Nigeria: Microfinance Dependency on Government Funds
By Graham Orodje
In March the Ag Chairman of Lagos National Association of Microfinance Banks (NAMB) Mr Olufemi Babjide announced that 183 Microfinance Banks (MFBs) had applied for access to the Lagos State Microfinance Institution (LASMI) fund.
LASMI must be commended for making funds available to MFBS to enable them to continue lending to those in need and for its support of MFBs. However, the number of MFBs that applied should be a cause for concern to regulators and others tasked with developing the sub-sector. The number that applied was over 22% of registered MFBs and almost all MFBs in Lagos State. It suggests an inability by many MFBs to raise commercial finance and a developing dependence on Government finance. Government funding should continue to be provided but it must not become the lifeblood of Microfinance Banks.
Government fund providers set up to provide funds to MFBs should consider changing the criteria for providing loans to MFBs. Introduction of fund matching should be considered. Fund matching requires MFBS to raise some of their funds they require privately. This is matched by funds from Government.
Government agencies, including CBN and NAMB (National Association of Microfinance Banks) should develop strategies to attract private investors into the sub-sector. There are private investors that believe Microfinance in Nigeria can be an attractive sector for investment, but not in its current state.
Many Microfinance Banks are far too small to register on the radar of many investors. Their capital structures, turnover and profit are likely to be below the level many investors consider acceptable to have in their portfolio. One obvious remedy is merger of smaller MFBs with similar business models. There are other methods available for MFBs to secure private finance, including adopting the concept of joint liability group, used by MFBs to provide loans to the poor.
Government funds alone can not achieve the stated objectives of Microfinance, the financial inclusion of the financially excluded. More private finance is required and urgently.