Nigerian microfinance banks and their small loans
In Nigeria, microcredit is provided by CBN-licensed microfinance banks, whether national, state or local, such as LAPO, AB Microfinance or Accion, which lend to traders and artisans in solidarity groups or individually, often with weekly repayments.
National, state and unit microfinance banks
The CBN classifies microfinance banks by scope: a national licence, a licence limited to one state, or a local unit bank. Each category must hold a different minimum capital, which the central bank raises from time to time.
LAPO, a pioneer born in Benin City
Founded in Benin City, LAPO has become one of the largest microfinance banks in the country, with a dense network in the South. It mainly targets women traders, organised in groups that meet regularly to make their repayments.
AB Microfinance, Accion and Baobab
AB Microfinance Bank, Accion Microfinance Bank and Baobab finance micro-entrepreneurs in Lagos, Abuja or Port Harcourt with individual loans. Their assessment rests on the actual cash flows of the business rather than on land as collateral.
Joint liability in market women's groups
In group loans, every member guarantees the instalments of the others. This mechanism suits market sellers of fabric, condiments or foodstuffs, but it creates strong social pressure whenever one member runs into difficulty with repayments.
Weekly repayments and compulsory savings
Microfinance banks often require upfront savings and weekly repayments, sometimes collected at the market. The advertised rate can look moderate, but fees, blocked savings and frequent instalments push up the effective cost of the loan.
FairMoney, Renmoney and digital MFBs
Several digital lenders now hold a microfinance bank licence, including FairMoney and Renmoney. They lend through apps under CBN supervision, with short terms and amounts that increase gradually as the borrower builds a repayment record.
Moniepoint, OPay and neighbourhood agents
Payment terminals installed at traders' stalls create a sales history that some institutions use to grant cash advances. Neighbourhood agents also serve as withdrawal and repayment points in areas where there is no bank branch.
Payment service banks do not lend
MTN MoMo PSB, Airtel SmartCash PSB and 9PSB can take deposits and make payments, but their payment service bank licence forbids them from granting credit. A fake agent who promises a MoMo loan is lying to you.
From microcredit to farm finance
In rural Benue, Kano or Kebbi, microfinance banks finance seeds, fertiliser and small poultry or goat rearing. Schemes dedicated to growers are presented on the farmer loans in Nigeria page, together with the public programmes.
When the business grows: moving to an SME loan
Beyond a few million naira, traders run into the ceilings of microfinance banks. The Bank of Industry and the commercial banks then take over, as explained on the business loans in Nigeria page for growing firms.
Islamic microfinance in the North
Non-interest microfinance institutions operate in Kano, Katsina and Maiduguri, using murabaha contracts on goods. They meet strong demand in regions where interest-bearing loans meet religious reluctance among many traders and households in those states.
Comparing with microfinance in Niger
In Niger, decentralised financial systems fall under the BCEAO and the 24% usury ceiling that applies to them. The microcredit in Niger page describes a framework very different from that of Nigerian microfinance banks.
Getting a microloan from a Nigerian MFB
- Check that the institution appears on the CBN list of licensed microfinance banks.
- Open an account and build up the upfront savings the bank asks for.
- Join a solidarity group or prepare proof of sales for an individual loan.
- Receive the loan officer's visit at your place of business and introduce your guarantors.
- Keep to the weekly repayment calendar to qualify for a larger amount in the next cycle.
What a microloan costs in Nigeria
| Component | What makes it vary | Watch out for |
|---|---|---|
| Interest | Institution, loan cycle, term | Clarify whether the rate is monthly or annual |
| Processing and insurance fees | Loan amount | Deducted at disbursement |
| Compulsory savings | MFB policy | Blocked for the duration of the loan |
| Late payment penalties | Contract and group rules | Can weigh on the whole group |
Documents for a microloan in Nigeria
- BVN and NIN
- ID document and photo
- Proof of the business location
- Guarantors' letter or undertaking
- Account statements or payment terminal history
- Certificate of solidarity group membership
Common mistakes with Nigerian microfinance
- Borrowing from an institution that calls itself a microfinance bank but does not appear on the CBN list.
- Using a business loan for a family expense, then struggling to meet the weekly instalments.
- Believing an agent who promises a mobile money loan in exchange for an activation fee paid upfront.
- Joining a solidarity group without knowing how reliable the other members are, when you guarantee their debts.
Lenders to contact
- Accion Microfinance Bank: Nigerian microfinance bank lending to micro-entrepreneurs and small businesses, also offering personal loan products such as BrightA MyOwn Loan Plus.
- Federal Mortgage Bank of Nigeria (FMBN): Federal mortgage bank of Nigeria granting National Housing Fund home loans to contributors for buying or building a house.
- Jaiz Bank: Nigeria's first non-interest bank, publicly listed, offering Shariah-compliant accounts and financing to individuals and businesses.
- TAJBank: Second non-interest banking institution launched in Nigeria, providing Islamic banking services to both retail and business customers.
Microfinance in Nigeria: practical answers
What is the difference between an MFB and a commercial bank in Nigeria?
A microfinance bank holds a more limited licence, needs less minimum capital and targets low-income customers and micro-enterprises. It is still supervised by the CBN, and its deposits are covered by the NDIC within the set limits.
Do you need a guarantor for a microloan?
Often, yes. In group loans, the other members provide this mutual guarantee. For an individual loan, the bank may ask for one or two known guarantors, for example a civil servant or an established trader from the same market.
Can a microloan improve your credit bureau record?
Yes, microfinance banks report their loans to the licensed bureaus. Regular repayments build a positive history with CRC or FirstCentral, which later helps when applying for a larger bank loan.
Do microfinance banks lend to stay-at-home women?
They mainly finance income-generating activities. A woman starting a small business, even from home, may be eligible, particularly in the group programmes run by LAPO or other institutions focused on women.