Nigeria: Breathing new life into MfBs

By Rotimi Durojaiye, Daily Independent

The CBN last year granted provisional approval for new licence to 121 out of 224 MfBs that had their operating licences revoked. Group Business Editor, ROTIMI DUROJAIYE, writes on the recently completed comprehensive target examination of all MfBs in the country and the moves to shore up their capital base in a bid to meet up with a new CBN requirement.

The current move by the Central Bank of Nigeria (CBN) to ascertain the level of compliance by microfinance banks (MFBs) with its operational guidelines is unsettling the financial services of the sub-sector.

An industry source, who disclosed this, said the exercise, expected to end in June 2011, will reveal the true status of the grassroots banks with the aim of taking appropriate action against those still lagging behind.

The inspection, being the first after the recent reform, is targeted at liquidity, capital adequacy and level of compliance of the operators with the reform guidelines.

Besides, the apex bank is said to be concerned about the deluge of complaints by both the operators and customers in recent times over defaults in loan repayment and frivolous charges.

Some operators, who spoke on this, expressed fears that “the exercise is likely to unravel more grey areas not covered in the last reform”.

Their anxiety stems from the fact that the banking industry generally is undergoing turbulent times, occasioned by illiquidity and reluctance to lend to the real sector, and as such, the MfB operators reasoned that full compliance with all the provisions might be difficult.

An MfB managing director, who spoke in Lagos, said his bank had not been inspected yet. “I am still expecting the inspection officers of the CBN.”

Following this latest development, several MFBs are already shoring up their capital base in a bid to meet the CBN standard. For instance, Good Neighbour Microfinance Bank Limited, one of the healthy MfBs, has increased its capital base from N50 million in 2008 to N100 million this year. Ik Awa, managing director of the bank, said: “Our capital base was N50 million, but recently, we have taken it up to N100 million. Part of it has been fully paid, and paid up capital is more than N50 million for now. We also have deposit for shares already standing in”.

Also, the managing director, Altitude Microfinance Bank Limited, Sam Manilla, one of the banks granted approval in principle, stated that the directors of the bank were putting up efforts to shore up the capital base to N100 million from N52 million, which is the current capital base.

“It is our directors that helped us to raise the money to that level. At the time we came back from the reforms, we were not having any deposit again due to the revocation of licence by the CBN. Our customers withdrew all their money, but we were able to settle our depositors,” he stated.

The routine check is coming on the heels of the last shake-up of the industry, which took over the operating licences of 224 MfBs initially, while 121 MfBs were given approval in principle.

According to the CBN, the requirements for the grant of new operating licence to the 121 MfBs include: capitalisation of prior deposits for shares and the new capital injection to bring the shareholders’ fund unimpaired by losses to the prescribed minimum of N20 million, good corporate governance, sound risk management system and strong internal controls to forestall avoidable losses. Others are: closure of unapproved branches, cash centres and customer meeting points, adoption of a true MfB model, among others.

At the expiration of the three-month deadline, a comprehensive pre-licencing examination and capital verification will again be conducted before the new licence would be granted to those found eligible.

Online rendition of returns

All existing MfBs in the country have till June 2011 to divert to electronic monthly rendition of returns as directed by the CBN.

The ‘on line’ rendition of returns was established by the CBN to enhance efficiency of electronic data capture, using an Excel-based Master File – monthly report format on FINA system.

In view of this, codes have been assigned to each MfB in Nigeria for ease of reference.

However, the apex bank says MfBs that were granted Approval in Principle (AIP) are not yet expected to render their statutory returns until they are granted full licence.

The MfBs with AIP are those that have not been granted full licence to operate by the CBN.

On the preparation of the MfBs towards meeting the deadline, acting chairman, National Association Microfinance Banks (NAMB), Lagos State chapter, Olufemi Babajide, said his association is fully prepared because the CBN did not just wake up one day to tell them about it. He said the only way MfBs can succeed is to have good Information Technology (IT). To him, the association has discussed with a number of IT providers to make sure that every MfB has access to IT where some of them have agreed to provide the services and be paid instalmentally.

The CBN, in a revised list of MfBs with their corresponding codes released on its website, said names of the affected MfBs have not been included on the list.

Director, Other Financial Institutions Supervisory Department, who issued the release, Olufemi Fabamwo, also said June 2011 monthly rendition has been set as the cut-off date, after which only electronic monthly returns will be acceptable.

Consequently, all licensed MfBs in Nigeria are expected to complete their monthly returns using the codes assigned and forward same to the CBN as earlier directed.

The release of the revised list, according to the regulatory authority, was in response to the observations and comments arising from the earlier publication of the codes assigned to MfBs for the online rendition of their statutory returns.

Reacting to the development, Babajide explained that MfBs granted AIP has nothing to render because they are not in business.

He added that they are not expected to operate until they have met the requirements set by the CBN for new licence, after which they will be given a new licence before they can render returns.

However, Eniola Agbesoyin, chief operating officer, Olive Microfinance Bank Limited, Lagos, one of the MfBs granted approval for new licence, also insisted that it is not possible to restrict them from rendering their returns because the CBN has carried out investigation on their operations.

He agued that any MfBs that is in operation must render a monthly return which is all about disclosure of its activities.

The CBN’s notice to all MfBs on code allocation reads: “In response to the observations and comments arising from the earlier publication of the codes assigned to microfinance banks for the online rendition of their statutory returns, please find attached a revised list of MfBs with their corresponding codes. Kindly note that MfBs with approval-in-principle are not yet expected to render returns until final licence is granted by the CBN. To this end, their names have not been included on the list.

Fate of unhealthy MFBs

In line with the recapitalisation exercise, the CBN is set to announce major policy reforms that will drastically reduce the number of MfBs operating in the country.

Criticisms have continued to trail the operation of the MfBs, many of which are accused of lending to big firms and moneybags and engaging in other illegal transactions.

A number of MFBs are already fizzling out due to drying capital.

But the CBN governor, Sanusi Lamido Sanusi, who spoke at the first town hall meeting in Kaduna last week, said the policy reforms to sanitise the MFBs’ operations would come into effect in the third quarter of the year.

Sanusi also announced that CBN would sanction non-performing MfBs and shut down those found to be terminally distressed.

The CBN governor expressed regret that the over 900 existing MfBs in the country had not made the desired impact due to a number of reasons including lack of understanding of the concept and methodology of delivery of microfinance by the operators.

Other reasons, according to him, are concentration of MfBs in the major cities rather than the rural areas where they are really needed, with the attendant high running cost implications and the impact of the global financial crisis leading to drying up of credit lines, competition and increased credit risk.

Sanusi also said under-capitalisation, huge non-performing risk assets, poor corporate governance, huge investment in fixed assets, weak capacity, insider-related abuses, poor asset quality and management information system (MIS) were responsible for the poor performance.

He disclosed that the CBN recently completed a comprehensive target examination of all MfBs in the country, adding that this would form the basis for appropriate regulatory action in the near future.

The CBN governor said: “The Central Bank has carried out a comprehensive review of the microfinance policy and regulatory framework to deepen the sector’s operations and ensure much more robust regulatory environment. We will announce major policy reforms in microfinance during the third quarter of the year.”

Sanusi also expressed the intention of the CBN to abolish the current universal banking model and return to the full intents of the Banks and other Financial Institutions Act, which separates commercial banking activity from merchant or investment banking.

He, however, vowed that politicians linked to the collapse of some of the nation’s commercial banks would not go scot-free despite their connections in the corridors of power. According to him, they would be made to cough out the money borrowed from the banks at the appropriate time.

Relief sigh for failed MfBs’ depositors

The Nigeria Deposit Insurance Corporation (NDIC) has also said that it will be paying N9.8 billion to 731,000 depositors of the 91 out of 103 closed MfBs across the country.

This development is fall-out of the revocation of licences of 103 MfBs and handing them over to the NDIC for liquidation.

While the corporation is statutorily mandated to pay N4.9 billion insured deposits, the balance of N4.9 billion uninsured deposits will be paid on realisation of physical assets of and recovery of debts owed to the failed MfBs.

In a statement issued by the head, communications and public affairs of the corporation, H. S. Birchi, out of the N4.9 billion insured deposits, the corporation has paid N1.492 billion to about 45,000 depositors of the 91 failed MfBs since the commencement of payment exercise on December 6, 2010.

In addition, the statement noted that the second round payment of N2.177 billion to the remaining 393,000 depositors of Integrated Microfinance Bank is to commence on May 3, 2011.

According to the statement, the corporation had earlier paid the insured sum of N529 million to 21,000 depositors of the Integrated MfB between January 31 and February 4, 2011.

Assuring that the depositors of the 11 remaining MfBs will be paid as soon as their records are made available to the corporation, it identified them to include Bristol MfB, Mustason MfB, Newgate MfB, Primate MfB and South West MfB in Lagos State; Embrace MfB and Homeland MfB in Yenagoa, Bayelsa State; Cubic MfB in Benin City, Edo State; Galaxy MfB in Warri, Delta State; Gamji MfB in Birnin Kebbi, Kebbi State; and Standex MfB in Onitsha, Anambra State.

According to the statement, the corporation has continued the routine examination of some MfBs as part of its statutory responsibilities to engender depositors’ confidence and contribute to the safety, soundness and stability of the nation’s financial system.

It added that the corporation has concluded arrangements to prosecute the directors and other officials of the closed MfBs who were involved in insider-related abuses to serve as a deterrent to other bank directors and officials.

It, however, noted that preliminary reports of the books and affairs of the 103 MfBs revealed that many of them were run aground by their directors and officials who engaged in insider-related abuses such as outright stealing, granting of unauthorised credits and diversion of depositors’ funds.

Headaches of MfB customers

When MfBs were introduced to help small-scale entrepreneurs enlarge their businesses, people were happy over the idea. However, little did the citizens, especially market men and women, know about their longevity in the banking industry.

Some MfBs go to market places and encourage the market women to save money on a daily basis with the promise that when the deposits reach certain amount, depositors could get loan to do business. But some of these banks now have problems and could no longer pay depositors their money, hence hiding the truth from their customers who ignorantly continued to patronise them by depositing their money with them.

Just like their elder brothers, the regular banks in Nigeria and across the globe, these, indeed, are not the best of times for MfBs in the country, who are daily unable to meet obligations to customers.

As of May last year, there were 866 MfBs registered by the CBN in operation, in line with the microfinance policy launched on December 15, 2005, by former President Olusegun Obasanjo.

The policy recognised two categories of MfBs: those licensed to operate as unit banks and those licensed to operate in a state.

Going by the policy, the then existing 750 community banks were required to transform into MfBs by December 31, 2007, or close shop.

While MfBs licensed to operate as unit banks shall be community-based banks with a minimum paid-up capital of N20 million from the N5 million, the MfBs licensed to operate across a state and the Federal Capital Territory, Abuja, with a minimum paid-up capital of N1 billion.

The Microfinance Policy and Regulatory Framework describes MfB as a any company licensed to carry on the business of providing micro-finance services such as savings, loans, domestic fund transfers and other financial services that economically active poor, micro-enterprises and small and medium enterprises need to conduct or expand their businesses.

The guidelines allow the MfBs to engage in the provision of services to their clients such as acceptance of various types of deposits including savings, time, target and demand from individuals, groups, associations; provision of credit to its customers, including formal and informal self-help groups and associations; and issuance of redeemable debentures to interested parties to raise funds from members of the public with approval of the CBN.

It was realised that the entrepreneurial activities of micro and small scale entrepreneurs that constitute over 65 per cent of Nigeria’s population are central to economic growth and development.

This group, noted experts, have great potentials to contribute to widespread increase in income and employment generation that would result in poverty reduction, just as their ingenuity is largely held back by the lack of access to financial services. It was, however, noted then that the microfinance service providers are constrained by inadequacies in resources, skills and competence.

The MfBs are also allowed to engage in financial activities such as:

*Promotion and monitoring of loan usage among their customers by providing ancillary capacity-building in areas such as record-keeping and small business management;

*Collection of money or proceeds of banking instruments on behalf of their customers through correspondent banks;

*Provision of payment services such as salary, gratuity, and pension for the various tiers of government;

*Provision of loan disbursement services for the delivery of credit programme of government, agencies, groups and individual for poverty alleviation on non-recourse basis;

*Provision of ancillary banking services to their customers such as domestic remittance of funds and safe custody;

*Investment of surplus funds of the MfBs in suitable instruments including placing such funds with correspondent banks and in treasury bills, among others.

They are, however, barred from engaging in financial activities such as accepting public sector (government) deposit, foreign exchange transactions, international corporate finance and international electronic funds transfer.

MfBs are also not allowed to engage in international Commercial Papers (CPs), cheque clearing activities, dealing in land for speculative purposes, and entering into leasing and renting.

The MfBs, according to the CBN guidelines, can lend a maximum principal amount of N500,000, which can be reviewed from time to time by the apex bank.

The microfinance loan can be granted to operators of micro-enterprises, such as peasant farmers, artisans, fishermen, women, senior citizens and non-salaried workers in the formal and informal sectors.

The tenure of microfinance loans is 180 days (six months); but in the case of crops with longer gestation period, a maximum tenure of 12 months is permitted. The loan repayment may be on a daily, weekly, bi-monthly or monthly basis in accordance with the amortisation schedule in the loan contract.

Samuel Oni, director at the CBN then in charge of the Other Financial Institutions Department (OFID) admitted at a forum that community banking is a very vulnerable sub-sector.

In a bid to boost confidence, NDIC extended Deposit Insurance Cover (DIC) to MfBs and Primary Mortgage Institutions (PMIs) and enhanced their ability to mobilise savings for investments, extension of credits and economic development, from January 1, 2008.

While the DIC provided to bank depositors in the country is a maximum of N200,000 each, according to the 2006 amendment of the NDIC Act, coverage for MfBs and PMIs is up to a maximum of N100,000 per depositor.

Excesses of MfBs

Mazi Okechukwu Unegbu, past president, Chartered Institute of Bankers of Nigeria (CIBN), former chief executive of Citizens Bank International (now part of Spring Bank Plc), and a stockbroker, regretted that although the prospects of microfinance banking in Nigeria are very bright indeed, the operators are losing sight of the dream of founding fathers of the MfB concept.

Unegbu, a director in an MfB based in his community in Imo State, listed two of the sector’s biggest challenges as the dearth of personnel and, where they exist, lack adequate skill to navigate the terrain.

Unegbu also took a swipe at the way microfinance banking was being operated in Lagos, as if they were competing with conventional banks, spending money in promotional campaigns, among others. This, he argued, is not in the spirit of the policy, as the MfBs ought to be conservative in their operations.

Another source who craved anonymity was also worried by the rate at which MfBs are opening shops in the Lagos metropolis, instead of concentrating in the rural areas. This has led to a situation where micro-finance banking in the villages takes a different meaning and posture from what exist in urban areas.

He is also dissatisfied with the decision of the promoters and managers to set up offices in glass houses, capable of scaring away, after intimidating, the poor they are supposed to serve.

There are those who are also uncomfortable with the decision of regular banks to compete in the MfB segment of the financial services industry with those they ought to be serving as correspondent banks to. Between five and seven banks are believed to have floated MfB subsidiaries, as they have done in the bureau de change segment, either individually or as a joint venture with some other organisation(s).

Microfinance banks instrumental to poverty eradication – Alabi-Mcfoy

By Mudiaga Affe, Punch on the Web

Chairman, Lagos State Microfinance Institution, an agency set up by the Lagos State Government to provide basic financial assistance to micro entrepreneurs, Bashorun Sikiru Alabi-Macfoy, has said microfinance banks are instrumental to the eradication of poverty in the society.

Alabi-Macfoy spoke at a special awareness programme with the theme, “The Role of a Micro-Finance Bank in a Developing Economy,” organised by the Ojokoro Micro-Finance Bank Plc.

According to him, alleviation of poverty is the reason why MFBs were established, saying that there is no way the conventional banks could help to eradicate poverty as they could not give out loans without asking for collateral.

“There are so many petty traders that need N10, 000, N20, 000 to do their business and most of them are bread winners and so if we can encourage them, the better. Some use N5, 000 to buy pure water and they have the capacity to sell N20, 000, so if the microfinance bank can loan them N20, 000, they will be able to make more money and the rest,” he stated.

He disclosed that the Lagos State Government had so far disbursed N1.3bn to some microfinance banks in the state so that they would have the means to lend some money to grass roots people at a reduced interest rate without collateral in a bid to tackle poverty.

Special Assistant to the Lagos State Governor on Microfinance, Mrs. Funmi Adesina, who was the guest speaker, said micro-credit financing had grown from a concept to a movement.

“Nowadays, even though its impact to single-handedly defeat poverty is still a subject of intense academic debate and research, micro-finance banking has metamorphosed into an institution with the supporting framework to advance the cause of wealth creation/poverty alleviation in developing economies.

“Micro-financing as a concept is still and will remain an everyday reality with us, especially since its deployment as an instrument for wealth creation among the poor in developing economies,’ she said.

Adesina added that the reason for this was that majority of people in developing economies were poor and were considered not credit worthy by the formal banking sector because they lacked the required collateral to either obtain loans from commercial banks or generate the required income from the capital market for their businesses.

She said that the emergence of MFB had helped to bridge the gap.

Speaking on the topic, “The Role of a Micro-Finance Bank in a Developing Economy,” Adesina urged MFBs to possess some financial qualities and means of real banks, saying that in the past many MFBs which collapsed of their customers in penury and debts.

Stormy weather ahead of new microfinance banks

From Nigerian Compass -

Barely one month after provisional licences were granted new investors in micro financing business, none of the licensees has actually commenced operations, as the challenges of the business environment and the experiences of the existing micro finance banks (MFBs) continue to haunt them.

Investigations by the Nigerian Compass in Lagos and Abuja where over 50 per cent of the newly licenced 121 MFBs are based, showed that many of them may not take off early as crisis of waning public confidence in the sub-sector and regulatory requirements appear to be their major hurdles.

Sources confirmed that a few of the investors were looking at the first quarter of 2011 as take off date even as they continued discussions with old players whose licences were revoked on the possibility of using their existing infrastructure as operational offices to cut take off costs.

One of the owners of a newly licensed banks confirmed on the condition of anonymity that there was no way his company could take off soon, as funding challenge remained a major issue yet to be addressed by investors in the micro finance institution, adding that the option being explored was to convert a facility belonging to an old MFB to its headquarters .

“Let me say that we are not finding the environment conducive to take off of our operations. We did not just apply for the licence and so when the approval came, it was a surprise as we were not thinking of securing approval as fast as it came. As it is now, we are just discussing at the board with a view to determining when and how we can take off without failing. It is a big issue because public confidence in the sector has waned substantially based on our interaction with potential clients.

“But then, we are putting all resources at our disposal to ensure that we take off in a little way within the next few months. We are looking at first quarter of next year to commence business. We would have been properly positioned to take off before the end of this year but for the breakdown in our discussions with one of the banks that was to offer us some funding support.

“They reneged on their promise due to what they attributed to operational problems, especially non-performing loans portfolio in their balance sheets. Despite all this, we are going to come out and operate within the available resources at our disposal and ensure that we survive and grow into profitability within the next two years of the commencement of business.”

An industry analyst and chartered accountant, Mr. Adeyinka Adesanya, believed that the success of the MFBs would depend on the extent to which the CBN was ready to enforce its monitoring and supervisory roles within the sub-sector, noting that mere issuance of new licences will not solve the problems that led to the collapse of the previous ones.

He pointed out the problems of MFBs could be linked to the Nigerian mentality both on the part of the owners and the petty traders, whom the programme was designed to serve. He blamed some of the owners for their insincerity as well as the credit takers because they “want quick returns while the traders are becoming insincere with their repayment plan.”

According to him, rather than leaving the CBN to contend with the enormous challenges facing the sub-sector, “the supervision of MFBs should be taken over by an independent body, to monitor them. The recent experiences had showed that the apex bank lacked the capacity to effectively supervise the micro finance institutions.

On the challenges of MFBs within the operating environment, an investment analyst and chartered tax practitioner, Mr. Benson Ekeleme, argued that the recent shock occasioned by the CBN’s clamp down on the sub-sector that led to the revocation of 224 licences, had impacted negatively on public perception about their financial intermediation roles in the economy as most people seemed to have lost confidence in them.

On how to strengthen the sub-sector,  the finance expert  explained that by virtue of their enabling law, MFBs were meant to enhance government’s  effort towards poverty reduction.

“However there is little or no support from the government for operators ,especially in the area of funding. These MFBs obtain funds at very high rates and cannot afford to disburse credits at lower rates while banking culture among the customers of MFBs is still poor and in most cases there are bad debts while collection is pretty difficult,” he said.

“Enlightenment of the public as it relates to MFB operations is very low. They are left to suffer the burden of enlightenment and the cost of reaching these levels of customers is tough and challenging due to poor knowledge and education.”

He said that “there is a growing need for government’s support for the sub-sector by improving public awareness about their roles in the economy and exposing them to channels of cheaper funds needed to fulfill their obligations more efficiently to micro credit takers like artisans, traders and others in the informal sector.”

Following public outcry that trailed its revocation of 224 MFB licences last September, especially agitations by members of the National Association of Microfinance Banks (NAMB), the CBN on October 20 this year reviewed its previous decision on the 224 MFBs and came up with a palliative measure of granting provisional approval for new licences to 121 subject to the fulfillment of some specific requirements within three (3) months out of the 224 MFBs.

According to the apex bank, those granted provisional approvals were those that had made fresh injection of capital and made significant loan recovery, as confirmed by its capital verification exercise.

“The requirements for the grant of new operating licence to the 121 MFBs include the capitalization of prior deposits for shares and the new capital injection to bring the shareholders’ fund unimpaired by losses to the prescribed minimum of N20 million, good corporate governance, sound risk management system and strong internal controls to forestall avoidable losses, closure of unapproved branches, cash centers and customer meeting points, adoption of a true microfinance model, among others. At the expiry of the three months deadline, a comprehensive pre-licensing examination and capital verification will again be conducted before the new licence will be granted to those found eligible.

”The CBN is also putting in place other measures to ensure that the MFBs live up to the overriding objectives of fostering financial inclusion, fighting poverty and empowering low-income and vulnerable groups. These include the review of the Microfinance Policy Framework, introduction of a new operational template to benchmark microfinance banking, capacity building to develop a critical mass of knowledge and skill, human resources as well as examining the possibility of introducing a Micro, Small and Medium Enterprise (MSME) Fund to catalyze a sustainable development of the microfinance space.”, the statement added

Giving a background to the events that culminated to the revocation of the licences, the Deputy Governor, Financial System Stability of the apex bank, Dr. Kingsley Moghalu explained that “the microfinance industry in Nigeria had been confronted with numerous challenges since the launch of the Microfinance Policy Framework in December, 2005. A significant number of the microfinance banks (MFBs), were deficient in their understanding of the microfinance concept and the methodology for delivery of microfinance services to the target groups.

“Many of them lost focus and began to compete with deposit money banks for customers and deposits, leaving their target market unattended, in spite of efforts of the regulatory authorities to put them back on track. Unfortunately, the impact of the global financial crisis on MFBs had been more severe than anticipated. Credit lines dried up, competition became more intense and credit risk increased, as many customers of MFBs were unable to pay back their credit facilities owing to the hostile economic environment. The combination of these factors had significantly weakened the microfinance sub-sector and its ability to achieve the policy objective of economic empowerment at the lower end of the market”, Moghalu lamented.

The CBN identified high level of non-performing loans, resulting in high portfolio at risk (PAR), which had impaired their capital; gross undercapitalization in relation to the level of operations; poor corporate governance and incompetent boards; high level of non-performing insider-related credits, and other forms of insider abuse;  heavy investments in the capital market, with the resultant diminution in the value of the investment after the meltdown and poor asset-liability management owing to portfolio mismatch.

Other contributory factors to the crisis in the sub-sector as listed by the regulatory authorities are heavy investments in fixed assets beyond the maximum limit prescribed; operating losses sustained as a result of high expenditure on staff and other overheads; weak management evidenced by poor asset quality, poor credit administration, inadequate controls, high rate of fraud and labour turnover and failure to meet matured obligations to customers.

The question most industry observers are asking is: Has the operating climate changed from what it used to be about two years ago such that the new licensees can operate with prospects for growth and profitability in the years ahead? The answer may not be in the affirmative as micro and macro indices still reflect minimal changes despite CBN’s macro prudential policy frameworks to restructure the MFB sub-segment of the financial services industry.

For instance, the apex bank had observed earlier that over the years the microfinance industry in Nigeria had been confronted with numerous challenges as a significant number of them were deficient in their understanding of the microfinance concept and the methodology for delivery of microfinance services to the target groups, adding that “many of them lost focus and began to compete with deposit money banks for customers and deposits, leaving their target market unattended, in spite of efforts of the regulatory authorities to put them back on track.

Similarly, CBN also observed that the impact of the global financial crisis on MFBs had been more severe than anticipated as their credit lines dried up and competition became more intense and credit risk increased, as many customers of MFBs were unable to pay back their credit facilities owing to the hostile economic environment. These and other factors, according to the CBN, significantly “weakened the microfinance sub-sector and its ability to achieve the policy objective of economic empowerment at the lower end of the market”.

Many analysts seem to agree that in its present state, the regulatory bank still lacks the capacity to effectively supervise the financial system in such a way that insider-abuses, poor credit administration and inadequate controls and many other problems that led to the collapse of old MFBs are effectively addressed.

An expert, who retired recently from the CBN and was involved in supervising the MFBs, told our correspondent on the condition of anonymity that “the CBN cannot achieve the objectives of its on-going reforms in the MFBs sector by just issuing guidelines. Many of these had been issued in the past with little or nothing to show for them in terms of good result. What should be done is enforcement which CBN lacks the capacity for now. There is need to increase the monitoring and inspection division in the CBN so that regional offices could be created and make the MFBs closer for assessment and compliance monitoring.   “With my experience in the past, the operators lacked the technical and managerial skills to manage the MFBs. So, training is also important. I know the CBN has done fairly well in this area but much still needed to be done in capacity building of the MFBs through training and corporate governance re-orientation. If we are able to do this, we will achieve the efficiency and the desired stability in the sub-sector”, he added.

Lifeline for Microfinance Banks

By Jerry Uwah, Leadership -

The microfinance banking system in Nigeria is in distress. The foundation for the distress was inadvertently laid by the founding fathers of the system in 2005 when more than 800 microfinance banks rose from the ruins of 700 community banks without a clearly defined framework on how to regulate and supervise them.

The banking consolidation exercise collapsed 89 deposit money banks into 25 firms adjudged by Nigerian standard to be jumbo banks. The founding fathers of the banking consolidation, and by extension, microfinance banks, envisioned that the jumbo banks cannot accommodate the financial needs of the poor, thus it became expedient to set up microfinance banks to provide credit facilities for the grassroots entrepreneurs.

However, the sheer number of firms that emerged to fill the vacuum was so daunting that it challenged the regulatory and supervisory resources of the Central Bank of Nigeria (CBN). Even the regulatory and supervisory framework slapped together for the sub-sector implicitly acknowledged the herculean task ahead in the following words: “A new challenge for developing an appropriate regulatory and supervisory framework for microfinance lies in the great diversity of institutions that offer microfinance services. A comprehensive framework significantly based on micro lending as an activity should, therefore, be developed and made applicable to all supervised institutions that offer this service, regardless of whether they are licensed as a bank or new institutional form created specifically for microfinance. The regulation should be defined to include standards for portfolio classification, loan documentation, loan loss provisioning and write-offs for microfinance operations”.

The apex bank was at the moment of the emergence of the microfinance banks embroiled in the delicate task of superintending the turbulent birth of the 25 universal banks.

It therefore had little time and resources to monitor developments in the poor man’s bank. The apex bank apparently restricted itself to the task of issuing operating licenses to the microfinance banks while regulatory and supervisory functions were left to no one in particular.

The result was utter confusion and outright swindling of investors and depositors. By the time the regulator recovered from its slumber, 74 of the microfinance banks had died a natural death. As if that was not enough crisis, 150 more firms in the industry were discovered to be terminally ill and were subjected by the regulator to the process of mercy killing. Their operational licences were withdrawn.

In all, the operational licenses of 224 microfinance banks were withdrawn in a desperate bid to sanitise the system. At the end of the cleansing exercise the sum of N18 billion in depositors’ funds were trapped in the dead institutions. Shareholders’ funds still hanging out in the dead microfinance banks is estimated at N6 billion while non-performing loans amount to N8 billion. From all indications the CBN under Sanusi Lamido Sanusi is determined to ensure an effective supervision of the grassroots credit system. The regulator has set strict standards for the operation of the system and has made it loud and clear that only firms that abide by the industry’s set of corporate governance ethics would be allowed to operate.

After a careful examination of the system, the apex bank recently issued operating licences to 142 of the firms that lost their licences two months ago. They were given a second chance after they took steps to correct the errors that consumed their first operational licenses.

The cheering news to the industry is that the apex bank is working out the long-awaited intervention fund for the poor man’s bank. The cheering news of the pending intervention fund which was broken last week by Kingsley Moghalu, the apex bank’s deputy governor in charge of financial system stability, is that the package may be as large as N200 billion.

The modalities for the disbursement of the fund are currently being worked out by the apex bank. When it is eventually ready for disbursement, the fund would be used to enhance the access of micro-entrepreneurs’ to financial services.

The apex bank’s plan is to provide wholesale funding and refinancing facilities to microfinance banks for on-lending to the poor. The fund is expected to enhance the medium-to-long-term lending capabilities of the microfinance banks.

The issue of an intervention fund in the nation’s fledgling microfinance industry came to the forefront when the apex bank withdrew the operational licenses of the 224 microfinance banks. Critics lashed out at the CBN with claims that the decision to withdraw the licenses was counter-productive.

They argued that at a time when 40 per cent of the nation’s workforce was idle, the apex bank’s decision could only worsen the situation in the country’s boisterous labour market by throwing thousands more into it.

It was further suggested that an intervention fund could have saved jobs, depositors’ and shareholders’ funds by keeping the distressed institutions alive. Advocates of the lifeline concept to distressed microfinance banks had grounded their argument on the line of action the apex bank followed when nine banks were discovered to be deep in distress after a joint auditing by the CBN and the Nigeria Deposit Insurance Corporation (NDIC).

Rather than withdraw their licenses, the CBN sacked the managing directors and chief executives along with their boards, advanced a lifeline of N650 billion to them and closely monitored their operations. The argument therefore was that a similar step could have been taken to rescue the distressed microfinance banks.

However, there are strong indications that an immediate lifeline to the distressed microfinance banks would have boiled down to washing public funds down the drain because they lacked the structures and measure of integrity that the nine distressed banks had.

The apex bank needed to restore sanity into the system and ensure that there are structures on ground that would ensure accountability and transparency in the transactions of the firms, before a lifeline is advanced to it.

Besides, the CBN as the regulator of the microfinance system has not closed its eyes to the plight of the depositors and shareholders whose funds are trapped in the 224 microfinance banks that were shut down two months ago.

One of the measures that the founding fathers of the microfinance system in 2005 put in place to cushion the effect of distress on depositors was to ensure that NDIC, the nation’s deposit risk bearer, insures depositors’ money in microfinance banks to the tune of N100, 000.

Now that the bubble has burst, NDIC is coming to the rescue of the depositors. All depositors in the failed microfinance banks with N100, 000 and below would soon be paid their money. Those with higher deposits would be paid dividends when the fixed and liquid assets of some of the failed banks are disposed.

There are strong indications that most of the stakeholders’ funds trapped in the failed microfinance banks would be recovered. An estimated N8 billion in non-performing loans are trapped in the failed banks. Most of these sums would be recovered by the failed banks undertaker and paid to stakeholders.

The CBN is poised to restore confidence to the nation’s microfinance system. All that is needed is patience on the part of the stakeholders and cooperation on the part of the operators of the system.

Microfinance banks can do better than commercial banks – Wale Adeduro

By Chima Nwokoji, Daily Sun Nigeria -

Following recent revocation of licences of some microfinance banks, there have been calls from various quarters for the Central Bank of Nigeria (CBN) to scrap microfinance banking in Nigeria. Mr Wale Adeduro is a management consultant with specialization in productivity, as well as the chairman of Cashcow Microfinance Bank.

He spoke with Daily Sun on the future of microfinance subsector, believing that if people actually bank with microfinance banks, the sector would do better than the commercial banks in terms of performance and per centage.
Excerpts:

Calls for scrapping of Microfinance banks
Those who are making these calls are doing so out of ignorance. One of the ways a community or an economy can grow is to empower the economically active poor. For example, a youngman, who has been doing business from his bedroom as a graphic artist, collected loan from a bank and, within one year, he has been able to employ five people. This has added value to other five families in Nigeria, and you say a bank that does this should be scrapped?

These people have wives and aged parents. What would they have done? Commit suicide? Unfortunately, we are in an environment where ignorance is put forward as wisdom in Nigeria. A lot of people don’t understand what they are saying or doing. Some, who don’t bank with microfinance banks sit in their offices and government houses and declare that microfinance banks have failed us? How has it failed them?

In the first instance, the structure of Microfinance banks in Nigeria is not the same as in Bangladesh, where it originated from. We actually want to practice it the way it is done in Bangladesh but our environment is totally different. If your neighbour knows you owe in Bangladesh, in fact the shame and reproach associated to it will make you want to run out of the community.

But in Nigeria, a person that owes will say let us meet in court.
Now, why don’t they clamour for the commercial banks to be banned too? Yes, there are imperfections in the system, which prompted CBN to wield the hammer. That is also why the CBN has said if the banks are able to recapitalize, it would restore their licenses. This means that it is not all of them that were corrupt or are thieves. Of course, you cannot restore the licence of a microfinance bank where the Managing Director is a thief, or where all the directors have stolen all the money.

Their offence, according to CBN, is that some of them are technically insolvent, have professional, managerial and technical challenges. Somebody who is educated shouldn’t now come to the public and say, ‘close down all microfinance banks’, no. It is like throwing the baby away with the bath water.

In any case, all the loans that were not paid back were not taken by the directors of these banks. The reason why loans go bad is that some customers make the money before the repayment date of the loan, but because they go ahead to recycle the money, and being less careful, they run into trouble most times.

I think the commercial bank issue has come to play. There are a lot of customers who take loan and run away. So, it would be counterproductive to ban microfinance banks. Rather, the system can be overhauled, which the CBN is doing now. I am also sure CBN would improve on the framework of supervision and how to run microfinance banks.

First, there must be an enabling environment that backs up a microfinance bank, such that the law can apprehend a defaulter instantly. But today if I go to the Police with a loan defaulter, Police will expect me to pay commission. Again, if a defaulter knows someone in Abuja, he may be free. But if a legal framework exists that if you owe a microfinance bank, and fail to pay back in six months you can go to jail, the situation would be different. If a law court can jail someone because the person gave a bad loan, what happens to the people who took the bad loan?

Our legal system is so funny that you can take a customer to court and in ten years you are still in court, as a bank depending on the kind of strength the man has. So if a debtor knows that he can take me from the lower court to a higher court until ten years, why must he be worried to pay? But a special court for microfinance banks will reverse the trend. Most people deliberately do all these because they felt it is government money; a national cake.

How do we ensure we don’t throw the baby away with the bath water?
You were at the customers’ interactive forum where genuine customers of the bank gave testimonies on how a little loan they took transformed their business and their lives. You wouldn’t want to deny them this opportunity. It was an open forum. If I had defrauded them, they wouldn’t come with such testimonies. The benefits are more than the demerits. Between August 2009 and now, commercial banks have not really given fresh loans out to anybody. The only people who have given loans for the past one year are the microfinance banks and may be some mortgage bankers. That means, fresh businesses were actually down because of the two categories of financial institutions I mentioned earlier. If they were not there, imagine what would have happened to our economy.

The credit bureau is a wonderful idea. If it becomes perfect, some customers who owe more than four banks at a stretch can easily be detected. Microfinance banks do not know how to double check all those information. Thankfully the National Association of Microfinance Banks has come together now from various zones to exchange information. But yet, these are not computerized or digitalized. So I have to call as many as I can to find out if a customer has loan with them. With a credit bureau system, you can get all the information by a click of the button.

Again, we should have a complain centre. This may be on the website or through CBN so that if you have actual complaint about your bank, suspicion about directors of your bank, about the management staff of your bank, you should have a place where such could be channelled and such complaints can be investigated so that within a week, it can be attended to. A sort of ombudsman for the microfinance banks can be helpful but we don’t have that now. That way, you cannot throw the baby with the bath water.

Challenges of microfinance banking
One of the challenges that microfinance banks face is that the economy is tight. People say we should not be in buildings. I am not going to run a microfinance bank from a kiosk. We have just one Car in about two years. We are not flamboyant. We don’t have any branch except this Igbosere office headquarters. We have managed ourselves. Others might not do the same but what about the challenge of power? About 60 per cent of our expenses every month go into energy.

You have to buy and maintain your generator and pay for diesel. Another challenge is that we are in a system where commercial banks are not helping. Today, not only do most commercial banks refuse to accept third party cheques from microfinance banks, they also refuse to accept cheques originating from microfinance banks. For example, if I issue my cheque to you today and you take it to a commercial bank, they will not accept it. So what are they doing to us, they want us to fail. That is not the law, but that is what commercial banks are doing to us. So if you bank with Cashcow in Lagos and travel to Akure, you cannot do banking transaction. The commercial bank in Akure will want you to open account with a commercial bank.

The CBN should come up with an enabling framework that when implemented, the environment can be friendlier to the operations of microfinance banks. When a commercial bank put fear in you by refusing to honour your cheque, they are indirectly telling you to go and close your account. So people only come to microfinance banks when they want to borrow money, but prefer to bank with commercial banks. Such people are not being fair to us. I, as a microfinance bank operator do not subscribe to illegality, recklessness or hanky-panky in business. If it is not a Godly system close it down.

But the truth of the matter is this, the community that we operate in, is a very difficult community. Some companies that request for evidence of performance from their clients do not recognize recommendations from microfinance banks. If I can’t issue performance guarantee to my customer; he will simply go to a commercial bank. Your competitors are after you; your customers are planning to mess you up. For instance, I am holding somebody’s drivers’ licence but what am holding in actual fact is a fake driver’s licence. Somebody gives you his international passport as evidence of identification; you take it without knowing that the man has four international passports. You can’t track anybody. The National Identification system could have helped microfinance banks but it has not worked the way it should work.

Why small loans are not easily given by microfinance banks
Yes, people say we are not giving money to small business units. Hello! Most of the small business units do not satisfy small conditions given to them. Like the man that complained at our forum, he just came and said just trust me with mouth. He had no assets.

Okay when he now did his business and got assets, we asked him to take the loan; he said we didn’t give him when he wanted it. We are not desperate, neither are we doing loan sales. Most people don’t take insurance serious. They don’t even insure their Cars. Tell them to go and do comprehensive insurance, they will tell you no. Most houses do not have Certificate of Occupancy or have no registered title. Those are the complications.

Do you blame CBN for revocation of licenses of MFBs?
For me I do not blame CBN for what it has done. They probably have more facts than I have. If CBN who gave you licence says he is withdrawing the licenses there must be reasons. Even before the revocation, some microfinance banks have closed down.

So if the apex bank had not intervened, of course there would have been a free for all situations. Again, there are many of them whose licences have been returned. Others were told to recapitalize which means that many more may be restored which cases are not so bad. Yet, supervision as well as banking business is an ongoing process.

The future of microfinance banking
The future of microfinance bank is beautiful because that is the hope of Nigerian economy and that of the common man. It is the hope of anybody who is not yet a millionaire, who is not a landlord, who is not yet doing business actively and who is below 50 years in this country. If people actually bank with microfinance banks, we will do better than the commercial banks.

Not in terms of number but in terms of performance and per centage. But the active poor don’t really bank with microfinance banks. They forgot that the Nigeria Deposit Insurance Corporation insured microfinance banks the way it insured commercial banks. We are as strong as any commercial bank in Nigeria in terms of security of depositors’ funds.

Microfinance banks and their social intermediate functions

By Amaka Agwuegbo, Vanguard -

The use of microfinance to enhance income generating opportunities of the ‘active poor’ has become a popular tool for governmental and NGOs institutions in raising the standards of living in developing countries.

It is proven that there are strong potential synergies between microfinance and the provision of basic social services for clients, and benefits derived from microfinance, basic education and primary health care are interconnected, with the impact of each increasing when delivered together.

Though the operational policy framework states that MFBs were primarily launched to provide financial services to the un-banked 65 per cent of Nigerians, but changing times demand that MFBs leave their comfort zone of financial intermediation to offer social intermediation services to their customers, which is instrumental to the exploitation and development of economic opportunities in the informal sector of the Nigerian economy.

Vanguard’s investigations revealed that since MFB are mono-product banks, they tend to focus only on their financial intermediation functions, thus neglecting their social intermediation functions.

According to the Managing Director of Meridian MFB, Mr. Innocent Ezema, MFBs have to look beyond providing financial services to seek other avenues to make money.

“We have decided to focus not only on financial intermediation responsibilities but also on social intermediation like insurance, healthcare and educational programmes. The decision to focus on social intermediation is because there are other social aspects that have not been taken into consideration. We want to give the ‘active poor’ access not only to credit services but healthcare, insurance packages and quality education because they need these services to earn more money.”

Research has shown that the marginal cost of providing education or basic health information can be substantially reduced when the infrastructure for microfinance is already in place.

This Ezema agrees with, saying “We assist account holding parents with their children’s education by granting them facilities to offset the fees. A parent needs to have a certain percentage of the fees in his account to qualify him for a loan to make up the fees. Then from subsequent deposits, we deduct an agreed amount. A lot of parents appreciate this package because it enables them to save and at the same time, sponsor their children to school.”

Pointing out that micro-insurance solves the problem of instability most ‘active poor’ face, the Managing Director, Accion MFB, Mrs. Bunmi Lawson, said a lot of their customers appreciate these social servies.

“Accion MFB provides life insurance for her customers. One of the key issues the ‘active poor’ face is instability and once MFBs can provide them with micro-insurance, that is taken care of. Basic health is likely the most crucial intermediation but should be combined with microfinance so as to strengthen the impact on the #1 Millennium Goal of reducing those living on less than $1/day.

“Though we can’t provide them with premium healthcare due to their low income, we try to offer good quality healthcare package and they have come to appreciate these packages.”

For Jide Tade, Managing Director, Halmond MFB, offering such social services would reduce the effects loan defaults.
“It is imperative for the MFBs to offer such services at the micro-level. Micro-insurance is a good thing MFBs should be involved in because it would help cushion the effects of loan defaults. We are in partnership with an insurance company to provide such services.

“If we are doing micro-insurance and a customer wants to take a loan, insurance companies would be involved despite the cash collaterals. But the customers need to be educated on micro-insurance because they may have difficulty understanding that they’ll be charged 0.1% for insurance on loans taken.

Jethro Akun, 1st Vice President, National Association of Microfinance Banks, NAMB, is of the opinion that MFBs should provide social intermediation services, just like their commercial banks counterpart.

“Providing social intermediation, particularly micro-insurance, is important due to the little or no collateral we ask for on loans. For instance, if an MFB wants to give out motor cycles to customers, they can insure such first before giving them out.”

For the Chairman, NABM, Lagos Chapter, Chief Olutayo Adenekan, it is okay for MFBs to engage in social intermediations but it is left for the bank to decide whether to or not to engage in such social services.

Nigeria: The Sins of Microfinance Banks

By Jerry Uwah, Leadership -

These are not the best of times for the nation’s embattled financial system. The capital market is yet to emerge from the abyss that unrestrained insider dealings and calamitous share price manipulations plunged it into.

Commercial banks are still waddling in the financial tsunami triggered by the infamous margin facility in the capital market and the fallout of fraudulent and inept risk management. Microfinance banks (banks of the poor) are struggling with a catastrophic misalignment of priorities.

Under normal circumstances, no one really expected the crisis currently rocking the nation’s microfinance system. In Bangladesh, the country that inspired the micro-credit system in many parts of the world, the operators of the system believe that the poor are the best debtors in the world. They almost always pay their debts. Debt recovery in the poor man’s bank is therefore devoid of the horrendous task of endless litigation that the rich have imposed on risk managers in conventional banks in Nigeria.

Debtors to microfinance banks have little or no place to hide when the creditor comes calling for his money. Their places of abode are not fortified. So they always endeavour to repay their loans. Besides, they have very few options when it comes to credit facilities. For that reason they take pains to please their creditor, lest their only lifeline is jettisoned.

On the other hand, the rich, who form the prime clientele of conventional banks, live in fortresses which the creditor may find it difficult to penetrate when the credit facility becomes toxic. They have lots of avenues they could run to, when they feel like not paying back their loans.

In a country like Nigeria, which has continued to treat the development of credit bureau as something alien to the system, the dubious ones among the rich have developed the fraudulent habit of dumping their accounts in banks where they are heavily indebted and switching to new ones where they enjoy fresh credit facilities.

The poor do not have that luck; so loan recovery in microfinance banks should not escalate to the point that the commercial banks were when Sanusi Lamido Sanusi took over as governor of the Central Bank of Nigeria (CBN). Ironically, that is the picture that the operators of the system are painting as an excuse for the virtual collapse of hundreds of microfinance banks in recent times.

There are speculations that out of 890 microfinance banks in the system, about 250 are in varying degrees of distress. Some have completely shut their doors against depositors while others are dribbling them with lame excuses for not being able to honour their commitments.

While the operators of the system are hiding under the lame excuse of poor loan recovery for their failure, a close watch of the system reveals two major reasons for the financial asphyxiation gripping the nation’s grassroots credit system. The first is inept management.

Most of the microfinance banks were set up by people who rose to middle and top management positions in the conventional banking system. These are people who had their contacts with the rich when they were in the commercial banks. They opened their microfinance outfits with the hope that, at least, a segment of the business of their big-time clients in the conventional banking system would feed the microfinance outfit.

That philosophy informs the location of their headquarters, the quality of the edifice and the furniture in them. In Lagos, the posh Adeniyi Jones community hosted a rather disproportionate percentage of the microfinance banks in Ikeja local government.

Even if the target of the operators of the banks were the Mallams manning the gates of the rich in that community, the imposing structures that housed their headquarters in the community would almost certainly repulse most of their clients. Of course, no one expects the handful of security guards in that community to sustain the business set up in such imposing structures.

From the location of their headquarters and the opulent nature of the edifices housing them, it was clear that the microfinance banks were set for a clash of interest with commercial banks.

It was just a matter of time when it became clear that the commercial banks had keen competitors in the microfinance banks. Besides the conventional bank mentality of the operators of the microfinance banks, their recruitment policy was a reflection of the bourgeois concept of their business.

The distress in the mainstream banking system which triggered huge rationalisation of banking personnel provided the microfinance system with a cheap reservoir of experienced conventional bank managers who had basically no idea of the operation of a micro-credit system.

They were all recruited into the microfinance banks, where they premised their marketing strategies on conventional banking concepts. Their first target was the rich client they cultivated in their previous calling.

To convince the rich to deposit in a poor man’s bank, the microfinance marketers dangled deposit rates as high as 20 per cent on funds as low as N5 million. That was at a time when conventional banks would hardly pay 13 per cent for deposits as high as N5 billion. Those who swallowed the poorly packaged bait of the microfinance banks are now counting their losses.

The poor, who are the bedrock of the microfinance system, became the first casualty of that misplaced priority. Rather than fashioning out strategies on how to mop up idle funds at the grass roots, they were busy drawing up strategies for a rather unwinnable contest for a chunk of the middle segment of the market with conventional banks. They all abandoned their primary constituency – the grass roots.

That misconception also informed their recruitment policy. Instead of brilliant school certificate holders who could be motivated with lower remuneration commensurate with the scope of the clientele, their marketing corps were studded with female university graduates decked out in skimpy suits. To make them attractive to the wrong targets set for them, the microfinance banks endeavoured to equip some of them with posh cars. The system was therefore set for the precipice.

To worsen a bad situation, some of them embarked upon ambitious expansion programmes with depositors’ funds. When it was time to pay back, the vaults were empty.

The senseless misadventure of the microfinance banks could have been halted if the regulator was on ground to check their excesses. Ironically, most of the calamities occurred when the CBN had its hands full with the fallout of the cruel manipulation of the capital market by operators of conventional banks. No one was really watching the antics of the operators of the poor man’s banks.

At that time anyone could just walk in and obtain a microfinance banking licence and do whatever he wanted with it. Some did not even care to obtain licences because they knew they could swindle people for months before anyone cared to know that they were con men.

The absence or inaction of the regulator is the second reason for the failure of the microfinance banks. The CBN is not equipped to monitor and regulate the activities of well over 890 microfinance banks strewn across the landscape. Operators of the so-called wonder banks know this perfectly well. That explains the determination to abandon their primary target for the middle segment of the market.

Ironically, the federal government is still ruminating on who and how to regulate the poor man’s bank. Someone even floated the idea of outsourcing the regulatory function of microfinance banks. That probably demonstrates the level of levity with which credit to the grass roots of the economy and the crucial task of mopping up huge idle funds wasting away under pillows are being treated.

In an economy where 70 per cent of the population is wallowing in poverty, microcredit deserves the prior attention of the rulers of the land. The fight against poverty would commence in earnest the day we give the poor man’s bank the attention it deserves.

Nigeria: ‘States not supporting micro finance banks’

By Tina A. Hassan, Daily Trust -

What is the impact of small banking on small businesses?

Services that were difficult to access are now available to small businesses through the micro finance banks because the practice of micro financing is all about inclusive finance. The people at the bottom of the pyramid are able to access bank services that would otherwise be very difficult to get from the commercial banks that were not giving them facilities but are concerned with the big ticket transactions and the rich.

People are excited about micro finance banks unlike some lies being carried by some medium that micro banks are not reliable. An ordinary petty trader from Utako market can walk into a micro bank, see the manager and discuss on the kind of loan he needs, get it approved within hours or days and carries out his business.

Before the advent of small banks, nobody would listen to you and where they listened, they would tell you to go to different sets of managers or tell you to travel to Lagos – It was frustrating – but today micro finance banking has changed all these.

Are micro banks participating in disbursing the N200 billion agric loans floated by the federal government through CBN?

When the Central Bank of Nigeria (CBN) announced the Commercial Agriculture Credit Scheme, Microfinance Banks (MFBs) were not announced as participating banks; so, I think that is of no concern to us now. We are focused on supporting peasant farmers, small scale farmers and agriculturalists. There are several other agric packages that microfinance banks also give and the guidelines for commercial agric scheme does not accommodate small farmer.
If you look at the micro finance policy, it says that state and local governments should set aside one per cent of their budget to support microfinance banks but many of them are not doing that. so in my capacity as the Managing Director of Hasal microfinance bank, I do not have so much confidence in state governments for the success of micro financing. What I believe in is developing a partnership with state governments in the form a public private participation to develop the business of micro finance banking in the country.

I would like to see the private sector taking the lead in economic development while the government carries out its duty of providing the enabling environment for economic activities to thrive.

Another principle of micro finance banking is that government should not operate micro finance banking but they are to provide support to it. If anything is tied to government, it fails. Look at the National Agency for Poverty Eradication Program (NAPEP); this is a beautiful scheme like many others in the past that ought to have been successful but they are not. Now NAPEP has come to announce that it is changing its modus operandi for some of its village scheme, they now said they want it to be private sector led and this is the best.

Let us reduce governments’ participation in some of these activities. If we say that government should bring out money and put it where they can disburse it to micro finance banks, then the people would profit because we would be disbursing it based on qualifying criteria; but if it is to be handled by the government, then you would discover that other criteria and qualifications would come into play because the people would see it as part of the national cake and people would take these loans without repaying it back and that is the wrong way to administer micro finance.
How would you describe the practice of micro banking in the FCT?

So far we have done well. If you look at the FCT before micro banking started and the FCT after micro banking came into practice, you would notice that micro finance banks have created employment thereby reducing the number of the unemployed.

We have about fifty certified micro banks in the FCT alone and the average number of people a bank would employ is at least a hundred individuals.

We have empowered a lot of small businesses and they have grown. In our nineteen months of operation in Hasal, we have given micro-credit to almost 2, 000 people that previously had no access to small credit.

Because the practice of small banking is new to Nigeria; our research department is just being set up otherwise I would have given you accurate statistic of how much micro credit loans we have given as a group, I would tell you how many people have benefited, the sectoral allocation, how many are farmers and traders and the overall outlook of the impact of micro banks in the FCT.

I learnt you recently underwent a certification program with the CBN. What is it about?

When you apply for micro finance bank licence, one of the conditions for the issuance of the licence is that you write an undertaken to participate in a certification program for MFBs’ directors. The training requirement has always been there in the plan to allow micro finance banks, especially at the directors’ level to go through a certification program. What took place is a fulfilment of that initial plan that has been a part of the policy of the Central Bank of  Nigeria within the first three years of the operation or commencement of an operation program for the MFBs.

Every Managing Director of a micro finance bank was assigned to a training centre and is taught under one umbrella how to use the same syllable of the CBN in carrying out operations of MFBs with well accredited people who have gone through a train-the-trainer’s course. It is meant to bring everybody to the same platform because micro finance is new to the Nigerian economy.

Professionals task CBN on microfinance banks

  Punch on the Web -

The Central Bank of Nigeria has been urged to strengthen the operations of microfinance banks through the establishment of Microfinance Banks Development Fund.

The Chief Executive Officer, ACCION Microfinance Bank Limited, Mrs. Bunmi Lawson, said this would provide a pool of fund for the banks.

She spoke during a collaborative summit of the Institute of Chartered Accountants of Nigeria, Ikeja District Society, and the bank in Lagos on Friday.

Lawson said, ”As CBN does for commercial banks being the lender of the last resort, it actually needs to set up something like that in place for MFBs. CBN can guarantee commercial banks. In that way, there will be short-term liquidity for MFBs to borrow money from. Also, CBN should provide the guarantee because they know the returns and managerial competencies of the microfinance banks.”

She added that one key requirement for growth in the industry was to ensure capacity.

According to her, managers of MFBs should understand who to transact microfinance businesses with.

”Most people came into microfinancing as if they were running mini banks but that is not the case. They are supposed to give a large number of people small loans. People come in and say ‘let us save first‘, they are paying interest on savings. They are also incurring expenses and yet there is no income coming in. That also led to the collapse of many microfinance banks,” Lawson said.

The Chairman, ICAN, Ikeja District Society, Mr. Okeowo Oderinde, urged the CBN to ensure that microfinance banks were managed by seasoned professionals.

He also said CBN should ensure efficient regulation on corporate governance for MFBs, adding that there should be monitoring and compliance. According to him, to make this efficient, experts should be employed to monitor microfinance banks.

Oderinde said, ”For the economy to move forward, we have to pay more attention to microfinance banks. That is the area that will take care of the generality of the populace. It is also an aspect that will aid poverty alleviation because people who need small loans do not need to go to conventional banks.”