The case of Nigeria clearly demonstrates the important role that microfinance banking can play as a vital component of the financial strategies that will enable developing countries to fulfill their economic potential in the coming decades. fulfillEssentially, microfinance banking can step in to support the economy where other measures adopted by developing states have largely failed. Let’s have a closer look at the role of microfinance in relation to Nigeria’s attempts to develop a holistic and coherent financial policy that will benefit Nigerian society as a whole. Our aim here is above all to find out why microfinance can work more effectively in this context than some of the other strategies that have proven unequal to the task.
First of all, let’s be very clear about why this topic is so important! What is urgently needed in Nigeria and elsewhere is a financial strategy that can reduce poverty and unemployment, allow citizens to properly use their skills and live happy and productive lives, and make it possible for entrepreneurs to turns their ideas into successful businesses. Microfinance can play an essential part in such a strategy by joining up parts of the economy that are presently too disconnected from each other. Above all microfinance banking makes credit and other financial services accessible to low-income citizens who cannot avail of traditional banking facilities. By doing so, microfinance enables these people to help themselves by increasing their incomes and above all by establishing viable businesses for the future.
This explains why the Central Bank of Nigeria (CBN) launched a comprehensive microfinance policy in 2005. The introduction of this policy was a clear sign that the country’s financial authorities understood that although microfinance was already informally available in Nigeria on a smaller scale, the potential importance of the sector was such that it needed to be properly planned and integrated for the future. What was envisaged was a properly licensed microfinance sector with the kind of enhanced regulation that would guarantee monetary stability as well as liquidity management. Although the CBN’s microfinance strategy has faced significant difficulties, a properly regulated and microfinance sector — one in which all of the stakeholders have a clear sense of purpose — can certainly play a pivotal part in the achievement of future growth and prosperity, not to mention social progress.
Making Real Planning Possible
One of the common problems that microfinance banking can definitely help to resolve in Nigeria and in other developing countries is the existence of an unofficial, shadow financial sector alongside the officially sanctioned one. Naturally, unofficial sources tend to increase to the extent that official financial institutions fail to serve large segments of the population. In Nigeria, for instance, 65% of the population found themselves without access to traditional financial services. Microfinance banking can resolve this very serious problem in a way that coheres with logical and transparent national planning. Above all, microfinance stimulates growth and progress by enabling those who were previously excluded from traditional funding sources to access the finances they need to create new enterprise and employment, even in the most remote areas. No wonder governments and financial authorities in many countries are becoming increasingly aware of the benefits of making microfinance an important element in their financial planning for the future. You can bank on that!