Microfinance Institutions Falling Short: Sector Expert Warns of Looming Informal Credit Crisis

As inflation continues its relentless rise, concerns are mounting about the growing inaccessibility of affordable credit for Nigeria’s informal sector. In a recent discussion titled “Affordable Credit and the Informal Sector: The Role of Microfinance Institutions (MFIs),” sector expert Seyi Asagun sounded the alarm on the structural failures of MFIs in serving over 40 million informal businesses.

According to Asagun, Nigeria’s MFIs have drifted too far from their foundational mandate. “We are watching microfinance institutions morph into mini-commercial banks,” he said, noting that many demand collateral, formal documentation, and unrealistic savings requirements—conditions incompatible with informal market structures.

Citing figures, Asagun emphasized the magnitude of the issue: Nigeria’s informal sector accounts for over 50% of GDP and 84% of employment, yet only 4% of players have access to formal funding.

The implications are not just financial. With informal vendors—especially food traders—forced to rely on predatory lenders charging up to 20% monthly interest, consumers ultimately pay the price. “When a market woman borrows at that rate, she passes it on to you in your next plate of jollof,” Asagun warned.

The conversation also highlighted the need for trust-based lending and a more grounded MFI approach. “A trader’s reputation is often worth more than a bank statement,” he added, calling for a shift in MFI regulation and design that prioritizes local accountability systems over formal collateral.

Without swift reform, Asagun cautions that inflation will worsen and economic inequality will deepen—particularly among Nigeria’s most vulnerable entrepreneurs.