Inside Nigeria's Microfinance Sector: Scale, Scandal and Second Chances
Nigeria has over 900 licensed microfinance banks serving millions of low-income customers, but the sector is plagued by governance failures and capital shortfalls.
By Ngozi Eze, Regulatory Affairs Editor · · 6 min read
Nigeria's microfinance banking sector presents one of the sharpest paradoxes in African finance: a market of enormous social importance, genuine entrepreneurial energy and repeated institutional failure. With over 900 CBN-licensed microfinance banks (MFBs) serving approximately 12 million active accounts — many belonging to market traders, artisans and smallholder farmers entirely outside the commercial banking net — the sector is indispensable to Nigeria's financial inclusion story. It is also, by the CBN's own assessment, chronically fragile.
The CBN's 2024 microfinance sector report made for sobering reading. Of 902 licensed MFBs, 214 were classified as 'technically insolvent' — their liabilities exceeding assets by a combined ₦48 billion. A further 180 were on the regulatory watch list for capital deficiency, insider abuse or persistent non-filing of returns. The regulator revoked the licences of 22 MFBs in the first quarter of 2025 alone, and industry insiders expect the cull to continue through the year.
The governance failures are systemic. Many MFBs were established by politically connected promoters who treated depositors' funds as personal capital. The lure of MSME-targeted government intervention funds — channelled through the Bank of Agriculture, Bank of Industry and the CBN's Micro, Small and Medium Enterprises Development Fund — created perverse incentives, with some institutions existing primarily to capture government disbursements rather than serve genuine borrowers.
Against this backdrop, a cohort of professionally managed MFBs stands out. LAPO Microfinance Bank, with over 2.5 million active borrowers and a network that reaches all 36 states, has demonstrated that the model works at scale with proper governance. AB Microfinance Bank, backed by the Access Holding Group, and Accion Microfinance Bank, which counts international development finance institutions among its shareholders, maintain non-performing loan ratios below 5% and have been consistently profitable for more than a decade.
The path forward is consolidation. The CBN's revised MFB framework, published in 2023, raised minimum capital requirements and introduced tiered licences that distinguish between unit MFBs (serving a single LGA), state-licensed MFBs and national MFBs. The tier structure is designed to push weak unit MFBs to either raise capital, merge with stronger peers or surrender their licences — a managed contraction that mirrors the 2005 commercial bank consolidation. For the survivors, the opportunity is vast: Nigeria's 41 million MSMEs represent a ₦6 trillion annual credit gap that no institution, commercial bank or microfinance, has come close to filling.