Nigeria’s fintech success comes with a hidden casualty: Microfinance banks

Hajiya Ramatu Suleiman grows onions on two plots of land outside Gusau in Zamfara State. She does not own a smartphone. Her nearest commercial bank branch is forty minutes away by motorcycle. She has never used a payment app. What she has is a relationship with a loan officer from a microfinance bank who rides to her farm once a month, records her savings in a paper ledger, and at the beginning of each planting season extends her a loan of N150,000 ($108.7) against the collateral of a character reference and three years of consistent deposits. Seven repaid loan cycles have allowed her to expand from two plots to five, hire two farm labourers, and keep her eldest daughter in secondary school.

She is not on OPay. She is not on Moniepoint. She has never downloaded anything in her life.

She is, by every measure development economists use to define financial inclusion, financially included. The question now before Nigeria, with the CBN having revoked the licences of 46 microfinance banks in a single regulatory action on July 1, 2026, is whether the institution that serves her will remain viable as Nigeria’s fintech revolution accelerates into the same market. This is not the first time this happened. Licenses of 179 microfinance banks, alongside four primary mortgage banks and three finance companies, were also revoked on May 23, 2023.

Nigeria’s fintech sector has delivered a genuine expansion of financial access. The country’s financial inclusion rate reached 74% in 2023, up from 64% in 2020, and the fintech platforms that now serve tens of millions of users deserve a meaningful share of the credit. Moniepoint, capturing 38% of the entire country’s digital payment volume and powers 80% of all in-person retail PoS payments, processed N412 trillion ($298.6 billion) in payments in 2025, disbursed over N1 trillion ($724 million) in small business loans, and now holds a national microfinance bank licence. OPay counts over 45 million registered users and one million merchants. PalmPay serves 40 million users and one million merchants.

FairMoney disbursed over ₦150 billion ($108.7 million) in SME loans in 2025. These figures describe not a marginal experiment but a structural transformation of Nigerian banking. They also describe a transformation that is concentrated, by design and by business model, at the more accessible, more profitable, more urban end of the financial inclusion spectrum, which is precisely the end that was never most in need.

Microfinance banking in Nigeria was designed for the other far end from the days of Peoples’ Bank under rural banking programme in 1989. The sector, formally constituted in 2005, was built on a developmental mandate: to reach subsistence farmers, market women, petty traders, and the rural poor who commercial banks would not serve and fintechs, two decades later, still cannot serve profitably without the community infrastructure, local-language capacity, and character-based collateral systems that traditional MFBs have spent years building. The loan officer who rides a motorcycle to Hajiya Ramatu’s farm is not a romantic anachronism; she is a delivery mechanism for financial services in an environment where digital infrastructure is absent and where social trust, not transaction data, is the only reliable credit signal available. Nigeria’s microfinance deposits surged 168% to N1.25 trillion by June 2024.

LAPO Microfinance Bank also surpassed N1.4 trillion in cumulative credit by 2023, primarily serving women. These numbers describe a sector that is growing and one that is now under simultaneous pressure from competitive encroachment, macroeconomic stress, and a capital framework calibrated for competitors many times its size. The competitive squeeze operates through the deposit market. When OPay and PalmPay offer higher rates on wallet balances than a community MFB can afford to pay and do so through a smartphone interface more convenient than any branch the MFB could build, the MFB loses the slightly more affluent informal sector client whose deposits cross-subsidise the cost of serving the very small, very remote, very unprofitable borrower at the bottom of the portfolio. Microfinance economics have always depended on cross-subsidisation: the institution cannot survive on the margin from a N50,000 ($36.2) loan alone. When fintechs systematically attract the higher-margin clients, they leave behind a traditional MFB with a shrinking funding base and an increasingly unprofitable core population. The MFB licence revocations reflect exactly this dynamic: institutions that became unable to meet their liabilities not solely through bad governance but through the compound pressure of competitive deposit attrition, high inflation raising operating costs, and capital requirements set at levels their revenue base could no longer reach.

The developmental stakes are substantial. Nigeria’s 74% inclusion figure conceals a structural gap: 35% of rural Nigerian women have no bank account of any kind; only 47% of all Nigerian women accessed formal financial services in 2023, against 58% of men, according to Enhancing Financial Innovation and Access (EFInA). These are not people who have chosen not to engage with digital finance. Rather, they are people for whom the architecture of digital finance, requiring a smartphone, a data subscription, a registered SIM, and reliable electricity, presents access barriers that no amount of product elegance has yet dissolved. The institutions that serve them do so through loan officers, group lending circles, and character-based collateral systems developed over years of community presence and social capital investment. If those institutions are rendered unviable by competitive and regulatory pressure, no fintech has yet demonstrated the capacity to replicate this function at scale in the communities where it matters most. The CBN’s Nigeria Payments System Vision 2028 (PSV 2028) targets 95% financial inclusion.

That target cannot be reached by fintech alone. The remaining 21 percentage points of unserved population are exactly the segment where traditional MFBs are essential and where no digital-only model has yet delivered. The sector’s vulnerability is compounded by a self-inflicted wound that probably predates the fintech era. During Nigeria’s years of multiple-window foreign exchange, an MFB licence became a vehicle for FX arbitrage rather than microfinance. With the gap between official and parallel FX rates exceeding 60% at its peak, politically connected operators acquired licences not to lend to the poor but to access preferential dollar allocations. The result: of the about 804 MFBs, industry practitioners estimate that the majority are dormant, barely operational, or engaged in activities unrelated to their developmental mandate.

A secondary market for unused “virgin licences” has emerged, with prices reportedly ranging from ₦400 million to ₦700 million ($289,855 to $507,246) depending on category and location. Any genuine developmental operator entering the sector today carries that entry cost before making a single loan, a structural tax on serious intent imposed by the speculative culture that preceded them. The case for routing government development programmes through genuine MFBs is not only about MFB survival; it is about programme delivery. The Anchor Borrowers Programme disbursed over N1 trillion ($724 million) to more than 4.5 million smallholder farmers yet generated persistent criticism about exclusion gaps and administrative capture, because commercial banks deploying the funds lacked the community intelligence to verify genuine beneficiaries. NIRSAL Microfinance Bank was created to address this but is a single corporate institution with roughly 100 branches, and its local physical reach remaining highly restricted compared to the dense, thousands-strong network of independent, community-embedded unit microfinance banks that physically operate right inside Nigeria’s distinct neighborhoods and villages. Mandating a defined share of CBN intervention fund disbursements through licensed MFBs with demonstrated rural and female outreach addresses both problems with one design choice: it gives qualifying MFBs a concessional funding stream that reduces their cost disadvantage relative to fintechs, and it routes programme funds through the channel that knows intended beneficiaries by name, by season, and by repayment character. Nigeria has been redesigning programme vehicles while starving the institutions capable of delivering last-mile reach.

The fix requires no new money, only a different routing. The policy response must distinguish between what fintechs and traditional MFBs are each suited to do and regulate accordingly. A tiered MFB licensing framework, separating developmentally mandated institutions from commercially oriented ones, would allow community-based MFBs to be held to capital and performance standards appropriate to their scale and mandate, while subjecting fintech giants operating at national scale to prudential requirements commensurate with their systemic weight. An institution processing N412 trillion in annual payments is not a microfinance bank in any meaningful developmental sense; it should be licensed and regulated as the commercial-scale financial institution it has become.

A size-based threshold, above which MFB licence holders must migrate to a commercial bank framework, would close the regulatory arbitrage that currently allows large fintechs to enjoy lower capital requirements while competing at commercial-bank scale. A dedicated concessional liquidity window for traditional MFBs, accessible on the basis of demonstrated outreach to rural, female, and low-income populations, would address the funding cost disadvantage that competitive pressure has created without exempting community MFBs from prudential oversight. It would make the developmental mandate economically sustainable rather than a public goods problem that the market progressively solves by eliminating the institutions charged with fulfilling it. Nigeria does not have to choose between a world-class fintech sector and a functioning microfinance development architecture.

What it cannot afford is the assumption that the market will produce both without deliberate design. The 46 MFB revocations of July 2026 are a warning, not yet an irreversible verdict. The regulatory architecture governing Nigeria’s fintech and microfinance landscape is still malleable.

If it is redesigned now, while traditional MFBs still exist in sufficient number and still maintain the community relationships that no algorithm has replicated, the developmental function can be preserved alongside the fintech innovation that has genuinely expanded financial access for millions. The two are not in conflict by nature; they are in conflict by the current policy architecture, which treats them as the same kind of institution serving the same market when they are not. If the framework is left unreformed, the market will rationalise toward the profitable end of the inclusion spectrum, the 74% inclusion rate will plateau or fall, and Hajiya Ramatu’s loan officer will stop making the monthly ride. When he stops, nobody will send an app notification to fill the gap. The technology exists to build a financial system that reaches everyone. The policy-will to protect the institutions still needed to reach the hardest cases is the part that remains to be demonstrated. Akinola Morakinyo (Ph.