By Graham Orodje, Microfinance Africa –

Nigerian Microfinance industrry appears to be stumbling from one crisis to another, ranging from accusations fraud to embezzlement of depositors funds. There are now many Microfinance Banks (MFB) facing financial difficulty and potential liquidation. A large proportion of the current problems been faced by the sector must be attributed to the tenure of the previous governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo. While many other countries chose to follow the well trodden path of ensuring there is adequate regulation and only awarding licenses when licensees had proved their capability and a gradual development approach, he chose to award hundreds of licenses in his attempts to create a large microfinance sector from a standing position. What he actually created was chaos.

The current crisis suggests not enough audit was undertaken except ensuring they met the minimum capital requirement. The regulations and gudelines in existence not stringent enough to ensure the services provided were purely for those that the licenses were granted. Some banks took up residence in expensive business districts and paid their senior managers high salaries and attractive benefits. Some MFBs started competing with commercial banks. Other saw this as an opportunity to embezzle from the poor, the very people microfinance is meant to help out of poverty. A recent article in The Daily Sun even suggests that churches have gotten in on the act of creating microfinance as a means of stealing from the poor.

So where now for Microfinance in Nigeria?

The current governor has taken on the challenge of cleaning up microfinance with some vigour. He and his team are to be commended for that, but fixing this problem should be viewed as a long term goal. Simply putting quick fixes will not achieve any lasting success.

Training is absolutely vital. The requirement for CEOs of Microfinance Banks to take CBN certification exams is a positive step forward but does not go far enough. Other senior personnel in Microfinance Banks should also undergo training, not necessarily certificated exams. Other staff should also undertake some form of training. It is important that the role of Microfinance is well understood at every level of all MFBs.

Regulations and guidelines for MFBs need to be very prescriptive, if necessary set out percentages that MFBs can spend on certain Overhead expenditure and percentage of their capital that must be made available for loans. Salary caps can also be a consideration. However, this can be flexible if any MFB can prove they have met other financial requirement and their surplus permits this increase.

Monitoring of performance should be done on a regular basis. This can be quarterly, as a minimum, in the first two years in the first two years of the MFBs existence minimum.

Improvements in these and other areas will undoubtedly bring out only those truly interested in Microfinance and those out to earn a quick buck through 419 will lose interest very quickly and if they don’t the punishment must be extreme to deter.

Commercial Microfinance should not be allowed to fail. It is too important a tool in the drive to alleviate poverty. Further, it must not be allowed to be used by unscrupulous, greedy individuals to embezzle from those that already have very little.