Since the advent of microfinance banking in Bangladesh in the mid 1970’s, several countries have copied this financing model. The seeming popularity of this model among developing countries is predicated on poverty reduction prospect it offers. The Nigerian government cued into this popular thinking in 2005 when it inaugurated the microfinance banking scheme. This was founded to provide finance to economically active poor excluded from financing by conventional banks, provide employment, engender rural development and reduce poverty. This paper theoretically examines the challenges these banks have had to grapple with from their inception. Furthermore, it scans the business environment to assess the prospects of microfinance banks in Nigeria. The paper shows that microfinance banking in Nigeria faces enormous challenges in infrastructural inadequacies, social misconception, poor legal and regulatory framework, unbridled competition from other financial institutions,abandonment of core microfinance function and paucity of qualified manpower. Despite this plethora of challenges, the study identified several areas where opportunities exist for these banks. The growing entrepreneurial awareness, increasing government interest, large unbanked rural area and high population of poor people were identified as some of these opportunities. The paper argues that with proper regulatory interventions and commitment of other stakeholders to the core mission of microfinance banking, its challenges can be addressed and its prospects enhanced. This paper therefore concludes that the future of microfinance banking in Nigeria is bright.
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