By Damilare Davola

The Central Bank of Nigeria’s revocation of the licenses of 46 microfinance banks on July 1, 2026, was an unexpected blow. According to a report, the Central Bank of Nigeria’s decision to withdraw the licenses was due to a lack of regulatory standards among such banks. The banks, among others, lacked sufficient capitalisation; were dormant; had not commenced operations by the stipulated timeframe; or had insufficient capital to cover any liabilities. The reason stated by the Central Bank of Nigeria for its decision was for the protection of depositors, their funds, and the overall health of the Nigerian financial system,

It would at first glance appear to be just another case of regulatory overreach, but if we look into the situation very carefully, there are indeed words to be said regarding Nigeria’s Financial Inclusion agenda. The fact that so many micro-finance banks have failed in recent years could indicate that Nigeria might be too eager to achieve Financial inclusion while putting itself at risk of relying upon an unstable infrastructure of institutions. Nigeria has been on a road to developing a financial inclusion agenda over the last decade; the use of technology has empowered many customers, and it is to be noted that many millions now have access to finance.

The problem remains that these 46 institutions have all failed to become substantial while remaining licensed.

Financial inclusion, in addition to bringing many people under the circle of financial services, requires robust institutions so that the users may have access to a financially solid system, which is far more than just a large number of institutions and accounts in Nigeria.

When inclusion becomes a numbers game

Microfinance banks have a unique role in Nigeria’s financial system. They exist not to take deposits or give out loans as commercial banks do, but to reach all the low-income households, micro-enterprises, rural communities and entrepreneurs who were underserved by the Nigerian banking sector; the banks cater for extended opportunities for financial participation for these individuals.

Nigeria has indeed made a leap in this area; according to the latest Access to Financial Services Survey conducted by the EFInA, the figures for financial inclusion have been dramatically increasing over the last decade due to increase in digital services, agent banking and fintech among others, however many millions are still financially excluded as a lot of individuals mostly in the rural areas do not have access to any solid financial institutions.

This revocation of 46 micro-finance banks is thus very significant; they haven’t only failed to adhere to the regulatory standards set for them, but they represent the exact area of finance which the country looks to for driving financial inclusion. Success has long been measured not based on the reliability, stability and security of institutions but on the number of licenses issued and accounts opened. The fact that these institutions have now been revoked shows a clear gap between the actual success and the statistics being used. A micro-finance bank that lacks sufficient capital, is completely dormant or is run with flawed governance cannot be said to be contributing to financial inclusion.

Inclusion that relies on unsound institutions cannot hold. Kenya is an excellent comparison. It is viewed by many as an African success story regarding Financial Inclusion, and its success was never borne from a large number of licenses but from the development of a culture built on M-Pesa, agent banking, interoperability, and regulations which matched the prevailing economic landscape, thereby fostering trust in the Kenyan system. The same lesson holds true for Nigeria, as the issue is not about the quantity but the quality and robustness of the institutions serving the populace.

Why strong regulation actually promotes inclusion

It is difficult to make sense of the negative reception that the revocation of licenses is always met with. Such a decision means more people having access to local capital are losing out; their livelihoods are threatened, and the consumers face disruption. In the narrow sense, one can certainly see how regulatory intervention would mean reducing accessibility, but the overall context requires careful consideration.

The alternative here is the infinitely more terrible scenario, where failing institutions are allowed to continue thriving under the existing structure, investors are put more at risk as their invested cash becomes non-recoverable, and the trust in the financial sector in general continues to dwindle. Faith is, after all, the only thing which underpins financial systems. And there is no task more challenging than rebuilding that shattered confidence through the establishment of rigorous standards on the outside. The CBN’s decision should rather be seen as an effort to solidify its public perception, not its retreat from the notion of financial inclusion.

These organisations were not just involved in mere paperwork problems; they were, in reality, not meeting several basic requirements for running a financial institution, including a lack of sufficient capital, continuing intermediary activities, and insufficient cover for liabilities. There is absolutely no room to overlook such profound details; this indicates an unmistakable void in adequate capacity. As another illustration of why such a concept is fundamental, the success of Grameen Bank lies not in lending more money or increasing loan operators but in having a proper governance structure and efficient repayment procedures, as well as interaction with the community, which allows for the construction of confidence for lending credit.

It is the organisation more than the certificate that is critical, just like in this case; market women in Nigeria deposit their money with the local bank branch in a bid to keep it safe; and SMEs seek loans from banks in hopes of eventually fulfilling their loan obligations.

The future of Financial Inclusion

This recent withdrawal of 46 banks signifies a critical turning point where Nigeria needs to examine its approach to financial inclusion critically. More emphasis should be placed on making institutions sound, enhancing risk management, improving consumer protection mechanisms, and increasing oversight over industry institutions instead of issuing more licenses; Nigeria needs to be sure that banks that can stand should have access to resources for expansion, and should be interconnected and accessible through fintech and agent banking networks so that users receive convenient yet stable financial services.

However, there is a fundamental point that cannot be overstated: Financial Inclusion is not an isolated sector, as the challenges that confront the existing micro-finance banks (inflation, currency instability, poor infrastructure, increasing business costs, etc.) will continue to persist irrespective of regulations. Stricter regulatory environments alone may not be enough.

Ultimately, the goal isn’t just to increase the count of licensed banks. What matters is creating a situation where every Nigerian can have the ability to make savings and investment decisions or obtain loans to establish a business that they can have faith in. Trust is key.

Financial Inclusion is gradually becoming more imperative to Nigeria, but the real problem is not really the lack of available access to finance for the majority of Nigerians; rather, the fundamental issue is the lack of suitable and strong financial institutions which do not meet the requirements of a truly inclusive structure.

Damilare Davola is a seasoned Investment Banking and Business Analyst with extensive expertise in technological research, strategic analysis, and emerging market trends. Currently serving at Bank of America, he leverages his deep analytical acumen to drive data-driven decision-making, optimise investment strategies, and enhance operational efficiencies.