Nigeria needs more than 1,000 microfinance banks to adequately support small businesses and deepen access to credit, according to Senior Partner at Karma Professional Services, Dr. Akin Ogunsola, who argued that the country’s existing 804 licensed institutions are insufficient for its growing population and economic needs.
Speaking during an interview with ARISE News on Thursday, Ogunsola said while the Central Bank of Nigeria’s (CBN) decision to revoke the licences of 46 microfinance banks would reduce the number of operators, the move would have little long-term impact on the economy and should instead strengthen the financial system by ensuring only compliant institutions remain in operation.
He described the regulatory action as timely, saying institutions that fail to meet regulatory requirements should not be allowed to continue operating.
“I think it’s a very necessary regulatory action that has been taken, and it’s coming at the right time. Definitely, it will affect the number, reducing, but it’s not really significant if you look at the ratio of the drop.”
Ogunsola also dismissed concerns that depositors in the affected banks could lose their savings, stressing that customers’ funds are protected through the Nigeria Deposit Insurance Corporation (NDIC).
“Depositors’ funds are insured by the NDIC… They don’t have anything to fear about.”
He acknowledged that the announcement could trigger panic withdrawals in the short term but maintained that depositors would eventually recover their money even if they could not access it immediately.
“There is no need to panic. There is no need to be afraid. CBN is on top of the matter. They are regulators, and they have considered all the pros and cons.”
According to him, the exercise is intended to sanitise the financial sector and strengthen microfinance institutions so they can better support small and medium-sized enterprises (SMEs).
Ogunsola said microfinance banks have continued to play an important role in financing agriculture, transportation and other small-scale businesses, particularly in rural communities where conventional banking services are limited.
He explained that farmers rely on microfinance institutions to obtain credit for fertilisers, seedlings and other farm inputs, while transport operators and cooperative societies also benefit from their financing arrangements.
On the possible economic effects of the licence revocations, he said there could be temporary disruptions as customers react to the development, but noted that institutions such as the Bank of Industry and development finance banks could help cushion the immediate impact before other microfinance banks absorb affected customers.
Ogunsola also backed the existing capital requirements for microfinance banks, saying they are adequate and necessary to ensure only credible institutions operate within the sector.
He warned that inactive or poorly regulated licence holders could expose the financial system to illicit activities.
“Licenses are dangerous if they are left in the hands of people that are not using it. It can be used for other types of financing, terrorism financing and other types of finance.”
On whether the affected institutions could return to operation, Ogunsola said they remain free to apply for fresh licences after addressing the issues that led to the revocations.
He, however, argued that Nigeria ultimately needs more licensed microfinance banks, not fewer, as the federal government continues to encourage entrepreneurship and support SMEs through tax incentives.
“The CBN needs to give more licenses to more microfinance banks that are ready to abide by the regulatory rules so that we can have more and then we can have more SMEs come up. 804 microfinance banks is not enough. For our population, I think we should have over 1,000 microfinance banks so that that can serve our population adequately.”
Ogunsola maintained that expanding the number of well-capitalised and properly regulated microfinance banks would improve access to finance for small businesses, support the federal government’s SME growth agenda and ensure more Nigerians can obtain credit without facing funding constraints at lending institutions.
Ademide Adebayo
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