The development and prevalence of microfinance banks have focused our attention on the extent and significance of access to finance in developing economies, as well as the role its availability plays in economic development —especially for the low-income segments of the population in developing countries. In Africa and the Pacific, access to finance and financial participation still needs to be developed more. Even today, more than 1.7 billion people worldwide are unbanked and under-served. Hence, microfinance is a powerful tool against poverty alleviation.
Microfinance banks help to enhance broader economic growth by providing financial services to meet the unique needs of the active poor, the underserved individuals, Micro, medium, and small enterprises, as well as communities that traditional financial institutions have overlooked. As financial intermediaries, microfinance banks provide financial services to unbanked or under-banked people which aids in the financial and economic development of the country. They provide loans, savings, and other financial products to the customers. In so doing, SMEs are financially empowered to better their living and the all-round standard of living, thereby adding value to the national GDP.
As already stated, Microfinance Banks have distinct characteristics of creating small-scale loans and other basic financial services, which can play a critical role in increasing the financial independence of these underserved individuals and small enterprises, improving financial inclusion, and stimulating economic growth in the African sub-region and the world in general.
The Impact of Microfinance Banks on Economic Development in Emerging Markets
The global microfinance market is estimated to be worth USD 186 billion this year. It is expected to exceed USD300 billion by 2026, according to market research publisher StrategyR’s Microfinance World Market Report. In the regional space, Asia-Pacific is the biggest regional market today, accounting for 42.5 percent of all microfinancing, the report says. It projects that the region will make up more than half of the global total in 2026, with China’s growth pushing the market to USD 160 billion.
Microfinance banks in Nigeria are vital components of the country’s financial ecosystem. By providing financial services to underserved demographics, they advance entrepreneurship, fuel financial inclusion, and ultimately deliver economic development. The role of microfinance banks in Nigeria will be increasingly significant to the economy as the country continues to develop and their contribution to the financial sector must not be underestimated.
With over 40 million untapped customer segments in Nigeria, Banks are adopting stronger distribution models to drive financial inclusion and early capture of the market.
Significant financially excluded population and high demand for funding environment portend significant opportunities for microfinance and regional banking business growth in e-commerce, projected to grow at 24% per annum to $45bn by 2030. This is expected to drive growth and increase the number of requests for credit facility and asset financing loans.
DDMFB Ltd, one of the leading MFBs in the industry, is well positioned to increase its services and lending activities as part of its efforts to increase participation in providing unparalleled lending and other financial services to the underserved and grant unhindered access to its array of products. The Bank Credit facilities are guaranteed by collateral substitution and other means of collateral other than the conventional collateral security because micro-loan customers do not have the acceptable required collateral documents.
The Bank is not restricted merely to financial support but also to capacity building of borrowers’ capability to manage their financials independently and keep simple accounting records. DDMFB and many microfinance banks in Nigeria offer financial literacy programs. These initiatives help clients make informed financial decisions, manage their finances effectively, and build a stable economic future. This holistic approach ensures that clients have access to much-needed funds and the knowledge to use them wisely.
Low-income earners do not only need access to credit but also require access to savings, transfers, and insurance facilities. Therefore, deposit collection and withdrawal facilities should be readily accessible and affordable to the end user. This reduces the vulnerability of low-income earners to financial shock. Microfinance products and services are designed with the clients’ vulnerability at heart. This is only achieved through the socio-economic impact of the various MFBs products and services on customers (in the marketplace and community). To achieve its full potential of reaching many low-income earners, microfinance banks have successfully integrated into the financial sector by the government and regulators policies.
At DDMFB, our empowerment program is designed to uplift individuals and businesses across micro-enterprises and SMEs and provide targeted support for women and men. With 11 branches, we are committed to financial inclusion and economic growth through key initiatives such as the Save and Win Promo, Long-Term Loans, and Low-Interest Rate Loans.
Our Save and Win Promo has encouraged a strong savings culture, especially among micro-entrepreneurs and SMEs, leading to financial stability in investment in business expansion, therefore positioning themselves for greater opportunities. Also, providing low interest rates has made credit more affordable to business owners.
Financial Inclusion and Job Creation
The financial inclusion that microfinance banks provide to the active poor, individuals at the bottom of the pyramid, and the underbanked and underserved customers serves as a great catalyst for economic development and growth in any developing country, especially in terms of contribution to the GDP. The increase in income generation by SMEs creates room for employment, thereby reducing unemployment in a given country, including Nigeria while increasing the creativity and profitability of labour employers. A developing country with economic stability is a haven for foreign investment. The rise in GDP has a ripple effect on the overall economic productivity of an economy with a significant industry in crime rate.
Fostering Agricultural Development
Food security is integral to any developing country, with man’s three basic needs at the forefront. Before the emergence of microfinance banks, access to credit and financial services was a tumultuous mountain for subsistence farmers to scale through because of limited or no financial inclusion. The introduction of microfinance banks came to the rescue of farmers because of the products suited to their needs: agricultural loans with flexible repayment patterns, micro-insurance, and savings accounts fashioned to accommodate seasonal income patterns. The financial services rendered by MFBs assist farmers and enable them to upgrade to large-scale production, reduce seasonal risks immensely, and contribute significantly to national food security and economic growth in their immediate communities at large.
Broadening the Financial Sector
The economic development of microfinance banks has contributed positively to developing a more robust financial sector. Financial services are provided to individuals and SMEs, thereby strengthening the upward growth of the financial industry. Additionally, there are injections of greater financial investments in the financial sector.
Challenges and Proffered Solutions
It is said that the largest room is the room for improvement; therefore, microfinance banks have a lot to do in order to surmount the numerous challenges in the quest to boost economic development. These challenges are diverse, amongst which are rising operational costs, regulatory challenges, liquidity challenges, and risks of all sorts, ranging from enterprise, credit, and cyber risks. To overcome these challenges, microfinance banks must leverage advanced technology adapted and suited to meet an emerging market’s ever-changing and prevalent needs. Digital banking applications, fintech innovations, and mobile money are advanced technologies essential to reducing costs and reaching more clients simultaneously. Microfinance banks are therefore admonished to embrace these technologies in order to be a catalyst to be reckoned with in an emerging market. Increased automation, connectivity, and smartphones are vital in simplifying loan access. Improved technology reduces operational costs, increases efficiency, and allows financial service providers to reach new clients.
To mitigate the risk of cash on the move, our clients are now able to pay back loans via mobile transfer. Also, it saves time and resources for persons who do not have access to the bank premises.
Here at DDMFB, we have adopted these technological innovations to resolve all clients’ banking needs. We’ve simplified loan applications, repayments, and account management through our user-friendly digital platforms and mobile banking services.
Therefore, there should be intense collaboration between the federal, state, and local governments, the financial regulators, the deposit money banks, and the other financial institutions. It is said that a threefold cord cannot be easily broken. Therefore, this collaboration is needed to further strengthen and deepen the breadth/outreach of microfinance banks in the nation.
