The nation’s Microfinance banks have invested their total assets of N224.6billion in government securities, BusinessDay analysis of their financials has shown.
The analysis of the financials of the reporting banks showed that as at December 31, 2013, the grassroots banks had invested their total assets of N224.57 billion in Treasury Bills (TB), considered as safe, and at the expense of economic development.
The development is against the five percent of N11.2billion of their deposit liabilities required by the Microfinance Policy and Supervisory Guidelines to be invested in government treasury bills and bonds, considered to be risk free.
Analysts said yesterday that the determination of the Central Bank of Nigeria (CBN) to embark on developmental banking may be jeopardised unless the current apathy towards lending to Micro Small and Medium Scale Enterprises (MSMES) by microfinance banks is checked.
Also, the Nigeria Deposit Insurance Corporation (NDIC) noted in its 2013 annual report that most of the MFBs examined were observed to have operated like deposit money banks, with high investment in fixed assets and unsustainable overhead costs.
Consequently, the sum of N54.12 billion of the sub-sector’s total assets were held with the Deposit Money Banks (DBM) in 2013.
Analysis further showed that within the same period, their total assets stood at N224.57 billion, total deposit liabilities amounted to N121.25 billion, total loans and advances stood at N100.34 billion while total paid up capital was N50.53 billion.
A good number of the banks were said to have preferred to grant loans to high net-worth individuals, rather than the economically active poor who should be their target customers.
Godwin Ehigiamusoe, managing director/CEO, LAPO Microfinance Bank limited, sees the development as having a negative impact on the sub-sector and economic empowerment, since the MSMES will be less funded.
Ehigiamusoe said the solution to the problem lies in microfinance banks strengthening their credit risk management systems and becoming less risk averse. “Lending is the prime role of micro financing”, he said in an e-mailed response to BusinessDay.
Analysts are concerned about the development, in relation to the N220 billion Micro Small and Medium Enterprise (MSME) development fund launched by the Federal Government. They say that on accessing the fund, some operators may also place it with the commercial banks or treasury bills, thereby starving the low income earners of fund.
Usman Onoja, managing director/CEO, Lovonus Microfinance Bank limited, was worried that since the launch of the fund in 2013, “up till this moment, we have not seen any institution that benefited from the scheme”. “It’s all lip service, we hope they will eventually make it available to us”, he said in an e-mailed response.
According to the NDIC report, portfolio-at-risk (PAR) ratios of some institutions were in excess of 50% as against the prudential maximum rate of 5%.
The rule of “Know-Your-Customer” (KYC) which ought to be the prime driver in lending decisions had been overtaken by the desire for immediate profit and weak/inadequate underwriting and non-adherence to conditions precedent to draw-down, including failure to obtain security where necessary.
The slow legal and judicial system made it difficult for the MFBs to realise their non-performing loans (NPLs) or foreclose the collaterals in the event of default.
SOURCE: Businessday Online
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