Microfinance banks and why Fintech companies are buying them.
Introduction.
Microfinance banks in Nigeria have become a great importance to the economic growth and financial advancement to individuals and businesses in the country. But there has been a recent development in the increase of Fintech companies acquiring Microfinance banks in Nigeria.
And you might be wondering why, and what’s the pushing force towards that??
In this article, we’ll get to know the purpose of Microfinance Banks in Nigeria and the reasons Fintech companies are acquiring them.
Purpose of Microfinance Banks in Nigeria.
Microfinance banks were established in Nigeria to provide financial services to low-income individuals and microenterprises that are not served by traditional banks. In Nigeria, the majority of the population is unbanked or underbanked, which means they do not have access to formal financial services. Microfinance banks aim to bridge this gap by providing financial services such as savings accounts, loans, and insurance to low-income individuals and microenterprises.
Microfinance banks in Nigeria are regulated by the Central Bank of Nigeria (CBN) and are required to have a minimum capital base of N100 million. They are also required to maintain a certain percentage of their loan portfolio to microenterprises and low-income individuals.
Why are Fintech Companies Buying Microfinance banks in Nigeria?
- License: Rather than apply for get a license to offer financial services as a Fintech, there are over 800 microfinance banks in Nigeria, all of them with licenses, why not just buy one and boom! you have a license and are able to receive deposits, give out loans and access the resources available in the financial system (NIBSS integration access comes to mind)
- Ready customer base and regulatory alignment: By acquiring microfinance banks, Fintech companies can leverage their existing customer base, infrastructure, and regulatory framework to offer financial services to a wider audience.
- Growth Potential and Financial inclusion: According to the CBN, the microfinance sector in Nigeria has grown significantly in recent years, with the total assets of microfinance banks increasing in billions every year. The sector is expected to continue to grow as more people gain access to financial services and the government continues to support financial inclusion initiatives. MFBs help to bridge this gap by providing financial services to people who are often overlooked by traditional banks. We all know that if you put fintech and financial inclusion in a pitch deck, we begin to hear dollars raised in equity funding.
- To start from experience: By acquiring MFBs, fintechs can build on the existing infrastructure and customer base of these banks, rather than starting from scratch. This can help Fintechs to enter the market more quickly and efficiently and to gain a competitive advantage over other players in the market.
Conclusion.
The acquisition of MFBs by Fintechs is a positive development for the Nigerian financial sector as fintech companies can combine their technological innovations with the existing infrastructure and customer base of microfinance banks, enabling them to scale their operations and drive towards providing accessible financial services to the unbanked and underserved populations in Nigeria.
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Written by Adeleye Sarah.
