By Graham Orodje, Editor of Microfinance Africa -

The CBN and NDIC continue to attempt to clean and resurrect Microfinance in Nigeria. Many of their initiatives have met with positive response from the sector. There is strong belief that many of the initiatives will turn the sector around, although some have met with resistance. There is also increasing confidence in the sector, but this still has some way to go.

However, a question that needs serious consideration is whether the CBN will be able to regulate over 800 Microfinance Banks on its own, given that the near collapse of the sector occurred under the ambit of the CBN, albeit under a different Governor. There must some doubt over this regardless of who is head of the CBN. This is in no way a damning comment on CBN’s capability, it is more on its capacity. CBN already has a huge task in its efforts to stabilise the main banking sector in the country.

For CBN to be able to regulate so many MFBs effectively it will need to undertake a mammoth recruitment drive and increase its capacity, which in turn will no doubt increase Government expenditure, something to be avoided in the current economic climate.

So, are there any alternatives to tasking CBN with regulating MFBs and potentially over burdening it?

There are various alternatives that can be explored. One of this involves developing creating different tiers of MFBs.  MFBs that are incorporated to serve local communities should not come under the control of CBN. These are likely to form the bulk of MFBs. They should be under the control of State Governments with CBN acting in a supervisory and advisory capacity. State Governments Finance Ministries should have the capability to undertake due diligence on new applications, adequately regulate and monitor local Microfinance Banks.

This should not end CBN’s involvement in the local Microfinance Banks. Any application for the creation of a new local Microfinance Bank should be assessed by State Governments Finance Ministries and a recommendation should be made to CBN on if the license should be granted or not. CBN should then give the application the final seal of approval or rejection.

State Governments should then be responsible for monitoring and regulating the local MFBs. This must comply with CBN’s regulatory framework for Microfinance Banks. All monitoring, audit and other investigations undertaken by the State Governments must be reported to the CBN. This way the CBN can retain control over the sector.

Microfinance is a sector that has the potential to alleviate poverty and create mass employment in Nigeria. This potential can only be realised if the various bodies tasked with developing this sector and alleviating poverty work in unison.