Big local banks not big on microfinance

Nigeria’s big local banks are not keen on extending financing facilities to Microfinance banks. Some operators of Micro-finance banks in the country have told “Heard on the street” that they have been very unsuccessful in trying to raise funds from local banks as on-lending facilities to Nigerians operating in the large informal sector of the economy. The local banks have largely avoided these facilities because they claim not to have long term funds to undertake such lending.
Micro-finance banks have instead found favor with international financial organizations who have stepped in to provide long term funding for some micro-finance banks. In fact, a major player has told “Heard on the Street” that a major international bank with operations in the country will soon announce a new round of funding for micro-finance banks. The challenge with the foreign lending is that only few well-structured micro-finance banks are able to access these funds, which is usually denominated in dollars. There is also the foreign exchange risk attached to such lending in some cases. Many micro-finance banks also do not have the well organized structure that will enable attract these funds.
Already, key players in the industry have suggested a further consolidation of players in the micro-finance industry, will be needed to reduce the high number of small fragmented players who are just existing on the fringes of the industry. This will make them strong enough to attract external funding and support the over 33 million businesses that are said to exist in Nigeria’s informal sector, many of whom are cut off from the formal financial system.