'Why COVID-19 may have limited impact on Microfinance sector' Augusto & Co.

By Yesirat Kazeem

Report from Agusto & Co., a research and credit rating agency, says the rise in digital technology may result in the limited impact of the Covid-19 pandemic on Microfinance banks in Nigeria.

It was also reported that the pandemic has brought an opportunity for digital penetration across all spheres of the economy.

“Microfinance banks in Nigeria have been given a loud wake-up call by the COVID-19 pandemic to accelerate investment in digital channels for loan disbursement and collection. Many operators have since developed web portals for loan applications and are actively exploring the use of payment services such as Remita, Paystack and ultimately mobile money for collections.

“The efficacy of such channels in Nigeria may, however, be limited by the low digital literacy of the unbanked, underbanked and low-income target market of the Microfinance Industry. Having a strong physical presence in various geographical locations remain the major driver of success in the Microfinance Industry in Nigeria.

“The largest microfinance banks have branches spread across the country and are easily identifiable to the target market of low-income earners and MSMEs operating in the surrounding area.

“Agusto & Co. believes the future success of digital channels in the microfinance space (critically for collections and consequently disbursements) will be strongly dependent on the adoption of digital payments by low-income earners and MSMEs in everyday purchase and sales transactions,” as reported.

On the outlook for the industry in 2021, it said “The two-phased increase in the minimum capital requirements for all categories of microfinance banks to take effect in April 2021 and April 2022 is expected to lead to a reduction in the number of operators from more than 900 to around 500 through consolidation activities as well as failures to meet the new requirements.

“Agusto & Co. expects the Microfinance Industry to fare better in 2021 supported by the global roll-out of COVID-19 vaccines accelerated the digital transformation of microfinance banks and businesses in general, a renewed focus on essential sectors and government support for MSME businesses. The Industry, however, continues to have a high level of susceptibility to macroeconomic challenges as was witnessed in 2020”