NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 24, 2014

The recent approval of the liquidation of 83 micro-finance banks (MFBs) by the Central Bank of Nigeria (CBN) is bad news from the banking sector. It is worrisome that as many as 83 of these institutions are going under, barely four years after 224 of them were declared insolvent in 2010, with attendant negative implications for depositors’ funds.

Although the CBN has promised that depositors’ funds will not be lost in the imminent liquidation exercise, the failure of these institutions is a regrettable development that will involve loss of capital and sources of business financing for micro enterprises. The failure of the banks is more lamentable when it is considered that the bulk of their customers are of low socio-economic status. It is this vulnerable class of Nigerians, and the small-scale businesses which patronise them, that are imperiled when these institutions can no longer meet their obligations, and are liquidated.

One critical matter that the failure of such a large number of these financial institutions has thrown up is the laxity of regulation that allowed the weak governance structure that informed their demise. It is important that we interrogate the circumstances that led to the sorry fate of these banks because the failure of any banking institution is sure to increase general public distrust of banking, especially micro-finance banking.