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Different financial institutions operate in every economy and Nigeria is no exception. Such financial institutions include commercial banks, insurance companies, mortgage companies just to name a few.

However, due to the peculiarities of Nigeria, financial institutions faced a lot of problems and challenges in their operations which are explained below

1. Illiteracy: As often reported by international agencies such as the world bank, Nigeria has a high illiteracy rate. 

This poses a big problem for financial institutions as the inability for customers to communicate and understand vital tools and terminology negatively affect the smooth operations of financial transactions

2. Bad loans: As is with other businesses, the bad loan is still a problem for the financial institution. A bad loan is a loan that is deemed to be irrecoverable and therefore written off. 

For banks, their most common bad loans are non-performing loans or loans whose principals or interests have not been paid for at least 90 days.

Bad loans are such a big problem for financial institutions as they tied up capital that could have been used for expansion and investment.

Indeed, as we've seen, too many bad loans can cause financial or bank distress, which can lead to total financial or bank failure.

3. Poor banking habits: While banks are becoming increasingly important and popular, the banking habits among Nigerians is very poor.

This is especially true when you consider the fact that the amount of money that passed through the financial institutions is still larger than the ones which do not pass through the financial institutions in the rural areas.

These poor banking habits has been attributed to low confidence in the financial institutions in light of recent financial distress occasioned by the coronavirus.

Religious views have also led to some Nigerians refusing to use financial services or take out loans. Some Muslims, for example, believe that profiting from interest on a loan is un-Islamic. 

Hence, they abstain from financial services because banks and other financial institutions do pay and charge interest on their services, which is a source of contention among Islamic believers, especially those in the north.

The problem with poor banking habits is that it can negatively affect financial institutions, ability to perform their role of financial intermediation, which involves mobilizing funds from the surplus units of the economy to the deficient units.

4. Government policies: Unstable government policies is another problem that financial institutions faced in Nigeria.

Government policies are normally intended to tackle a specific problem that financial institutions are facing, but they can sometimes cause uncertainty

For example, the removal of ATM fees after withdrawal and its subsequent re-introduction caused financial uncertainties for stakeholders in the financial sectors who required knowledge about government policy for planning purposes.

5. Low Profits: The profitability of Nigerian financial institutions are being harmed by high operating costs and an increase in non-performing loans.

Because of low profits, Most Nigerian banks will immediately retrench their workers with the slightest of economic meltdowns.

Furthermore, low profits have an impact on the ability of Nigerian financial institutions to grow and enhance their facilities.

6. Corruption and insider abuse: Corruption has now become a cankerworm that has eaten  its way deep into the Nigerian economy and the financial institutions are no exception.

Several bank managers have refused to grant credit facilities to deserving customers unless bribes are paid.

Furthermore, the issue of insider abuse is becoming rampant in Nigerian financial institutions. Insider abuse, as defined by the special assessment regulation (SAR) occurs when employees and top officials use insider knowledge to commit fraud.

Insider abuse is particularly widespread in banks, as greedy bank executives and other top officials exploit the information available only to staff member to embezzle funds or engage in other forms of financial misconduct.

7. Poor customer services: Even with the numerous adverts that seem to show an increase in customer services, many Nigerian financial institutions continue to struggle with poor customer service quality and have yet to fully embrace standard modern quality customer service delivery as compared to their international counterparts.

In Nigerian banks, For example, we still see bank employees not being able to resolve customer issues, banks customers being switched from person to person,  and customers being put on hold multiple times. 

All of these factors can and have contributed to the decrease in the customer base of financial institutions, as people expect high-quality service delivery, especially when it comes to money.


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