5 Reasons Why Microfinance Banks Fail in Nigeria

5 Reasons why Microfinance Banks Fail in Nigeria

Microfinance institutions are basically founded to offer loans to poor and rural people that the commercial banks do not deem fit to transact business with. Professor Muhammad Yunus was the first individual to put microfinance banking process into practice. In 1976, he gave out a kind of loan micro loan to a poor people in the community to be paid back within fiftey-two (52) weeks with an interest rate cheaper than what was obtainable in country like Bangladesh.

Many microfinance institutions (bank) have done this for some years now. Though many also have failed. To be factual, many have given up because they could no longer meet with the demands from the central bank of Nigeria. Some have engaged in endless litigation with the manager and the investor on a side, and the manager and the customers on the other side. Do you ask reason why microfinance banks fail? Do you want to invest in microfinance bank? no need to be afraid as the market is very rife for the business. The only thing you should do is taking note of some barriers and avoid them as well.

  1. Getting Loans Not Needed



Earlier discussed, microfinance banks are meant to give loans to retailers and small micro-farmers (entrepreneurs). in spite of this, for the microfinance banks to operate well they get loans from the Central Bank to be able give it out to people. This Bank gives out this loan at a rate that will make it convenient for them to loan the retailers.

And also, some other microfinance banks, however, sources to get loans from local commercial banks when it is not sufficient enough. This bank giving the microfinance bank loans do give them on a high rate and it also affects the customers as well. In the process, it gets burdensome to service the loans from the Central bank and that from other local banks. Which usually, is the start of the problems that microfinance banks are facing now a day.

  1. Financing Big Projects

Moreover, it must be noted that microfinance banks, like it is called, are expected to finance micro, small and medium businesses. The standard and maximum average of loans that microfinance banks can give is between the rate of $4,000 and $5,000. A situation where microfinance banks give out loans to big organizations and bankrolling projects worth millions of dollars is not very healthy to the small scall business people, farmers and traders. As a result, the micro-retailers is bound to suffer some sets back because their banks have decided to put all of its eggs in one basket. the resources that should ordinarily serve (200) individuals will be enjoyed by a single or very few individuals.

  1. Doing Expenditures Not Needed

too much spending

Why do Some microfinance banks forget that they are not commercial banks? This mistake is made when they feel that their managers and supervisors are qualified to use expensive cars as their college in the commercial banks. Another fact is that they think that they should earn as those in the commercial bank sector. A microfinance bank has made the mistake of establishing multiple branches in a period of few months. The management went as far as buying buildings in the commercial centers of a large city. Since they wanted to operate like a commercial bank, finally ended up liquidated within few months. they are bound to fail eventually when the keep doing mistakes like this.

  1. Granting loans without collateral


microfinance banks should not be giving everybody loan as most people are not eligible for it. Sometimes microfinance bankers grant them loan based on personal relationships. In this process, this people may even relax knowing that their banker friends may not enforce measures that will harm them. They recommend and grant loans without collateral and, eventually, they fail to recover the loan which is a problem

Some checques may be fake. microfinance institution sometimes doesn’t double check the cheques that are given. Let’s keep aside the fact these cheques are fake, some are outright fake designed with the intent of defrauding the bank. If such people are given loans without proper check up on their documents they may disappear into thin air. the banks are not to blame anybody than themselves. Microfinance banks should set up a rule to punish offenders accordingly.

  1. Unsatisfied Sales Agent

profitable business ideas you can start with little or no funds

At times, the big boss and managers do selfishly care for themselves only, they usually forget the junior staffs. They are one of the key players of the organization representing the bank wherever they go. Sometimes they combine the duty of banker with that of a marketer or an advertiser.

Most times, they move around with people’s money on van, the risk of going about with cash without insurance may lead to loss of life by armed men. But sad enough they are the least paid. That is in cash (Salary) and remuneration plus working condition. Hence, they are not properly encouraged. With time, they see no need to continue with organizations that does not recognize them. With time, the banks may lose the best sets of workers which may be hard to find easy to replaced them.