By Hope Moses-Ashike, Business Day Online

MicroFinance Banks stand the risk of losing major part of their capital, while customer’s dependants as well could face embarrassment from the banks at the expiration of any loan as a result of death of the customer if there was no cash security in place.

This emphasises why banks dealing with large customer base must as matter of importance apply the right model involving cash security framework.

Apart from providing credit to micro and small business operators, microfinance banks also encourage their customers to save and from some microfinance banks that are operating on the right model like Asa International, a mandatory minimum of N200 is expected to be paid by borrowers.

Meanwhile, there is no limit to voluntary deposit, so this is one way to encourage savings among borrowers and for cash security.

Also, at the time of getting a loan, borrower needs to deposit cash security of 20 percent against principal loan amount. This is called cash security deposit. This is in addition to processing fee where the borrower pays a flat fee against principal loan amount.

The essence of all these is that in case of death, the successor or next of kin of the deceased borrower will not need to repay any outstanding loan amount. The outstanding loan is written off.

The successors of the expired borrower will get back the deposit savings and cash security amount.

According to Aminul Haque Bhuiya, managing director, Asha Microfinance Bank Limited, Lagos, saving policy is encouraged in ASA Cost Effective mechanism among all clients. “It assists our member in forming own capital,” he said.

However, the savings deposit will only be accepted at the group meeting with entry into member’s passbook and signed by the loan officer.

Bhuiya, who spoke to participants at a capacity building forum organised by the National Association of Microfinance Banks (NAMB) South West zone, explained that savings withdrawal by borrower can be done at the branch office with one week advance notice at the group meeting. Only voluntary portion can be withdrawn any time of the year.

Mandatory amount will only be returned after the cancellation of membership with interest. In this case, loan amount will have to be repaid in full. Membership cancellation must be done at the office with one week advance notice.

Speaking on implementation of ASA lending programme, he said ASA model is a group-based methodology, a network to enhance effective monitoring and supervision. Formation of a group starts with 5-10 members, preferably living in the same area.

Group leaders, secretary and cashier who are well acquainted with the group members are appointed.