In Nigeria, the issue of financing active poor in both urban and rural areas through formal financial institutions is difficult (Ovia, 2007). Nigeria is facing various serious problems which are threats to the Nation economy (Anyanwu, 2004). According to National Financial Inclusion, in the provision of financial services, Nigeria lags behind many African countries. In 2010, 36% of adults – roughly 31 million out of an adult population of 85 million –were served by formal financial services. This figure compares to 68% in South Africa and 41% in Kenya/. This is because formal financial institutions deny the poor in both urban and rural areas access to financial services. In order to breach this gap, Nigerian government established various institutions as well as programmes to enhance the standard of living of people, make poor people self–reliance and turn out more entrepreneurs than job seekers in the country. Some of these programmes includes Directorate of food, Roads and Rural Infrastructure (DFRRI), Better Life/Family Support Programme, Family Economic advanced programme, Peoples Bank and Community banks. These programmes failed to achieve their objectives due to poor implementation, corruption and host of other factors. Government did not relent in their efforts to make financial services accessible to the poor, thus, the emergence of microfinance banks as an alternative credit system for the poor (Helms, 2006).

According to CBN (2005), “microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions’. There are three features that distinguish microfinance from other formal financial products. These are:

  • the absence of asset - based collateral;
  • the smallness of loans advanced and or savings collected, and
  • ease of operations.

Microfinance, according to Otero (1999) is “the provision of financial services to low - income poor and very poor self - employed people”. These financial service s include: small loans, savings, current, financing small business for the active poor both in rural and urban areas of the country.
Microfinance is a term used to refer to different methods for giving poor people access to financial services. Microfinance is about providing of timely, affordable, diversified, and dependable financial services to the active poor which otherwise would have little or no access to financial services. It is a financial intervention that focuses on the low - income group of a given society.
Many researchers conclude that in most developing countries, the formal financial system reaches to only 25 per cent of the economically active population. This leaves 75 per cent without access to financial services apart from those provided by money-lenders and family. Savings have continued to grow at a very low rate, particularly in the rural areas of Nigeria. Most poor people keep their resources in kind or simply under their pillows because of inadequate savings opportunities and products. Such methods of keeping savings are risky, yield no returns, and reduce the aggregate volume of resources that could be mobilized and channeled to deficit areas of the economy.

The Microfinance Policy Regulatory and Supervisory Framework (MPRSF) were launched in 2005 and the objectives are to address the prolonged nonperformance of many existing community banks. This lack of performance has been attributed to incompetent management, weak internal controls and high cost of transactions. Other objectives to be addressed by MPRSF are poor corporate governance, lack of well-defined operations, restrictive regulatory/supervisory requirements, and weak capital base of existing institutions. Indeed a huge gap exists in the provision of financial services to a large number of active but poor and low income groups, especially in the rural areas as a result of rigidity operations of formal financial institutions in Nigeria. Problem of funding also militates against the effectiveness of micro finance banks in Nigeria.

However, the conventional micro financing in Nigeria aggravates the inequitable distribution of income and wealth in Nigeria. This is due to the fact that while interest rate on both voluntary and mandatory savings for the clients are between 4.5% and 6% per annum. Lending at this rate is taking the rewards of poor and redistributes it to the rich. The poor borrowers must pay the amount through group pressure even if it resort them to another borrowing or selling their properties.

CBN (2005) maintain that Microfinance banks are aimed at empowerment of the poor and the private sector, through the provision of needed financial services. This empowerment, it is hoped, will enable them to engage or expand their present scope of economic activities and generate employment. Doubts have been expressed about the effectiveness of the operation of the micro finance banks in Nigeria. The general objectives of this study is to find out the constraints that mostly challenged the operations of microfinance bank in Nigeria and to propose strategy that will enhance the elimination of those factors.
The following are the specific objectives of this study:

  • To examine the mode of operation of microfinance banks.
  • To examine the operational problems facing microfinance banks.
  • To identify the factors that can enhance the operations of microfinance banks.


  • What is the mode of operation of microfinance banks?
  • What are the operational problems facing microfinance banks?
  • What are the factors that can enhance the operations of microfinance banks?

The following are the significance of this study:

  • Findings from this study will be a useful guide for the government of Nigeria in tackling the operational problems facing microfinance banks with a view providing effective banking services to the rural dwellers.
  • This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic

This study on the operational problems facing microfinance banks will cover the activities of microfinance banks in Nigeria with a view of identifying the operational deficit.
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


Anyanwu, C. M. (2004) Microfinance Institutions in Nigeria: Policy, Practice and Potentials. Paper Presented at G.24 Workshop on Constraints to Growth in Sub-Saharian Africa, Protoria, South Africa November 129 – 30.
CBN, 2005, Microfinance Policy Regulatory and Supervisory Framework for Nigeria.
Helms, B. (2006). Access to All: Building Inclusive Financial Systems, Consultative Group to Assist the Poor, World Bank p.2.
Otero, M. 1999, “Bringing Development Back into Microfinance”, Journal of Microfinance.
Ovia, J. , 2007, Microfinancing: Some Cases,Challenges and Way Forward.Abuja: synergy Resource and Technology Solutions Ltd.

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