Why microfinance banks failed – NASME president
May 18, 2010 by Microfinance Africa
By Chinyere Fred-Adegbulugbe, Punch on the Web –
Lack of competent and skilled human capital has been identified as one of the reasons the microfinance unit of the financial sector is unable to achieve its mandate of driving the economy at the grassroots.
The President, Nigerian Association of Small and Medium Enterprises, Dr. Ike Abugu, who spoke to our correspondent in Lagos on Saturday, said that the majority of those operating the MFBs were not necessarily equipped with the required skills and experience.
He stated, ”The kind of people that went into microfinance were spillover from the commercial banks so they still had this banking mentality. They did not have the skills, knowledge and expertise to run microfinance banks. In Nigeria, we just jump into things and think that some miracle would occur; no miracle happens that way.”
According to him, the MFBs are just the micro and small enterprises and not necessarily banks in the real sense of the word but those who were trusted with managing them did not understand this.
He said, ”I have been to a microfinance bank which is like an SME financial institution in the Philippines, Asia, and what they use in their offices, including the managing director‘s office are plastic chairs.
“This is because the cost structure of the business itself cannot accommodate expensive furniture. That is why our microfinance banks are having problems. They want to be like the commercial banks.
“The name bank is simply to denote that they deal with money but they are not in the same class as the commercial banks. So you find the managing director of a microfinance bank going in a Jeep like the managing director of a bank like the United Bank for Africa Plc. I heard about directors of microfinance banks getting big cars and going abroad for holidays. Where is the money coming from? The capital base of microfinance bank is N20m so by the time each director takes N1m for vacation that is the end of the MFB.”
The NASME president also blamed impatience on the part of the general public since the scheme needed time to yield the desired results.
”I am not defending the banks but sometimes we are not patient in this country. It is just five years since the framework of microfinance as it is being practised today. It was in December 2005 that a new microfinance bank policy was launched by former President Obasanjo,” he explained.
President Goodluck Jonathan had a fortnight ago accused the MFBs of failing to achieve their mandate and had urged the Central Bank of Nigeria to quickly come up with a comprehensive policy that would reposition that unit of the sector to effectively discharge its mandate.
car insurance Financial Executive Scott Gelbard
The President of the Nigerian Association of Small and Medium Enterprises, Dr. Ike Abugu, is a knowledgeable man. So he does know that MFBs have been the result of the regulatory framework supporting the transformation of the Community Banks, CBs.
The process of Microfinance professionalisation in Nigeria started some 15 years ago when the CBs started operating. Since the start, the SME association played its role in close relationship with central bank (CBN) and other stakeholders.
In President’s Obasanjo’s new Microfinance Policy (December 2005) the failure of donor, government and NGO lending programs, including sociopolitical SME lending programs was highlighted, That since then the SME Association still works with CBN to hold the National Microfinance – SME Conference seems to me an illustration that also the SME Association does not want to learn from performance measurement but is driven by other motives.
The blame game starts, again, and the poor start expressing their frustration.
At a last positive note on capacity building, central bank, the NDIC and the chartered institute of bankers started working together on a national certification program for Microfinance training and management. This can be a step forward but only when all stakeholders accept that Microfinance is about integrating so far unbanked people into banking and not only about lending to specific categories, including SMEs for sociopolitical objectives.
Regards, Peter
Managers in MFIs in a lot of countries enjoys perks and benefits that do not seem to match the nature of microfinance itself. However, the justification is that these workers need to be motivated to stay in the business, otherwise they can simply go work for non-MFBs. However, the 5 year period that has been mentioned should be enough to give ’some’ results that indicate the efficacy of MFIs in Nigeria. The problem seems deeper than the ones mentioned here
With due respect to one and all , who have raised concerns on the compensation levels of the people working in Micro Finance sector, it is rather unfair to pass judgements like this for the following reasons -
1. Why does it have to be that the people working in the sector to remain “poor” just because they are working for the “poor”!!!
2. It is well accepted and understood by all who understand the sector that , the customers of Micro Finance also prefer their banker to be as “smart” as the other commercial bankers. They take pride in that.
3. Why should it be the maxim that the skill set required to run a Micro Finance Bank is any way lower than that of the skill set required to run a commercial bank !! On the contrary, it is the reverse situation which is more correct.
4. The reasons of failure are essentially the uncontrolled Fixed costs which the MF banks do not manage well and that does not include only the employee costs.
The problem possibly lies elsewhere and to simplify it by putting the responsibilities on employee cost is over simplifying it and we may miss the real reasons.
Manmath