Poor analysis of market risk has been identified as the leading cause of loan defaults, particularly among micro, small and medium enterprises (MSMEs). This revelation was made by Kazeem Bisiriyu, Chief Risk and Compliance Officer of Accion Microfinance Bank, during a press conference marking the bank's 20th anniversary.
Key Causes of Loan Defaults
Bisiriyu highlighted several other factors contributing to loan defaults, including economic instability, rising operational costs, reduced cash flow, and market volatility. He explained that these challenges create market risk, which in turn affects purchasing power and reduces customers' cash flow.
Importance of Responsible Lending
While profitability is crucial for every financial institution, Bisiriyu stressed the need to recognize and ensure customers are supported responsibly and sustainably. He stated that banks place strong emphasis on customer assessment, risk management, financial discipline, and lending solutions that align with customers' repayment capacity and business realities.
Challenges Facing SMEs
Taiwo Joda, Managing Director and Chief Executive Officer of Accion Microfinance Bank, noted that with Nigeria's SMEs battling inflation, currency volatility, and high operating costs, one of the major gaps remains access to affordable and sustainable financing. This is especially true for businesses operating within formal and underserved sectors. He added that many SMEs require flexible financing structures, business support, and improved access to financial education to remain resilient in today's economic environment.
Microfinance Banks' Role in Economic Growth
Looking ahead, Joda emphasized the role microfinance banks could play in Nigeria's economic growth. With about 40 million micro and medium enterprises across the country, these businesses have contributed immensely to economic growth. Accion, as a microfinance bank, has impacted through providing loans, granting access to credit and financial services, and serving as an advisor to micro-entrepreneurs.
Accion's Approach to Lending
According to Joda, the bank has maintained a 99.5 per cent collection rate without pressurizing customers, as payment modes are mapped out according to their cash flow. Christian Ruehmer, Accion Board Chairman, attributed this success to responsible lending, proper customer assessment, and relationship-driven banking. He explained that rather than focusing solely on loan disbursement, the bank places significant emphasis on understanding customers' businesses, repayment capacity, and financial realities before providing support.
