Loan Pricing of Nigerian Microfinance Banks: Survey & Methods of Assessment

In Nigeria, there is a general perception that the interest rates on microloans are very high, yet there is virtually no knowledge on how expensive loans really are and which factors are driving the rates. However, even if such data were available, standards should be developed in order to analyze the drivers of the costs imposed on consumers and moreover whether the pricing strategies of microfinance banks are responsible and sustainable.

With the aim to address this knowledge gap, GIZ developed an assessment methodology which attempts to consider the peculiarities of the Nigerian microfinance sector by surveying the loan pricing of 28 microfinance banks and 91 loan products. The findings of the paper highlight the driving factors of high interest rates in the Nigerian microfinance sector and provide meaningful insight into how the cost of borrowing can be reduced. Due to the complexity of the topic, this paper is divided into three sections and gradually introduces the reader to the various stages of analysis. The authors are convinced that the findings are not only applicable to the Nigerian microfinance banking sector, but also to the international discourse currently taking place on responsible and sustainable pricing.