According to Kavita Kulkarni, Microfinance is defined as “financial services including credit, savings, insurance, money transfers, etc. targeted at poor and low-income people” (Kulkarni, 2011). Clients are mainly near the poverty line and are primarily women. In Banerjee and Duflo’s book, “Poor Economics,” they discuss microfinance in detail. First, they explain how the poor don’t save money, and that they should because just like us, they have a present and a future to think about. They state “they have little money today, but unless they expect to stumble on a pile of cash during the night, they presumably also expect to have little money tomorrow” (Banjeree, 2011). People living in poverty should feel more inclined to save money over time in case of emergencies where they would need it, such as a disaster. I think it is important for the poor to utilize micro-credit and take out small loans for their current or future living conditions. Just like stated in the book, disasters do happen unexpectedly and it would be safer to have a little money for those occurrences. Also, many entrepreneurs and small business owners do not take advantage of microfinance loans. They realize that growing their business would come with other costs, such as more employees, bigger space, etc. With that being said, they know that taking out loans would not help in the long term for them, since they would not be able to eventually pay them off. I agree with the arguments that Banerjee and Duflo make and I understand now that poor countries do not think in the future like we do.
“There is over nine hundred (900) microfinance banks today in Nigeria and they are regulated and supervised by the Central Bank of Nigeria (CBN)” (Microfinance, 2017).There are 3 main issues associated with microfinance banks in Nigeria: absence of infrastructure, religion, and the copying, competing and mimicking of commercial banks.
One of the biggest problems Nigeria faces with microfinance includes the absence of basic infrastructure. Having basic infrastructure usually comes with high operational costs just because of the nature of business. Because of this, transactional costs are usually higher. Banks have other negative factors that go into them as well. The article explains, “these banks are also forced to incur additional costs to provide themselves with electricity and water” (Microfinance, 2017). All these components, and some more, are why Nigeria has issues handling money, which sets them back and creates a huge competitive advantage for other countries.
Another major issue Nigerians face is that of religion and money. Many people in Nigeria are used to borrowing money from friends and family, and therefore have trouble understanding the payment of interest on bank loans. The northern part of Nigeria is mainly Muslims, whom are not fond of usury. With that being said, more than 75 percent of microfinance banks are located in the southern part of Nigeria, while only 25 percent in the north. Lastly, a huge problem with microfinance is the copying, competing, and mimicking the practices of commercial banks. To many, “microfinance banking is just an extension of the commercial banking they know. They also come with their organizational orientation, philosophy and culture. They refuse to understand that microfinance is not micro-commercial banking but a different kind of banking requiring a different approach, philosophy and client base” (Microfinance, 2017). After researching about micro-credits in Nigeria, I can conclude that they do not work very well there. It seems like there are many issues that need to be solved within Nigeria and banking.
Nigeria is in the process of adopting technology in the banking and financial world. Nigerian banks are said to be under pressure to become computerized, and 142 banks have already done so. According to the United Nations University website, “there are no automated telling machines, nor are multi-branching facilities available” (Nwachuku, 2017). Service to customers in Nigeria are improving in several ways including “quick service” cash counters. Even though not much has happened thus far, it is clear that technology is working to become more normal in the banking and financial institutions in Nigeria.
Banerjee, A. V., & Duflo, E. (2011). Poor economics: a radical rethinking of the way to fight global poverty. New York: PublicAffairs.
Kulkarni, K. (n.d.). Shalmala Finance. Retrieved February 19, 2017, from https://bblearn.missouri.edu/bbcswebdav/pid-3161712-dt-content-rid-31263774_1/courses/SP2017.GERMAN.4810.01/Social%20transformation%20-%20Role%20of%20Microfinance%281%29.pdf.
Microfinance Banking in Nigeria: Problems and Prospects. (n.d.). Retrieved February 19, 2017, from http://article.sapub.org/10.5923.j.ijfa.20120105.04.html
Nwachuku, M. A. (n.d.). United Nations University. Retrieved February 20, 2017, from http://archive.unu.edu/unupress/unupbooks/uu19ie/uu19ie0d.htm