The Central Bank of Nigeria (CBN) has shared important news about borrowing in the country. As of September 2024, nearly all borrowers, 95.66%, received their loans from microfinance banks (MFBs). This shows just how vital these smaller banks are for individuals and small businesses seeking financial help.
To put this in perspective, there were a total of 6,537 people and businesses borrowing money from various types of lenders. Out of that total, a whopping 6,253 borrowed from microfinance banks, underlining their crucial role in making loans accessible.
However, there has been a slight decline in the number of people borrowing from microfinance banks. In August 2024, the number of borrowers was 6,573, but it dropped to 6,253 in September. This decrease is even more significant when compared to the same time last year. In September 2023, there were 8,500 borrowers linked to MFBs, marking a 26.4% drop over the year.
One reason for this decline is that interest rates are on the rise, meaning it has become more expensive to borrow money. As borrowing costs increase, this may discourage both individuals and businesses from taking out loans. This pattern follows a series of increases in the CBN’s Monetary Policy Rate, which is the interest rate set by the central bank. Since Governor Olayemi Cardoso took office in February 2024, he has raised this rate six times, going from 18.75% to 27.50% by November 2024. These measures are intended to control rising inflation, which had reached 34.80% by December 2024.
Not only have increased interest rates made loans pricier, but they’ve also contributed to a general drop in the number of borrowers across different types of financial institutions. The rise of digital loan apps, which provide quick and easy loans without needing collateral, is also changing how people borrow money. These apps allow individuals to get loans fast, despite high-interest rates, which affects traditional banks, including microfinance banks.
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Overall, the number of debtors across all lenders was 6,537 in September 2024. This is a decrease from 6,916 in August 2024 and 9,071 in September 2023, showing a decline of about 28% over the year. Microfinance banks continue to lead in lending, with about 96% of all borrowers relying on them. In sharp contrast, traditional deposit money banks experienced a significant decline in borrowers, dropping from 498 in September 2023 to just 155 in September 2024. This represents a 68.9% decrease over the year.
Other types of lenders had mixed results. Finance houses, for example, saw a large increase in borrowers, going from 20 people in September 2023 to 59 in September 2024—a 195% rise in a year. Meanwhile, non-bank financial institutions experienced a modest increase of about 32%, growing from 53 borrowers in September 2023 to 70 in September 2024, although this is a decrease from the previous month.
The data shows that individuals make up the biggest group of borrowers, with 5,692 out of 6,537 total debtors in September 2024. This is a slight drop from 5,964 in August 2024 and a significant decline from 8,227 in September 2023. The year-over-year decline of 30.8% indicates that many people in Nigeria are struggling with the higher costs of borrowing and are increasingly looking to alternative lending sources like loan apps.
In terms of borrowing by businesses, large companies have also cut back on loans, with their numbers falling from 86 in September 2023 to 51 in September 2024—a decline of 40.7%. Medium-sized businesses saw a small increase, going from 473 in August 2024 up to 478 in September 2024, marking a 1% rise year-on-year. Small businesses increased slightly by 6.8% over the year, but they experienced a sharp month-to-month decline of 25.4%. Micro businesses, however, saw a decline in borrowing across both yearly and monthly comparisons.
When looking at the total value of loans, all types of debtors borrowed about N118.73 billion in September 2024. Although this is a 4.2% increase from N113.89 billion a year earlier, it also reflects a 12.8% decline from N136.21 billion in August 2024. Individual borrowers accounted for N22.2 billion of the total loan amount, which is a substantial drop from N39.61 billion in August but a significant rise from only N14.08 billion in September 2023.
In summary, despite higher borrowing costs, individuals and some small businesses are still relying on loans. However, as the cost of borrowing rises due to increased interest rates, many are turning to alternative lending sources, leading to a drop in traditional borrowing patterns.
