to address in depth other systemic issues related to microfinance market development, such as funding constraints or gaps in financial infrastructure. While important these factors are secondary to the report’s central focus on reforming and recalibrating the regulatory framework and ensuring effective supervision, which is regarded as necessary precursors to the growth of the sector. Only once these regulatory and supervisory reforms are implemented will the MFB sector be better positioned to start to make a more significant and sustainable contribution to financial inclusion. The findings of the report are complemented with fifteen case-studies based on a representative sample of different MFB business models and origins, drawing lessons regarding the challenges faced by the sector about factors such as their business model, governance, funding, and client base. The Microfinance Policy, Regulatory and Supervisory Framework for Nigeria of 2005 established MFBs as a means of formalizing microfinance institutions (MFIs) in order to promote financial discipline and sustainability, while also providing access to financial services to the unbanked population. The framework was designed to attract new capital as well as to regularize Community Banks (CBs), which had been established since the early 1990s, mainly as conduits for directed lending. Licensed by the CBN, MFBs are allowed to solicit deposits, which are guaranteed by the Nigeria Deposit Insurance Corporation (NDIC).
Link to Data Set
Citation
“World Bank Group. 2017. Nigeria's Microfinance Bank Sector: Review and Recommendations. © World Bank. http://hdl.handle.net/10986/31320 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Financial Sector Assessment Program : Nigeria - Basel Core Principles for Effective Banking Supervision(World Bank, Washington, DC, 2013-05)The assessment of the current state of the implementation of the Basel Core Principles (BCP) for effective banking supervision in Nigeria, against the BCP methodology issued by the Basel Committee on Banking Supervision (BCBS) in October 2006, was completed between August 27 and September 19, 2012, as part of a Financial Sector Assessment Program (FSAP) update, undertaken jointly by the Fund (IMF) and the World Bank, and reflects the regulatory and supervisory framework in place as of the date of the completion of the assessment. An assessment of the effectiveness of banking supervision requires a review of the legal framework, both generally and as specifically related to the financial sector, and a detailed examination of the policies and practices of the institutions responsible for banking supervision. Banking systems differ from one country to another, as do their domestic circumstances. The BCPs are capable of application to a wide range of jurisdictions whose banking sectors will inevitably include a broad spectrum of banks. The co-ordination of the activities of the Nigerian banking sector supervisory authorities is conducted under the aegis of the Central Bank of Nigeria (CBN)/Nigeria Deposit Insurance Corporation (NDIC) executive committee on supervision which should ensure that operations of the two supervisory authorities are coordinated to remove overlaps, avoid gaps and ensure adequate information sharing on issues of supervisory concern. The Financial Services Regulation Coordinating Committee (FSRCC) provides the platform for the co-ordination among and information sharing with regulatory authorities, inter alia with reference to financial sector stability, and supervision of financial conglomerates, financial holding companies and bank holding companies. The Nigerian economy has experienced a number of domestic and external shocks in recent years, which impacted the banking sector. The Nigerian economy emerged from the banking crisis, and has the potential to enjoy an extended period of strong economic growth.Publication Microfinance Consensus Guidelines : Guiding Principles on Regulation and Supervision of Microfinance(CGAP and World Bank, Washington, DC, 2003-07)Many developing countries and countries with transitional economies are considering whether and how to regulate microfinance. These guiding principles are formulated for the regulation and supervision of microfinance. This document is divided into five sections. The first section of the paper discusses terminology and preliminary issues. The second section outlines areas of regulatory concern that do not call for "prudential" regulation. The next section discusses prudential treatment of microfinance and Microfinance Institutions (MFIs). The fourth section briefly looks at the challenges surrounding supervision, and the final section summarizes some key policy recommendations.Publication Maximizing the Outreach of Microfinance in Nepal : The Case for a Central Technology Platform(Washington, DC, 2008-12)This report addresses the establishment of a centralized information and communication technology (ICT) platform for the microfinance sector in Nepal. It has been shown from international experience that ICT improves the efficiency, transparency, and outreach of microfinance institutions (MFIs) and reduces operational costs. There is an opportunity in Nepal to implement similar solutions, and this report provides information on these solutions and offers recommendations for implementing them in Nepal. The microfinance sector in Nepal has many players, but these players have shown few real successes. The sector is largely unsustainable, subsidy driven, and fragmented to the extent that it might not meet the real needs of the country. This report presents a new paradigm for introducing ICT in the microfinance sector of Nepal. The centralized technology platform was chosen as opposed to telecom-led platforms due to its ability to resolve most of the pertinent challenges that Nepal's microfinance sector faces. The paradigm can help remove most of the constraints that have limited the growth of MFIs and kept them from becoming sustainable, moving out to remote and rural areas, and providing more loans to those that need them. In the traditional paradigm, MFIs acquire ICT in an ad hoc fashion and are able to use it only partially to automate their operations.Publication A Framework for Regulating Microfinance Institutions : The Experience in Ghana and the Philippines(World Bank, Washington, DC, 2002-01)An earlier Policy Research Working Paper (Hennie van Greuning, Joselito Gallardo, and Bikki Randhawa, "A Framework for Regulating Microfinance Institutions," WPS 2061, February 1999) presented a regulatory framework that identifies thresholds in financial intermediation activities that trigger a requirement for a microfinance institution to satisfy external or mandatory guidelines-a tiered approach to regulation and prudential supervision. The model focuses on risk-taking activities of microfinance institutions that must be managed and prudentially regulated. The author reports on the results of the field testing and assessment of the tiered approach, focusing on the experience of Ghana and the Philippines. The two countries both have a wide range of informal, semi-formal, and formal institutions providing financial services to the poor, but differ in how they regulate financial intermediation activities by microfinance providers. In his assessment and a comparative analysis, the author focuses on key issues in the regulatory and supervisory environment for microfinance-and in the legal system and judicial processes-being addressed by government authorities and microfinance stakeholders in both countries. He gives particular attention to the thresholds at which intermediation activities become subject to prudential regulation and regulatory standards for capitalization and capital adequacy, asset quality and provisioning for nonperforming loans, and liquidity management. seeks to identify the key elements and characteristics of the microfinance regulatory experience of Ghana and the Philippines and to draw the lessons that may be useful for other countries interested in establishing a regulatory environment conducive to the development of sustainable microfinance institutions. The experience of Ghana and the Philippines shows that a transparent, inclusive regulatory framework is indispensable for enabling microfinance institutions to maintain market specialization and to pursue institutional development that leads to sustainability. Clear pathways for institutional transformation facilitate the integration of microfinance institutions into the formal financial system.Publication The Legal and Regulatory Framework for Microfinance in Iraq(Washington, DC, 2014-10)Over the past few years, Microfinance Institutions (MFIs) in Iraq have emerged as credible sources of financing for low-income households and entrepreneurs, both underserved by conventional banks. Microfinance services in Iraq, however, are still nascent and far from meeting their full potential. Similar to many countries in the MENA region, MFIs in Iraq were set up as non-governmental organizations (NGOs) supported by a steady influx of donor funding. While these NGOs were initially able to grow through donor support, they are now struggling to meet increasing client demand as donor resources have dwindled, preventing them from making the necessary investments in capital and infrastructure to meet growing client demand. Many countries address this funding challenge by allowing institutions to provide financial services as companies or banks, helping them raise capital, provide new services, and increase their outreach in a sustainable manner. A similar path could be envisioned in Iraq, but is currently obstructed by regulatory hurdles. This diagnostic report aims to present and assess the current microfinance landscape in Iraq, including the legal and regulatory framework, recommend policy improvements to enhance the sustainability and operating environment for MFIs and their clients. This report argues that the current legal and regulatory environment for microfinance in Iraq hinders the growth and sustainability of the sector and furthermore advocates several short and medium term policy recommendations to enhance the overall operating environment for MFIs, the sustainability of the sector, and impact for clients.
Users also downloaded
Showing related downloaded files
Publication The Global Findex Database 2025: Connectivity and Financial Inclusion in the Digital Economy(Washington, DC: World Bank, 2025-07-16)The Global Findex 2025 reveals how mobile technology is equipping more adults around the world to own and use financial accounts to save formally, access credit, make and receive digital payments, and pursue opportunities. Including the inaugural Global Findex Digital Connectivity Tracker, this fifth edition of Global Findex presents new insights on the interactions among mobile phone ownership, internet use, and financial inclusion. The Global Findex is the world’s most comprehensive database on digital and financial inclusion. It is also the only global source of comparable demand-side data, allowing cross-country analysis of how adults access and use mobile phones, the internet, and financial accounts to reach digital information and resources, save, borrow, make payments, and manage their financial health. Data for the Global Findex 2025 were collected from nationally representative surveys of about 145,000 adults in 141 economies. The latest edition follows the 2011, 2014, 2017, and 2021 editions and includes new series measuring mobile phone ownership and internet use, digital safety, and frequency of transactions using financial services. The Global Findex 2025 is an indispensable resource for policy makers in the fields of digital connectivity and financial inclusion, as well as for practitioners, researchers, and development professionals.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication The Business of the State(Washington, DC: World Bank, 2023-11-28)The state, as an owner of businesses, competes and collaborates with the private sector at the firm level, market level, and economywide, and this involvement has profound implications for investment and growth. Governments actively participate in commercial markets in different forms, from controlling the production of goods and services to investing in firms as a minority shareholder. The impact of state participation on an economy’s growth depends on the type of public-private ownership, the types of markets, and the importance of those markets in the economy. The impact also depends on how policies and institutions regulate both the businesses with state ownership and the markets in which they are active. The Business of the State uses new evidence covering 91 countries from the World Bank’s Global Businesses of the State database to highlight the distinction between businesses of the state and traditionally understood state-owned enterprises. The report analyzes how different ownership arrangements across sectors and institutional settings affect private investment, productivity, technology adoption, and job creation. It also analyzes how these government arrangements influence the ability of economies to respond to shocks, from pandemics to climate change. The report proposes a clear analytical framework for understanding the consequences of relying on businesses of the state to attain specific development goals.Publication Accelerating Investment: Challenges and Policies(Washington, DC: World Bank, 2025-09-19)Investment is the engine that expands productive capacity, modernizes infrastructure, creates jobs, and drives progress toward development and climate goals. Yet developing economies face an investment shortfall of historic proportions. Even as development needs rise, investment growth has slowed to about half its pace in the 2000s. Public investment alone cannot fill this gap. Private investment must play the leading role in reigniting growth, creating jobs, and supporting the transition to a more sustainable and resilient future. This book presents the World Bank’s most comprehensive assessment of investment in emerging and developing economies. It examines why investment matters, why it has stalled, and what it will take to revive it. The analysis highlights that countries that have successfully triggered investment booms combined sound macroeconomic frameworks with reforms that improved the business climate, strengthened governance, and mobilized private capital. History shows that when investment surges, economies grow faster, job creation accelerates, and poverty declines more rapidly. Reversing today’s slowdown is within reach — through credible fiscal and monetary policies, well-targeted public investment that attracts private capital, and stronger international cooperation to mobilize finance at scale. Reigniting investment is not just a national priority — it is a global imperative.