The Central Bank of Nigeria (CBN) disclosed that, as of September 2024, 95.66 per cent of bank debtors had taken out loans from microfinance institutions.
Given their prominence, MFBs play a crucial role in the nation’s lending ecosystem, especially for small firms and individuals.
The crucial role that MFBs play in facilitating access to credit is demonstrated by the fact that 6,253 of the 6,537 total borrowers documented across all creditor types were associated with them.
From 6,573 in August 2024 to 6,253 in September 2024, the number of MFB debtors decreased slightly month over month, according to the data.
At 26.4% lower than 8,500 in September 2023, the drop is even more pronounced year over year.
Rising interest rates, which have made credit more costly and deterred borrowing, are mostly to blame for the decline in the number of borrowers.
Under Governor Olayemi Cardoso, the CBN has raised interest rates several times in tandem with this trend.
The Monetary Policy Rate increased six times under Cardoso’s leadership after taking office, rising from 18.75 per cent in February 2024 to 27.50 per cent in November 2024.
The goal of these actions is to counteract the rising rate of inflation, which in December 2024 hit 34.80%.
Higher borrowing costs as a result of the high interest rates may discourage people and businesses from applying for loans.
The general drop in the number of debtors across all financial institutions reflects this.
The increase in online loan applications has also changed how people borrow money. Despite worries about exorbitant interest rates and harsh recovery tactics, these platforms continue to draw borrowers with their fast, collateral-free loans.
The decline in the use of traditional financial institutions such as MFBs may be a result of their increasing popularity.
Compared to 6,916 in August 2024 and 9,071 in September 2023, there were 6,537 debtors overall across all creditor kinds in September 2024.
As a result of tightening credit markets and increased borrowing rates, this reflects a 28% YoY decline.
In September 2024, microfinance banks accounted for approximately 96% of all debtors, making them the largest creditors.
In contrast, the number of debtors at deposit money banks decreased dramatically from 498 in September 2023 to just 155 in September 2024.
This represents a 33.5 per cent MoM drop from 233 in August 2024 and a 68.9 per cent YoY loss.
The sharp decline indicates that rising interest rates and competition from alternative lenders have further reduced lending by traditional banks, which are already bound by more stringent credit rules.
The outcomes for other creditor kinds were inconsistent. With debtor numbers increasing from 20 in September 2023 to 59 in September 2024—a 195 per cent YoY increase—finance houses saw significant growth.
As debtors increased from 28 in August 2024, MoM likewise saw a significant increase of 11% for this creditor type.
While the number decreased by 14.6% month over month, non-bank financial institutions experienced a more moderate YoY gain of 32%, rising from 53 in September 2023 to 70 in September 2024.
The data also showed that, as of September 2024, people still make up the largest category of borrowers, making up 5,692 of the 6,537 total debtors.
This number is a significant dip from 8,227 in September 2023 and a minor decline from 5,964 in August 2024.
The YoY decrease of 30.8% emphasises the financial burden that rising borrowing costs place on many Nigerians, as well as the increasing use of alternative lending platforms like loan apps.
Other debtor categories showed different patterns. Borrowing activity among large firms significantly decreased, with debtor numbers dropping from 86 in September 2023 to 51 in September 2024, a YoY decrease of 40.7%.
MoM, their numbers decreased from 59 in August 2024 by 13.6%. With a modest increase in debtors from 473 in August 2024 to 478 in September 2024—a 1% increase—medium-sized enterprises demonstrated very stable operations. The number of medium-sized firm debtors increased by 7.7% year over year from 444 in September 2023.
Small firms saw a slight year-over-year increase, with debtor numbers increasing by 6.8% from 264 in September 2023 to 282 in September 2024.
However, the number of debtors plummeted from 378 in August 2024, resulting in a significant MoM decline of 25.4% for the category.
On the other hand, there were decreases in all microbusinesses. They had 32% fewer debtors year over year (from 50 in September 2023 to 34 in September 2024) and 19% fewer debtors month over month (from 42 in August 2024).
The total loan value for secured transactions, including all debtor categories, was N118.73 billion in September 2024, up 4.2% year over year from N113.89 billion in the same month the previous year.
Nonetheless, the amount was a 12.8% month-over-month decrease from N136.21 billion in August 2024. Of this amount, N22.2 billion came from individual borrowers, representing a notable YoY rise from N14.08 billion in September 2023 but a steep fall from N39.61 billion in August 2024.
Despite rising interest rates, people’s ongoing reliance on credit is demonstrated by the 57.5% YoY increase in secured loan values.
Secured loan values for small enterprises also increased, going up 68% year over year from N3.08 billion in September 2023 to N5.18 billion in September 2024.
Microbusiness loan values, on the other hand, fell 33.7% year over year from N494.93 million in September 2023 to N328.22 million in September 2024.
