Hajiya Ramatu Suleiman cultivates onions on two plots outside Gusau in Nigeria’s Zamfara State. The nearest commercial bank lies a forty-minute motorcycle ride away. She has never used a payment app. A loan officer from a microfinance bank visits once a month, recording her savings in a paper ledger and extending a seasonal loan of N150,000 ($108.7). Collateral consists of a character reference and three years of consistent deposits.
After seven loan cycles, she expanded to five plots, hired two laborers, and kept her eldest daughter in secondary school. She does not use OPay or Moniepoint and has never downloaded an app. By standard measures, she remains financially included.
The quiet squeeze on microfinance banks
On July 1, 2026, Nigeria’s Central Bank revoked the licenses of 46 microfinance banks. This followed a May 2023 action that shuttered 179 similar institutions, four primary mortgage banks, and three finance companies. The underlying pressure stems from fintech’s rapid expansion reshaping the market.
The country’s financial inclusion rate climbed from 64% in 2020 to 74% in 2023. Moniepoint, handling 38% of Nigeria’s digital payment volume, processed N412 trillion ($298.6 billion) in 2025. OPay serves 45 million registered users and one million merchants, while PalmPay reaches 40 million users. FairMoney disbursed over ₦150 billion ($108.7 million) in SME loans in 2025. These platforms have transformed Nigerian banking, yet their impact concentrates on urban, tech-savvy populations.
The shift leaves behind subsistence farmers, market women, and rural poor who lack smartphones, data subscriptions, or reliable electricity. Traditional microfinance banks serve these groups through community infrastructure, local-language capacity, and character-based collateral systems developed over years. The loan officer visiting Hajiya Ramatu represents a delivery mechanism for financial services where digital infrastructure remains absent and social trust outweighs transaction data as a credit signal.
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These institutions rely on cross-subsidization, where slightly more affluent clients’ deposits cover costs for unprofitable borrowers at the portfolio’s bottom. When fintechs offer higher interest rates on wallet balances, they attract those higher-margin clients, shrinking the funding base. The outcome extends beyond business challenges—it creates a developmental gap. While 74% of Nigerians now access formal financial services, the unbanked are not rejecting digital finance by choice. The system’s architecture—requiring smartphones, data subscriptions, registered SIMs, and reliable electricity—presents barriers no product design has overcome. Institutions serving these populations do so through loan officers, group lending circles, and collateral systems built on community presence. If they disappear, no fintech has shown the ability to replicate their function at scale in the most critical areas.
A sector caught between regulation and neglect
Nigeria’s microfinance deposits jumped 168% to N1.25 trillion by June 2024. LAPO Microfinance Bank surpassed N1.4 trillion in cumulative credit by 2023, primarily serving women. These figures reflect growth alongside pressure from competition, economic stress, and capital requirements designed for much larger institutions.
Internal challenges compound the sector’s struggles. During Nigeria’s multiple-window foreign exchange era, microfinance bank licenses became vehicles for arbitrage rather than lending. With the gap between official and parallel FX rates exceeding 60%, politically connected operators acquired licenses to access preferential dollar allocations. Of roughly 804 microfinance banks, industry practitioners estimate most remain dormant or engaged in unrelated activities. A secondary market for unused licenses emerged, with prices ranging from ₦400 million to ₦700 million ($289,855 to $507,246).
New operators face this entry cost before issuing a single loan—a tax imposed by speculative practices. The Central Bank’s Nigeria Payments System Vision 2028 targets 95% financial inclusion. Achieving this goal requires traditional microfinance banks, as no digital-only model has effectively served the remaining 26% of the population.
Government development programs routed through genuine microfinance banks could improve delivery. The Anchor Borrowers Programme disbursed over N1 trillion ($724 million) to 4.5 million smallholder farmers but faced criticism over exclusion gaps. Commercial banks lacked community intelligence to verify beneficiaries, while NIRSAL Microfinance Bank operates only about 100 branches—far fewer than the network of independent, community-based institutions.
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Allocating a share of Central Bank intervention funds through licensed microfinance banks with proven rural and female outreach would address two issues. It would provide qualifying institutions with concessional funding, reducing their cost disadvantage against fintechs. It would also channel program funds through channels familiar with beneficiaries’ repayment habits and seasonal needs.
Policy must recognize that fintechs and traditional microfinance banks serve distinct markets. A tiered licensing framework could separate development-focused institutions from commercial ones, applying appropriate capital and performance standards. Meanwhile, large fintechs processing hundreds of trillions in payments should be regulated as commercial-scale financial institutions.
A size-based threshold could require microfinance license holders exceeding certain limits to transition to commercial bank frameworks. This would eliminate regulatory arbitrage allowing large fintechs to operate with lower capital requirements while competing at commercial scale. A dedicated liquidity window for traditional microfinance banks, accessible based on outreach to rural, female, and low-income populations, would address funding disadvantages without exempting them from oversight.
Nigeria need not choose between a leading fintech sector and a functional microfinance system. The current policy framework treats them as identical institutions serving the same market, though they do not. Without reform, the market will favor the profitable end of the inclusion spectrum. The 74% inclusion rate may stagnate or decline. When Hajiya Ramatu’s loan officer stops visiting, no app will replace the gap.
Recent Treasury Bills auctions reflect broader liquidity challenges facing smaller institutions.