An Exploratory Study of How and Why Some Micro-Finance Banks Overcome Adversity and Why Others Do Not

Abstract

This exploratory study was undertaken to gain an understanding of how and why some Micro-finance Banks (MFBs) in Lagos, Nigeria cope with, adapt to and overcome adversity in response to a spate of failures in the industry in the last nine years. These failures have resulted in a death rate of 31% in both Lagos and Nigeria as a whole. The failures led to poor people losing their life savings and further impoverished them. Prior research focused primarily on the impact of Micro-finance on poverty reduction, and in some cases observed a drift from the core mandate of financial inclusiveness to protect the poor. There has been little or no attention given to the ability of MFBs to adapt to, cope with and/or overcome adversity in Lagos Nigeria. Also missing in related literature are clear insights into how and why some MFBs are organisationally resilient, and others are not. MFBs are the main providers of formal financial services to poor people in Nigeria, and this research aims to explore how and why some MFBs are resilient in the face of adversity whilst others are not. The study reduces a gap in the literature dealing in this specific area. The research also addresses the central question of how and why 69% of MFBs in Lagos, Nigeria survived over the last 9 years (2010–18), whilst 31% did not. The governing philosophy to address the study is pragmatic realism, and consequent abductive research approach. This results in mixed methods research design, based on a non-probability sampling technique that integrated purposeful sampling with snowballing. The researcher also brought valuable insider knowledge and insights to the research from chairing the board of the largest MFB in Nigeria. The research findings suggest that at the heart of failure amongst MFBs is the behaviour of some of the human elements; initiated through deliberate falsification of and lying about credit and deposit information by the managers and leaders. Deliberate poor corporate governance practice, as well as the diversion of company funds and corruption amongst directors and managers of MFBs contributed to failings. Secondly, the research findings indicate that MFB resilience is partly dependent on a business model that is group driven. It is defined by a relatively low interest rate, delayed harvesting, and it focuses mainly on women. Finally, the study finds that organisational resilience in MFB is partly dependent on an organisational culture that promotes team work, learning and the strict observance of key regulatory prudential guidelines. In conclusion, I argue that MFBs flourish or fail due primarily to the activities and behaviour of the human elements, often expressed, in the case of failure, through fraudulence, dysfunctional business models, poor organisational culture, non-observance of prudential/regulatory guidelines and weak institutions. The implication is that a strong and well-articulated monitoring, regulatory and governance regime needs to be enforced to stem MFB’s failures and spare the poor (who are the lifeblood of MFBs) from any further misery.