I have predicted that more than 70% of existing (physical-only) microfinance banks will fade by 2025 and by 2029, Nigeria will have less than half of its current commercial banks. The fact is there: startups are disintermediating and displacing microfinance banks, rendering many useless at scale: “The Central Bank of Nigeria (CBN) has withdrawn the license of … [many] microfinance banks.”
The $12 billion per month transaction Moniepoint does and the $billions Flutterwave pipes are part of that zero-sum game. As those funds move out of the microfinance bank domains, the non-digital natives become irrelevant. This is happening at scale and these small banks are unable to re-adjust.
After microfinance banks, the commercial banks will be next unless they change their operating protocols. The lending apps killed many physical microfinance banks (many fintechs operate with microfinance bank license, digitally). As the credit system evolves and matures, many banks will see troubles when consumer & SME lending recalibrates and these apps go ahead the opportunities.
Sure, the big corporate lending will remain with commercial banks, but you do not run a bank with one customer segment. And that means, not many will survive and compete therein.
Comment 1: Calm down Sir!
The list represents very old and former cooperatives and community banks that most of us grew up to know, and many have been defunct for decades. I wont categorise it as you have, but rather a sanitisation of the CBN data/list of operational and non-operational MFB licenses. There are regulations around operating a finance business in Nigeria, and the MFB license remains relevant where financial inclusiveness is concerned.
The brick & mortar banks will remain competitive and continue to be a strong part of our Economy for many years to come. Albeit, they will have to be stronger and evolve with the realities of our world today.
The rise of Fintech will surely bring efficiency and drive certain level of inclusiveness and break border boundaries creating a 21st century revolutionary change in the finance landscape, but that will not obliterate the place of commercial banks at corporate and individual level. Yes, they will have to evolve with the times, but they remain a strong pillar of any economy globally.
Besides, many of the Fintechs have had to leverage MicroFinance Banking licenses in recent times to be able to operate in Nigeria. The Kudas of this world comes to mind.
There is a place for regulations!
My Response: As I noted, the fintechs also need an MFB license. From the piece, I was distinguishing between a physical-only MFB and a digital MFB. That said, if there are no fintechs and the digital-native fintechs with MFB license, most of these 47 microfinance banks will still be here.
Comment 1R: Ndubuisi Ekekwe Ndubuisi Ekekwe “… most of these 47 microfinance banks will still be here”
That assumption is flawed, most of those 47 MFBs died a long time either before or shortly after the first baking reform in 2004. Many of these MFBs were cooperative banks across villages and communities.
I think there is an over assumption of digital penetration and adoption in Nigeria. First of, dont let the numbers decieve you, viable digital Nigeria is probably not up to 40% of Nigeria’s population. While there is a role for technology to drive the much needed inclusion, POVERTY and EDUCATION remains a major bane to technology adoption amongst Nigerians.
Nigeria is beyond Lagos – there are many studies to support why the Nigerian population is not qualitative.
That said, you are correct, but I’d rather put it that to drive inclusion and success, an Hybrid model (Physical + Digital) is required and this is where the Fintechs that have adjusted to this model have succeeded. We need healthy MFBs both physical and fintech driven models to boost the grassroot economy, the unbanked, the under-served, and small businesses.
I wont celebrate the disappearance of MFBs rather I’d say MFBs should be strong and purposeful.
My Response: “That assumption is flawed, most of those 47 MFBs died a long time either before or shortly after the first baking reform in 2004.” – that is not true. CBN does this regularly and this is not the first mass revocation but never at this scale (used to be 4-6 yearly or every now and then). They do not keep data but you can check here https://ndic.gov.ng/failure-resolution/closed-microfinance-banks/. When Moniepoint started posting $14 BILLION per month, these MFBs lost oxygen at scale. It is nearly impossible for these 47 to have escaped pruning since 2004 (if they’re dead as you noted) as CBN does this all the time (sure, never at this scale we are seeing)
Comment 1RR: Ndubuisi Ekekwe “lost oxygen at scale” I love your use of language.
However, Its wrong to compare Moniepoint with the MFBs, they are not in thesame sub-sector of the finance sector nor do they offer like for like services. Moniepoint as far as I know are a payment solution infrastructure and are poised to be bigger than most MFBs.
Now talking about the Moniepoint numbers, I am not a fan of throwing numbers around, and I’m not surprised these kind of numbers are moving foreign investors. As cheap money dries up globally, some sensible investors have began learning and relearning not to rely on this made-up numbers. We have seen how many of these “unicorns” fail woefully once they IPO.
Moniepoint’s $14Bn TPV monthly number in my opinion is full of double/tripple counted transaction flow. The Federal Govt of Nigeria is the biggest spender in Nigeria, and its annual spending budget was $41.8Bn in 2022, I’m intrigued how a retail payment infrastructure business is processing 35% of that number per month, when the Soverign’s GDP is about $40Bn per month.
I may be wrong, but tech businesses are quick to throw around numbers, largely for the benefit of investors. The potential exists, but thats not the reality today!!!
Comment 2: So if the core objective of micro finance banks is/was to provide accessible financial services to underserved individuals and small businesses, and Fintechs are disintermediating the micro finance realm (with Digital payment processing, digital wallets, etc) then why are the majority of payments in Nigeria still made with physical cash money? And where are the under serviced rural consumers getting their cash if not from their neighbourhood micro finance firm, that no longer exists?
My Response: First, the fintechs use microfinance licenses but they operate in different ways. The physical-only microfinance will fade while these fintechs with core digital nativity will win. These fintechs have new business models which include offering POS free unlike banks/microfinance which will ask you to pay for them. Because of that, vendors prefer them. Then why do they give things which used to be paid for free? Lean operations.
Think of app-lending. Some can release money in 5 minutes. In the physical mfb, you need to visit the office, apply, and then wait for days. With that over time, the physical-only MFB will not have customers to serve.
Comment 3: With Moniepoint numbers it seems like it could be processing about 25% of the GDP, if it maintains the charge all year round, you now wonder what is left for the rest to play with…
Well, it’s not for some of us to cry or fight for what banks should go or remain, once you cannot make a case for your relevance, you simply need to exit.
Comment 4: Thanks Prof. This was long coming though, but the pace seems to be moving faster to align with predictions few years ago, especially with the launch of BVN in 2014 Surprisingly some commercial banks are still not reading the playbook. Strangely the Data which these start ups and fintechs are using to disrupt and take the market share long resided with the Banks.
CBN however have played a major role ny creating a level playing ground for all to compete.
My Response: Yes indeed, the pace is moving really fast. The core customer and SME lending playbook in banking will likely move to these fintechs/apps and that will be significant.
Comment 5: Your postulation has stuck with me:
“The future of banking is not banks that use technology but technology companies that offer banking services”
I wonder why we are not seeing any acquisitions going on. Perhaps it’s the pride that retail banking isn’t a significant part of their earnings. What has been will always be. It’s a Goliath mindset.
David will be a shocking surprise.
The commercial banks offering NIN will scale financial inclusions much more than they anticipate.
And if telcos deeping internet access in rural Nigeria, the foundation for the entrance of fintechs into new markets would have been laid.
And like Goliath, the commercial banks will discover then, that speed is more important than size.
My Response: In the microfinance space, the old microfinance bank licenses have been bought by many fintechs. Sure, it is way too early for the big stage, the commercial banks.