Why Nigeria’s Microfinance Banks Keep Failing

The recent revocation of the operating licences of 46 microfinance banks (MFBs) by the Central Bank of Nigeria (CBN) has once again exposed the deep structural weaknesses confronting Nigeria’s microfinance banking industry, with operators blaming a combination of economic hardship, weak governance, inadequate capital, poor risk management and the high cost of serving low-income customers for the recurring failures.
The latest action, which took effect on July 1, 2026, reduced the number of licensed microfinance banks in the country from 831 to 785 and signalled the apex regulator’s determination to sanitise the sub sector.
Revoking the licenses, the CBN said the licences were withdrawn pursuant to Sections 12 and 13 of the Banks and Other Financial Institutions Act (BOFIA), 2020, after the affected institutions were found to have fallen short of regulatory requirements.
According to the apex bank, some of the affected institutions had insufficient assets to meet their liabilities, while others had ceased financial intermediation, abandoned operations without regulatory approval, failed to commence business within 12 months of obtaining licences or were unable to maintain the required minimum capital unimpaired by losses.
While the regulatory action had become necessary, industry experts insist that the real problems lie beyond licensing requirements. According to the managing director of EDFIN Microfinance Bank and former managing director of ACCION Microfinance Bank, Mrs. Bunmi Lawson, the country’s harsh macroeconomic environment has made survival increasingly difficult for institutions serving low-income Nigerians.
She explained that rising inflation, weak purchasing power and slow business growth have significantly reduced customers’ ability to meet their loan obligations, increasing portfolio losses across the industry.
“Microfinance banks serve low-income households. So, when low-income households or businesses are not growing, they can’t save, they can’t borrow, and even when they borrow, they can’t repay the loan. That typically leads to a lot of defaults for microfinance banks.”
However, Lawson argued that economic conditions alone do not explain the repeated failures. “Sometimes, it is poor governance or systems within microfinance banks themselves. Because even with the tough environment, some microfinance banks are still doing well because they have strict governance systems. They know who to give loans to. They have systems, they have structures, they have the network, they have deep capital.”
Asides this, she pointed out that capital adequacy remains one of the biggest survival factors for microfinance institutions operating in Nigeria’s volatile economy. The CBN had raised the capital limit of the sector in 2022 with National MFBs expected to have a minimum of N5 billion, while State MFBs are expected to have a capital base of N1 billion. For Tier 1 Unit MFBs, which are located in urban and high-density areas capital was set at N200 million while Tier 2 Unit MFBs which are located in rural unbanked areas are to have a capital base of N50 million.
However, Lawson believes that although the CBN has prescribed minimum capital thresholds for operators based on their licence categories, institutions should strive to hold a capital base way higher than the regulatory minimum. “Those who know me know that I don’t shrink on capital. You must be adequately capitalised.
“Most microfinance banks may not have adequate capital to operate in a tough environment like Nigeria. When you are operating in an environment like Nigeria, you need capital. Capital adequacy is critical, and risk management issues, fraud, all of these kinds of things, sometimes affect microfinance.
“The CBN has put out a minimum capital, which is the minimum capital you need to operate. It does not mean you cannot have more. Most people always just aim for that minimum. But I argue that you should have more than that minimum so that you can have room for shocks,” she stated.
While acknowledging that the capital base for the national MFB license is adequate she noted that the capital for some state licenses such as those licensed to operate in high density and private sector driven states such as Lagos, Kano, Abuja and the likes, may need more capital to operate.
Of the 46 MFBs whose licenses were recently revoked, three were state, 18 were Tier1 Unit MFBs while 25 were Tier2 Unit MFBs. Of these 13 were from Kano, while eight were from Lagos, other states had either two or one MFBs whose licenses were revoked.
This further buttressed Lawson’s stance that MFB operators in large commercial centres such as Lagos, Abuja and Kano require significantly larger capital buffers than the regulatory minimum to remain resilient.
For Unit MFBs, she noted that many are taking more than they can handle as some unit MFBs, taking advantage of advancing financial technology expand beyond their scope. “When you’re operating as a unit, you have to focus as a unit. What I see a lot of units do… In fact, with fintech now, you can have one branch and you are serving the whole of Nigeria. So they really need to build up.”
Drawing comparisons with financial technology firms, she observed that many fintech companies operating with unit licences maintain capital far above the minimum requirement. “If you look at fintech companies that have unit licence, their capital surpasses that minimum capital in multiples of the minimum capital,” she said.
Founder of LAPO Microfinance Bank, Dr. Godwin Ehigiamusoe, also attributed the failures to a combination of management weaknesses and the unique challenges of serving low income customers.
“Financial institutions fail. Banks fail. Microfinance banks fail. And the failure is actually as a result of a number of things. It could come from mismanagement. It could come from other factors,” he said explaining that microfinance banking requires specialised knowledge that goes beyond conventional banking.
“For microfinance banks, just like any lending institution, it is very, very difficult when you consider the fact that they need to ensure that the main customers, those are the low-income people, micro and small businesses, are served. So, it could become a bit very challenging from an engagement perspective. You need to have the right framework to be able to engage low-income people.”
Ehigiamusoe also pointed to operating costs as another major burden. “It is very, very expensive to deliver those financial services. Therefore, attention must be paid to cost management to be able to survive.”
He said institutions must also maintain strong portfolio quality and effectively manage their assets and liabilities if they hope to remain sustainable.
Offering what he described as the winning formula for success, the veteran microfinance banker said operators must first develop an appropriate business model. “The first thing is being able to have the right model, especially for microfinance lending, because if you get the right model, it gets better,” he said.
According to him, sound corporate governance remains the most important safeguard against failure. “The most important one, is getting sound governance, having the processes in place, having the right people on the board, and a board that is able to continually demand accountability and provide oversight for risk management, and of course, cost management,” he explained.
He added that customer engagement was equally important. “The second thing is the whole issue of being able to engage the low-income people and retain customers. That could be very challenging for people who do not have that type of competence. You can’t fake it.”
This was also corroborated by Lawson, who identified experienced leadership, technology and disciplined lending as the pillars of sustainable microfinance banking. Listing ways for MFBs to survive, she said, “First of all, I will say experienced people, the kind of people that you gather. When I was in ACCION we had the top banks as shareholders as well as international partners. So, people is number one because they bring integrity, reputation and know how of how to execute.”
Warning against politically-motivated or sentimental lending, she stressed that lending remains a disciplined business. “I tell people, lending, banking, is a science and there is a formula to it. Follow the formula and then you will succeed. If you want to start shrinking, you do credit risk management. You don’t follow proper analysis and you use sentiment to be giving out loans or to do business. You find that you will fail,” she added.