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One of the factors that can hinder the growth of business or completely destroy it, is lack of financial backup. Since the larger number of the population of most countries are involved in small and micro enterprises (SMEs), Microfinance Banks provide credit facilities to such businesses. They also grant loans to individuals and groups when they meet the requirements for such loans.

Microfinance Banks are financial institutions that grant access to credit facilities to individuals, small businesses and organization. The loans that micro-finance banks give to people and small businesses are known as micro loans.

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SEE ALSO: Top 5 Reasons Micro-Finance Banks Fail

Using Nigeria as a case study, there are two major forms of Microfinance Banks in Nigeria.

Microfinance Banks (MFB) licensed to operate as a unit: Formerly known as community banks, Microfinance Banks operating as a unit are financial institutions, licensed to operate as a unit or to own a branch only if its paid-up capital is N20 million for each branch or unit and it can only create branches gradually, starting within its
local council.

Microfinance Banks (MFB) licensed to operate in a state: This form of Microfinance Bank is licensed to operate in any part of a state. it does not have to be gradual in opening its branches, so long as its minimum paid-up capital is N1 billion.

Here Are Some Of The Roles Of Microfinance Banks

Granting Of Loans

The primary role of micro-finance banks is to provide micro loans to individuals or groups in need of it. People seeking to acquire a loan from a micro-finance bank must have met all of the requirements for acquiring such loan.

Acquiring loans from commercial banks could be very cumbersome compared to micro-finance banks. Also, the chances of average people and small scale business to get loans from commercial banks are very slim, unlike micro-finance banks whose primary objective is to grant loans to small scale businesses and individuals, irrespective of their financial status, especially poor and low income earners.

Poverty Alleviation

Microfinance Banks play an important role in the poverty alleviation of a particular country. This is because, the primary objective of a government seeking to alleviate poverty is to provide as many job opportunities as possible, as well as creating a means of generating income for businesses. Micro-finance banks are key players in this aspect because they specialize in the provision of credit facilities to individuals as
well as businesses.

For example, the Lift Above Poverty Level (LAPO) is an NGO that runs a micro-finance bank in Nigeria. LAPO is a pro-poor financial institution committed to the empowerment of low income earners and petty traders. It was established in 1987 and has been committed to improving the quality of life of poor people by giving them access to credit facilities without collateral. They grant loans on the basis of small installment payments, making repayment of the loans less stressful. LAPO has helped a lot of small scale business people in financing their businesses.

Creation Of Employment Opportunities

The individuals , groups and businesses that Microfinance Banks provide with credit facilities, will in turn engage the services of other people in their businesses, thereby providing employment opportunities for those other people. Small scale businesses usually create job opportunities for people. Secretaries, receptionists, sales officers, cleaners and so on, these are some of the positions for which people are employed in small enterprises.

Increasing Small And Micro Enterprises (SMEs)

Microfinance banks provide a platform for people with business ideas to bring their dreams to reality. Gone are the days when people think business is only for the rich and influential. Now, anyone can start a small business and walk into any microfinance bank for a loan to start the business.

Take for instance, FBN Microfinance Bank, a subsidiary of First Bank in Nigeria. This Microfinance Banks has credit products that are meant for small scale businesses, artisans, petty traders and individuals to meet the day to day running of their businesses. They have varieties of credit products for different categories of people.

Some of the products are, “Level don Change” a short term facility for long term customers with satisfactory track record meant for acquisition of business assets to improve income generation, “Kia-Kia Loan” a credit facility created to assist existing customers with satisfactory record for urgent needs, “Easy Loan” a short term loan for salary earners, to enable them purchase household items, and so many other credit products like that.

Promoting Agricultural Production

Most poor people live in rural areas, giving them the opportunity to do Agriculture.

Microfinance banks also provide credit facilities to farmers. They can get loans for buying modern day farming equipment such as, tractors, ploughs, e.t.c.

SEE ALSO: How To Get Small Business From Government In Nigeria

Microfinance banks enable farmers to not just farm for their bellies alone, but to commercialize their farming by providing loans for the farmers.

Microfinance banks have become like a machinery to governments. It is a means of promoting economic development and growth, as well as providing job opportunities and supporting small scale businesses. A means to poverty alleviation in general.

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