Innovative DFS for MSME Development in Nigeria: The Role of Microfinance Banks

Good morning Afternoon Ladies and Gentlemen; Permit me to stand on all existing protocols.

First let me start by commending the National Association of Microfinance Banks (NAMB) for this invitation and the chosen theme - Sustainable and Innovative Digital Finance in MSME Development in Nigeria: The Microfinance Bank Option. It is a pleasure to stand before you this morning to share some thoughts on the role and importance of your organisations in developing our great nation. I have titled my address “Innovative Digital Financial Services for MSME Development in Nigeria: The Role of Microfinance Banks”.

This morning I will share some thoughts on the imperative adopting digital financial services (DFS) for the MSME sector and the digital opportunity for MFBs.


Let’s start with some MSME market data. The recently released NBS/SMEDAN National Survey of MSMEs as of 2017 provides deep insights of MSMEs, their locations, industry segments, and other indicators.

• Number of enterprises in the sector: 2017: 41,543,028

⁃ Micros (MEs): 41,469,947/99.8%

⁃ SMEs: 73,081/0.2%

• Contributing Industries

⁃ Education

⁃ Manufacturing

⁃ Wholesale/Retail trade

• Role in Economic Development: As in most developing and developed countries, MSMEs are the bedrock of the economy. This is evidenced by the following indicators:

⁃ 2017 Value contribution to national GDP: 49.78%

⁃ Number of persons they engage in terms of employment and labour

⁃ Total employment contribution: 59,647,954 persons (86.3% of national workforce)

⁃ MEs contribution: 95.1%

⁃ Capacity for job creation:

⁃ MEs: 1.37 persons per entity

⁃ SMEs: 39.5 persons per entity

• Outcomes/impacts

⁃ Create wealth

⁃ Improve lives and socio-economic wellbeing

Opportunities for MFBs

A SWOT analysis of MFBs in this segment provides further insights.

Innovative Digital Financial Services

We should be discussing innovative DFS through the financial inclusion lens. We define financial inclusion as the access to and use of affordable financial services. Even though the measure of financial inclusion focus on account ownership, financial inclusion also covers deepening or the access and use of other financial services like credit, investment, long-term savings (pensions) and insurance.

The 2017 NBS/SMEDAN survey sizes formal inclusion (personal banking relationship): 40% of operators, of which 5.3% of businesses (up to 21.6% for SMEs) have access to bank credit. Hence the gap we need to address is how to provide banking relationships and access to credit to a large population of micro enterprises that form the lion share of the MSMEs surveyed businesses? How can we reach these communities?

These financial inclusion constraints can be tackled with three issues with specific solutions:

1. Access: Discovery, On-boarding

The processes through which MSMEs discover and acquire financial services depends on several factors. Discovery is about how we communicate and build awareness - are we mindful of language, medium and channel? On-boarding focuses on the sign-up processes - are they long and tedious, require countless pieces of documentation?

2. Use: innovative products, transactions, Distribution networks

How MSMEs interact and engage with financial products and services and is subject to developing innovative products that pay attention to the user journey and distribution networks.

  • Innovative products and services focus on meeting the functional, emotional and social needs of the customers and understanding their pain points and tangible benefits. Building products and services need to fulfil these objectives, but also relieve pain points and enhance the benefits.

  • Transactions: the ability to conduct transactions that form the interaction element with the financial product and services. Their ability to conduct these transactions and the duty of care and recourse when these transactions fail.

  • Distribution networks: MSMEs engaged in economic activity will need alternative service channels accessible at hours and locations convenient to them and their businesses. Hence the use of third parties at the edge of the market is imperative.

3. Affordability: Digital, innovative products

The sheer volumes and the income category of MSMEs mandates the development, delivery and use of low-cost financial services. Digital technologies provide the ability to reach a larger number of people and process a larger volume of transactions. However, digital technologies need significant resources and capabilities are scarce in MFBs.

The Role of MFBs

I apologise for putting these constraints in very simple terms, it is my belief that we are here to develop practical solutions and not list endless possibilities. What then should MFBs do to enhance their strengths and reduce their weaknesses amidst the opportunities and threats. I will present 8 suggestions from the exploitation of the SWOT analysis.

Build a Digital Mindset

Digital technologies are here to stay and the effective implementation of technology solutions requires the mindset that understand the dynamics of integrating people and technology. As technology is enabling business problems, this digital mindset is crucial amongst business leaders that need to incorporate technology into their daily roles and extract value from it. This digital mindset, however, can only be effective with digital leadership from the Chief Executive.

  • Start Digital Transformation: DT is a journey to transform organisations through the widespread deployment of digital technologies. Irrespective of the DTs, the transformation is about organisational change across various organisational dimensions - strategy, team change, business processes, structure, people, culture and vision. This evolution will also introduce new business practices to mitigate digital threats like cyber crime and compliance with data protection regulations.

  • Explore Cloud Solutions: While there are many relevant DTs, we need to be mindful of the shared principle akin to cloud computing solutions. ICT adoption has been inhibited by high CAPEX costs, but with cloud, these costs can be converted into OPEX costs and reduce the burden on MFBs

  • Build Domain Expertise: Knowledge of the MSME domains - wholesale/retail, education, manufacturing and MSME owner/manager capabilities will enhance the ability of MfBs build innovative products and services that meet functional, emotional and social needs.

  • Build an Innovation Culture: Innovating across products and processes are no longer options today. Obsolescence is a reality we must address. How do we build a culture of innovation - from strategy and ideation to absorption, execution and benefits? How can we ensure innovation is incremental and understand the changing needs and pain points of MSMEs?

  • Develop & Deploy DFS: Digital financial services (DFS) are the way to go. How do we build and deploy digital?

  • Develop & Maintain Strategic Partnerships: Alas, ladies and gentlemen, we cannot do anything alone today. We need to think of acquiring and retaining key strategic partnerships that will enhance our resource capabilities. Whether through fintechs that can build digital products and services. For instance, the Association can host a Hackathon that seeks digital solutions for a particular challenge. This opportunity will provide live contextual engagement of the activities and engagements. Another partnership opportunity is with research institutions that provide insights about MSMEs. Without being accused of self-promotion, last year we conducted a study to identify the psychometric characteristics of Nigerian MSMEs categorised as Strivers. Strivers are an MSME category defined by the Mastercard Centre of Inclusive Growth that are enterprises with two to 10 employees, operating in a fast-growing market segment and with the capability and ambition to push for greater market share and grow their business. This group are important because they form the group of MSMEs that are not subsistent/lifestyle MSMEs but can drive sustainable and fair growth. We will launch the report later this year and will ensure we invite the Association.

  • Adopt International Best Practices: To the best of my knowledge only 2 Nigerian MFBs have gained the Accion Smart Campaign Certification. With alternative lending solutions, the Accion team have also introduced Digital Credit Standards. These standards are a set of guiding principles and best practices that illustrate sector appropriate responsible management principles and practices.


Ladies and Gentlemen, I have addressed the imperative for digital from the market opportunities available to MFBs, but these opportunities can only be harnessed through the adoption and deployment of digital products and services. From experience, many have been burned by failed technology implementations or unrealised expectations and we blame the technology because it can’t talk back (yet).

Distinguished Ladies and Gentlemen, I stand before you today to declare that technology fails and rarely meets expectations. But this is not because of bad technology, but poor decisions and practices. Like every other area of business and management, technology success is about the quality of decisions we make. The first and most severe of these poor decisions is the decision to purchase technology as opposed to use technology to address a business problem/challenge/need. Others include who to hire/engage, who to train/develop, what to buy, what time to devote, how to deploy are more operational, but important. We often underestimate requisite knowledge and information of digital transformation processes and activities and the change required. There are no short cuts to providing reliable and efficient services to customers. that are made with insufficient information and knowledge.

Ladies and gentlemen, I do not want to frighten you but share a quote from Mr Bill Gates, the founder of Microsoft. He says, “Banking is necessary, but banks are not”. This is a profound statement that I want us all to reflect upon because it describes the existential threat of digital technologies. This is no longer a choice.

Thank you for this invitation and wish you successful deliberations as you explore the Microfinance bank option in the quest for sustainable and innovative digital finance solutions suitable for MSME development in Nigeria.

* This address was delivered at the National Association of Microfinance Bank's (NAMB) Annual Conference held in Abuja, Nigeria on July 19, 2019.

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