The Unintended Consequences of Change in Microfinance Regulation (A case study of Nigeria)

Considering the economic conditions of the developing countries, it is crucial to provide financial inclusion in order to alleviate the poor living standard of people and bring as much people above the poverty line. …………. Provision of access to credit may be one of the most productive ways to emancipate human capacity and reduction of income poverty. As stated by the former World Bank president; James Wolfensohn, microfinance fits directly to the aim of poverty reduction and standard of living improvement through the provision of loans and technical assistance to the poor (Mishra et al. 2013 : 237). ……………… The microfinance institutions of Nigeria were formerly named community banks, but the name and regulation was changed due to the malpractices in the whole banking sector and the envisaged imminent doom in the Nigerian Financial sector which necessitated an infusion of new banking regulations and capital requirement increase. The regulation did not particularly augur well with the microfinance banks in terms of consequences of illiquidity and limited funds to transact with. Owing to the liquidity portfolio of the microfinance banks, the financial literacy and borrowers’ capacity of their supposed target client, the MFIs in Nigeria found themselves at the cross-roads of trade-off between sustainability and outreach which happens to MFIs owing to their capital base and transaction cost on the verge of expansion which is a consequence of their compliance to prudential supervision and regulation (Cull et al. 2011:961).