By Amaka Abayomi, Vanguard -
The Central Bank of Nigeria, CBN, has said mission drift by some microfinance bank operators (MFBs), weak capacity, poor understanding of the microfinance concept and the methodology for delivering MF services are some of the reasons why the 103 liquidated MFBs failed.
Speaking on the Development of the Microfinance Sub-sector, the Director, Other Financial Institutions Department, OFID, Mr. Femi Fabamwo, said the CBN has adopted a four-pillar reform policy to enable it sanitise the sector.
“The MFBs are faced with numerous challenges such as operating like ‘micro-commercial banks’ with flamboyance, fleet of branded cars and high expenditure profile, hard impact of the global financial turbulence of 2008/2009, weak capitalisation, poor corporate governance and susceptibility to insider abuse, incompetence and ineffective oversight of the board, poor risk management and weak internal controls, and dearth of on-lending/external funding,’ and these are responsible for the revocation of operating licences and the subsequent liquidation of the 103 MFBs.
“To this end, the CBN has adopted a 4-pillar reform policy of sanitisation of the sector, capacity- building, restructuring and restoring public confidence to enable it reposition the sector.
“In sanitising the sector, CBN/NDIC Joint Target Examination was carried out on 820 MFBs in operation to determine capital adequacy, liquidity, level of non-performing loans and general financial health of MFBs with the aim of forestalling contagion, removing bad apples and avoiding total contamination of the industry.
“Two Hundred and Twenty-Four (224) ‘Terminally Distressed’ and ‘Technically Insolvent’ MFBs had their licences revoked. 121 MFBs that subsequently injected fresh capital were granted provisional approvals for new licences, subject to meeting specified conditions within three months, while the remaining103 MFBs are under liquidation.”
Fabamwo said in order to build capacity, the CBN established the Microfinance Certification Programme (MCP) and accredited 25 Microfinance Training Service Providers (MTSPs) in 2009. Also, 1,960 MFB operators were trained and sat for the CIBN Certification Examination (Level I) in 2010, with the Level II Training and Examinations taking place later in the year.
“In our bid to restructure the sector, the revision of the regulatory and supervisory framework and guidelines is on-going. We also set a new structure of tiered minimum capital requirement with internal restructuring of supervisory arrangement while we will adopt the Operational Template to benchmark MFBs.”
To restore public confidence, the OFID Director said the sanitisation exercise was carried out to ensure market discipline. Also, the actualisation of safety net through deposit insurance/protection scheme for MFBs’ depositors’ funds resulted to 99 per cent of depositors being paid.
From Vanguard -
THE Central Bank of Nigeria is never responsible for its failed policies. It is always depositors that suffer. Whether it is the failed banks in 1994 or the collapse of community banks, the CBN walks away from it all, pretending everyone was at fault, except it.
Microfinance banks, promoted as the solution to the weakness of community banks, a CBN development initiative about 15 years ago, which failed woefully, are next in line of financial institutions CBN is crushing in its moves to prove that it is alive to its regulatory responsibilities.
In one swoop CBN has shut down 224 of the 820 microfinance banks it licensed. What was CBN doing while 224 banks wasted depositors’ funds? How has CBN addressed the weaknesses that led to the conversion of community banks to microfinance banks?
Like the community banks before them, CBN did not regulate microfinance banks beyond the licences it granted them. Years before it decided to act, microfinance banks were evidently living above their means.
From their bogus offices, the flashy cars to the staff they employed, microfinance banks started off with overheads that were not sustainable. They easily reminded one of the days of finance houses that tried to impress depositors with their flash and dash. Their fall was predictable.
Unlike microfinance banks elsewhere that serve as poor people’s bank, and tailor their services to save costs, the ones CBN superintended expended deposits on unnecessary expenses, blaming clients for not repaying loans.
There are fears that the number of microfinance banks that deserve their licences could still be less. Yet the question must be asked how CBN regulated this level of banking that was meant to create credit for the poor, and ran it into the same mess commercial banks managed to generate.
Even the microfinance banks CBN rates safe are on the verge of collapse following the panic withdrawals depositors have been making since the announcement. No depositor wants to be caught in the problems depositors faced after the collapse of commercial banks.
“As early as 8 a.m. today (Monday), we have been inundated with several of our customers who turned up to demand withdrawals from their accounts, apparently in panic response to the decision of the CBN to announce the closure of some of the microfinance banks”, a clerk at a microfinance bank in Abuja told a newspaper.
“We have not been able to do anything else than attend to customers who have come to withdraw money, despite notices that we are not affected,” she added.
Depositors suffer when banks fail. All the talks about Nigeria Deposit Insurance Corporation, NDIC, paying depositors proved false in former cases. There are no reasons to think things would be different this time.
NDIC has enough grounds not to pay, mostly the poor accounting systems of the banks that would leave out names of some of the depositors from their books. The onus is on depositors to prove they had business with the failed banks, as if the poor records the banks keep is the fault of their clients.
Worse cases are those who would be beneficiaries of the minimum amount NDIC repays, no matter the value of their deposits at the time of the collapse.
Effectively, microfinance banking is dead or would be very soon. Depositors are wary of approaching them, except to withdraw whatever they have left. The refusal of CBN to release names of the 596 banks it considers safe has left depositors to draw their own conclusions on the state of the remaining banks.
The impact of CBN’s decision on businesses microfinance banks support would be telling. What would these businesses do? NDIC recovering loans extended to clients scattered in as many locations, and more, as the banks, could be tougher than regulating microfinance banks.
CBN’s Deputy Governor, Financial Systems Stability, Kingsley Moghalu, announced the immediate revocation of the operational licences and closure of 224 banks declared either “terminally distressed” or “technically insolvent”, as if he was reading out a national honours list.
According to Mr. Moghalu, the affected banks failed a recent target examination CBN administered with NDIC on the 820 registered microfinance banks, to determine their ability to meet matured obligations to depositors. What other examinations did CBN carry out on the microfinance banks before this death sentence on 224 of them?
Did CBN provide the funds it promised to create when it started licensing microfinance banks? Something is terribly wrong with the way CBN makes its decisions. Its staff fail to do their jobs properly and the public suffers the consequences while these staff earn their promotions and retire to eternal comfort. It is unfair on depositors who CBN is supposed to serve.
Its decisions not to outsource regulation of the microfinance banks, after this most recent failure, is another cause for concern. It is beyond CBN’s capacity to effectively monitor operations of microfinance banks, in addition to its challenges with commercial banks.
Why it would hold unto the microfinance banks and regulate them to death, is what it is unwilling to explain to Nigerians – in fact it does not think it needs to explain to anyone.
By Graham Orodje, Editor of Microfinance Africa -
Since the cancelling of 224 Microfinance Banks there have been numerous articles on the issue. Many of the articles blame the CBN for the state of Microfinance in Nigeria, but is this justified?
When Licences were granted to MFBs, there are levels of expectation and responsibility that is expected of employees and Executives of MFBs. CBN should be able to rely on license holders to act responsibly and in accordance with the terms of their licence without the need to micromanage them. MFBs are expected to adhere to regulations and they have a responsibility to provide the services that customers expect. Sadly, many MFBs have betrayed this trust and failed in their responsibilities. Executives and owners of these MFBs have used this as opportunities to embezzle depositors funds. They have also mismanaged depositors funds, awarding huge salaries and benefits, providing non servicing loans and loans above CBN’s guidelines. With this level of mismanagement and failure to adhere to CBN’s regulations, CBN was right to act. The only questions should be why it took so long to act and has it done enough to reverse the poor performance of Microfinance Banks?
One of the criticisms that can be levelled at CBN is the time it has taken to come to the conclusion that some MFBs should be closed and their licenses revoked. However, with over 800 MFBs, CBN and NDIC had a very difficult task of auditing all of them to ensure that they were viable businesses. Further, the audits had to be thorough because revoking a banking license is not a decision any Central bank takes lightly due to the impact it can have on the Bank’s customers and the local economy, so there was a need for the investigations to be detailed before any decision could be made.
A further criticism is the way the announcement was made. This caused enormous panic among depositors’. At the time the announcement was made, a list of the MFBs whose license had been cancelled should have been announced. This could have averted the mass stampede by depositors to MFBs to try and withdraw their funds. There was also a lot of speculation on the subject. There was eventually an announcement that depositors will receive their funds.
Given the constant report of embezzlement, mismanagement and fraud that had been reported and was widespread, the CBN had no option but to act. There is no doubt this was the right decision. Not to act would have made the problem worse. It would have led to deeper distrust of MFBs and possibly lead to the extinction of Microfinance in Nigeria and the opportunity it can provide to Micro businesses.
By Oluwaseyi Bangudu, 234Next -
The Central Bank has assured customers who have deposits in closed microfinance banks that they will be compensated.
Mohammed Abdullahi, Head, Corporate Communications of the Bank, said “Let me assure Nigerians that no depositor would lose their money in the 224 microfinance banks that were closed down by the Central Bank.
“This is so because of the guarantee of the payment of not more than a N100,000 to each of the depositors as provided by the insurance scheme offered by the Nigeria Deposit Insurance Corporation, NDIC,” he said.
“What this means is that every customer of the microfinance banks involved in the current exercise would be paid a maximum of N100, 000.
“For those who have more than N100, 000 deposited in their accounts with these banks, you would recall that these 224 banks have a portfolio of nonperforming loan exposure amounting to about N20 billion and as the Central Bank has said, we are going to assist them to aggressively recover these loans.”
He also stated that even at that, some of the microfinance banks have properties and collateral which could be sold in order to meet up with the payment of the customers affected.
“What this means is that at the end of the day, no depositor would lose his/her money as a result of the actions taken by the Central Bank of Nigeria”.
Experts have commended the move of the Central Bank to restore sanity to the microfinance industry when, last month, it announced that it was revoking the operating licences of 224 microfinance banks that were found to be ‘terminally distressed’ and ‘technically insolvent’ and/or had closed shop for at least six months after a target examination was conducted on 820 MFBs across the country.
The Central Bank confirmed that the industry 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.
Experts have, however, identified the problems of microfinance banks in Nigeria to include under capitalisation, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision, meagre capital base, loss of customers’ confidence, and high overhead cost. They have also expressed fears that the sector might collapse if the operators and regulators did not change their strategy.
With more than half of the adult population unable to access retail banking services, the introduction of microfinance banking by the Central Bank of Nigeria (CBN) was welcomed by Nigeria’s development partners and the general populace. The Central Bank spokesperson says the regulatory body would not hesitate to take further action on the remaining microfinance banks, as supervision is continuous.
By John Omachonu, BusinessDay Online -
•Complaints against exercise swell
Only fresh licenses can guarantee the return to business of any of the Microfinance Banks (MFBs) whose licenses were revoked recently by the Central Bank of Nigeria (CBN), Business- Day investigations have revealed. This is however contingent on satisfying the requirements, including improved liquidity set by the apex bank during the verification exercise currently going on.
The implication is that, for any of the 224 MFBs currently out of business to come back to operations, they must, among others, be able to meet the proposed new capital base of N100 million and N2 billion respectively for unit and state micro finance institutions. This represents 500 percent and 100 percent higher than the current N20 million and N1 billion respectively paid up capital of existing MFBs operating in the country. The deadline for meeting the new minimum paid-up capital which is one of the highlights of the reform package for the MFB sub-sector is set for December 31, 2011.
But, the apex bank has continued to justify its action, saying that the current agitations by some of the affected operators are afterthoughts as they failed to meet the recapitalization requirement when audit exercise was carried out on them, which ultimately led to the revocation of their licenses. According to Mohammed Abdullahi, CBN spokesperson, the current claims by the operators will have to be verified before fresh licenses can be issued to any operator that scales through.
However, BusinessDay investigations have further revealed that high level consultations and maneuvering are currently going on at the nation’s capital, as some operators who are crying foul are still insisting that CBN’s action was misguided, hence the justification for re-opening their institutions. Rashidi Oreshade, managing director, GTI Microfinance Bank, said his bank has drawn the attention of the apex bank to what he regarded as an error, insisting that the bank has met all requirements of the apex bank to remain in operations.
“It is in view of this that we strongly believe that our name was included among distressed microfinance banks in error,” Oreshade said Eniola Agbesoyin, deputy managing director, Olive Micro-finance Bank, in a statement last week, assured its customers of safety of their deposits claiming a mix-up in the list of published banks. “As a good corporate citizen, we trust in the ability and objectivity of the CBN in bringing sanity into the financial sector. We therefore implore all our stakeholders and customers to remain calm as their investments and deposits are safe with us and will be paid on demand”, Agbesoyin said.
On Tuesday, the Lagos state chapter of the National Association of Microfinance Banks, comprising Lagos, Ogun, Ondo, Osun, Oyo, Edo, Ekiti and Kwara states, which is currently in court over the revocation, described the action as intended to “destroy the microfinance sector”. According to B.O. Ididia, the association’s executive secretary, the “position by the Central Bank that all 224 banks were insolvent was not only inaccurate but thorough investigations had not been carried out by the regulatory authorities to determine which banks were insolvent and which were not. Whilst some of the microfinance banks had complied with CBN’s advice of injecting more capital and recovering some of the loans granted, others needed more time to implement.”
However, Abdullahi insisted, saying: “None of the affected banks was recapitalized as at the time of the exercise. If any operator is crying foul now, it is not true because the exercise was thorough and transparent. It is true that complaints are being received now, obviously coming after the conclusion of the exercise. We, CBN and NDIC, will verify their claims and if there is any merit, the operators can only be issued fresh licences. The onus is on the operators to come forward with relevant supporting documents to show why their claims should be considered.”
It was gathered that under the new dispensation, the current N20 million minimum paid-up capital would be retained for Unit MFBs in the rural areas, while the new N100 million minimum capital base would, however, apply to all unit MFBs in urban centres, including all state capitals. The implication is that unit MFBs located in Lagos State, Abuja, Kano, Port Harcourt and other major cities would have N100 million minimum paid-up capital.
The Central Bank of Nigeria (CBN) has vowed not to review the recent revocation of 224 microfinance banks’ (MFBs) licences, saying the revocation was based on a transparent exercise. CBN’s clarification came on the heels of claims by some operators and management of the affected banks that the list was irregular as some of the institutions, which names appeared on the list had actually recapitalized since the conclusion of the exercise about five months ago.
However, the apex bank said the auditing of the operations of the 820 grassroots financial institutions, which was carried out in conjunction with the Nigeria Deposit Insurance Corporation (NDIC), commenced in February, and the conclusion last month discovered that 224 of them had operational inefficiencies, and consequently recommended the revocation of their licences. In fact, CBN had described the banks as terminally distressed and technically insolvent and therefore decided to wield the axe in line with the Banks and Other Financial Institutions Act (BOFIA,) 1991, section 12, as amended. However, some customers of the MFBs have continued to count their losses following the revocation exercise, blaming CBN for lack of sensitization on the health of the banks. John Ageh, a customer with IC Global Microfinance Bank Limited in Ozoro, Isoko North local government area of Delta state, who paid N1.4 million gratuity into the bank two weeks before the revocation, said if he had enough information, he would have acted otherwise.
“I did not know that the bank had financial problem. I decided to put my gratuity into the bank, with the hope that the building project for which I intended to use the money could only commence as soon as the rains stopped. But on getting there last Monday, the only notice on their door was: “We have shut down operations to resolve some issues with CBN and will resume operations shortly.” The implication of the clarification is that Apeh, like all others whose funds are trapped, can only do with N100, 000, in the first instance.
BusinessDay investigations revealed that a long drawn legal battle may be in the offing as some of the operators have resorted to legal action to restrain the CBN, a development that may affect early payment of the maximum N100,000 compensation by NDIC to insured depositors.
Specifically, the Lagos State chapter of the National Association of Microfinance Banks, comprising Lagos, Ogun, Ondo, Osun, Oyo, Edo, Ekiti and Kwara States, has dragged CBN to a federal high court in Lagos, seeking to restrain the apex bank from withdrawing their licences, claiming that they were not given enough time to either seek the option of a merger or beef up their capital before the revocation.
The management of Olive Micro-finance Bank, at the weekend, assured its customers of safety of their deposits claiming a mix-up in the list of published banks, adding that steps are being taken to redress the anomaly. Deputy Managing Director of the bank, Eniola Agbesoyin, said in a statement that “as a good corporate citizen, we trust in the ability and objectivity of the Central Bank of Nigeria in bringing sanity to the financial sector”.
Mohammed Abdullahi, CBN spokesman, however debunked the claims of the bank operators insisting that none of the affected banks has contrary financial positions before the sanctions, adding that the exercise which started in March ended last month, and the subsequent release of names of the affected banks. His words: “We are not thinking of any revision. As far as we are concerned, the exercise by CBN and NDIC was thorough and the result is authentic”.
If anybody has any complaints, they should come to CBN with the new financial positions. There is nothing like beefing up of positions as the exercise started in February and lasted till last month. It was after then that the list was released, so it is not true that CBN is considering anything concerning the figure of the affected banks. That is the finding of the auditors of CBN, and we are not reconsidering anything as far as the list is concerned.”
By Omodele Adigun, Daily Sun -
A hush once again fell on the nation’s banking terrain penultimate Friday as 224 Microfinance Banks (MfBs) were scrapped in one fell swoop by the Central Bank of Nigeria (CBN). According to the apex bank’s Governor, Sanusi Lamido Sanusi, these institutions behaved like the siamese–twin of our regular banks and, indeed, sheepishly aped their misdeeds.
Their offences range from dying before their time to poor corporate governance structure. Reading their charges to newsmen, Sanusi’s deputy in charge of Financial Systems Stability, Dr Kingsley Moghalu, pronounced them guilty of being terminally distressed and technically insolvent as N18.2 billion of depositors’ funds, a loan portfolio of N19.6 billion and N6.1 billion of shareholders funds are said to be trapped in their vaults, while some of them had even died about six months before they were actually pronounced dead.
On the charge sheet, Moghalu read 10 offences. They are high level of non-performing loans resulting in high portfolio at risk 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 as well as heavy investment in the capital market with the resultant diminution in the value of the investment after the meltdown.
Their sins also include poor asset-liability management owing to portfolio mismatch; 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 as well as failure to meet matured obligations to customers.
In other words, the dead MfBs had failed woefully to keep to the narrow path charted for them to justify their existence ; to achieve their lifetime objectives of providing financial accessibility services to large segment of potentially productive population; enhancing service delivery to Micro, Small and medium Entrepreneurs (MSMEs); facilitating synergy and the mainstreaming of the informal sub-sector into the national financial system.
Little wonder then that Sanusi, while sounding their death knell, said :”It’s not enough to set up a bank in a village; you need to have an integrated rural development policy; there has to be a business that you lend to.” Again, it must be stressed here that rural transformation and promotion of linkage programme between universal/development banks are part of the objectives from which the MfBs derailed.
Assuring the public that the “regulatory authorities would not allow the activities of few individuals to derail the noble objectives of the microfinance policy” of the apex bank, Moghalu promised that “all necessary steps have been taken to protect depositors of the affected banks”.
How did the CBN stumble on their failings?
Moghalu explained that it was in response to “market reports about the failure of some MFBs to meet their matured obligations as well as several petitions received from aggrieved depositors”.To this extent, he added that after a target examination of the banks by a combined team of the CBN and the Nigerian Deposit Insurance Corporation (NDIC), the apex bank had to invoke its powers as stipulated in the “Banks and other Financial Institutions Act, 1991 as amended”.
Then, what is the fate of depositors?
Moghalu has soothing words for them. According to him, as insured institutions, the NDIC in line with its statutory responsibility, “shall pay up to the maximum insurance coverage of N100,000 per depositor” and explained that this would not be a one off payment as more would be paid as the NDIC recovers loans and other debts due to the banks.
But that assurance fell on deaf ears as the depositors besieged the premises of the MFBs in their thousands in last ditch effort to pull their funds out of the dead banks. But that effort was up against a brickwall as the premises of most of the banks were firmly locked. Those that opened could only honour demand of between N2000 to N5000. Our findings were quite revealing.
At the premises of LandGold Microfinance Bank at Okearo in Ifo Local Government of Ogun State, customers trooped in and out of the bank with many wearing long faces. A debt collector who worked for the organization told Daily Sun that the bank was still entertaining customers withdrawing small sums of money while awaiting the arrival of NDIC officials. He predicted that its closure would affect hundreds of small business owners in the area who have their deposits trapped in the bank.
Also at Karis Microfinance Bank at Agbado area of Ogun State, scores of depositors were sad. One of them,Alhaji Muftau Olutayo, expressed shock that microfinance customers should be subjected to another trauma at a time the economic crisis was biting hard.
When Daily Sun visited the head office of Integrated Microfinance Bank(IMFB), hitherto a leading microfinance bank located at 64 Adeniyi Jones Street, Ikeja, Lagos, its office was locked except for one of its customers , Mrs. Victoria Okeke and one NDIC staff assigned to take inventory of assets of the company.
A distraught Mrs Okeke claimed to have been a customer of the bank since 2007 said her total deposit as at the time of closure was in excess of N180, 000.
She lent credence to Moghalu’s assertion , saying the bank had ceased operating since last year , months before the September 24 revocation of its licence. On his part, the NDIC official, who waited for hours for officials of the bank to show up, explained that, Commission would not pay customers until it has ascertained the level of both performing and non-performing loans of the bank as well as customers’ deposits in its custody, advising they would need to be patient with the liqiudators.
However, the situation was worrisome at the head office of Gideon Trust Microfinance Bank on Olowu Street, Ikeja, Lagos as customers who besieged the headquarters of the bank said they had come to withdraw their deposits despite not being listed among the closed firms.. A customer who simply identified himself as Mr. Kayode, said he arrived the bank’s premises at about 9am just to close his account even after admitting that he was aware that the bank’s licence was not revoked, but he is not interested in taking chances.
An official of the bank who declined to give his name because he was not authorized to speak for the bank, however, confirmed that there was serious panic withdrawals amongst its customers, saying the bank at the moment can only afford to pay them 20 per cent of their savings because the bank had over N100 million un-serviced loans, with only about N40 million customer deposit.
The situation at the head office of Kings Microfinance Bank was similar to that of IMFB with their signpost conspicuously missing, while no customer was sighted at its premises but findings revealed that the bank stopped operating over five months ago.
At Vining Microfinance Bank, Cement Bus Stop, Lagos-Abeokuta Expressway, one of the institutions that survived the CBN hammer, it was business as usual as customers were seen transacting business. But the same could not be said of Moorgate Microfinance Bank at 41, Obafemi Awolowo Way, Ikeja , as its office was secured locked when Daily Sun visited to ascertain the situation of things.
Moorgate was one of the MFBs affected by the licence revocation order. Investigations revealed that the staff and management have since fled on hearing the revocation news. At the head office of AB Microfinance Bank Nigeria along Oba Akran Avenue, Ikeja, Lagos, one of the few organizations still in operation, business was still going on as officials were seen attending to customers.
When asked whether the news of the licence revocation of other MFBs caused panic withdrawal by its customers, an official who preferred not to have her name in print said no. “As you can see for yourself, there is nothing like panic withdrawal here.We run our business as expected of us, we had nothing to fear, our customers have nothing to fear”.
How did the MfBs come to dead end?
In December 2005, the policy and regulatory framework for Micro Finance Bank was launched by CBN as a strategic financial intervention whose main aim is the eradication of poverty to lend support to the United Nations’ proclamation of 2005 as the International Year of Micro-credit. The Microfinance policy seeks to correct the low access to credit by poor entrepreneurs as research showed that they and small scale firms were getting only 2 per cent of available credit. So 820 MFBs were licensed in the country to provide credit and other financial services to people in lower income groups such as the unemployed, poor entrepreneurs and others living in poverty who are not bankable. But the project was soon hijacked by moneybags as later proved by their locations.
The winning edge of offering limited products with no formal collateral was soon turned into albatross on their neck as illustrated by the Gideon Trust MFB story above. Analysts blamed theMFBs’ lack of focus on a number of factors. First of them is choice of location. It is an open secret that a significant percentage of all the licensed microfinance banks operate from the highbrow areas of the nation’s cities.
“What would a microfinance bank be doing at Adeola Odeku, Victoria Island or Ikoyi when the target market is at Okokomaiko, Mile 2, or all other places where you can find a plantain seller, recharge card seller, okada rider and so on?” said an employee of one of the MfBs who who does not want his name in the print.
“They are also competing for corporate accounts. They want to have salary accounts of government parastatals, or finance petroleum marketing industries; consequently you will find their staff in suits, chauffeur-driven in state-of-the-art cars.” Again having turned their focus from their target market –the poor- most microfinance banks in the country decide to compete with the commercial banks.The analyst said several operators of microfinance banks wanted a short cut to owning a commercial bank without having to undergo the rigours of procuring the necessary banking licence.
He accused them of grossly lacking in the most important aspect of their operations: raising funds from depositors and getting prospective clients to shed their fear for bank loans because of exorbitant interest rates. To support this, a manager at Olive Microfinance Bank, Ikeja, Sunday Olushola , told a national daily , that his bank was still struggling to get people to open deposit accounts with them. “We tend to be competing with the commercial banks in terms of deposit facilities. We have to go a long way to convince customers to make deposits with us, and it is this same deposit that serves as capital we are to lend to borrowers when they come for loans.”
Maybe that was why Mr Tunde Lemo, CBN Deputy Governor, said last year that managers of some of the banks were yet to imbibe the necessary culture suited for their operation. Said he : “Some of these microfinance banks are simply ostentatious, with some of them having their executive remuneration to include a two-week holiday abroad. With a package like this, how do such banks hope to reach out to those not using any bank and alleviating poverty which are the main reasons for setting them up?”
The CBN directive stipulates that every microfinance bank should have a minimum reserve of N20 million, while NDIC insures each depositor for a maximum of N100,000, regardless of the amount of money invested. “These requirements take the microfinance industry out of the reach of the poor it was intended to serve, while at the same time, it discourages prospective investors because their funds are not sufficiently secured,” Olushola said.
Some other challenges identified by operators of microfinance banks include shortage of skilled personnel in the sub-sector. They also evidently lack the skill to properly market their services. David Ibe, Chief Executive Officer of St. David’s Leather Works, Yaba, Lagos was just the kind of small scale industrialist the banks could target. He said he wasn’t familiar with their operations. “The services, packages and products offered by the microfinance banks are not known to us,” he said. “We don’t know the number of clients served, amounts of loans and savings available, the criteria to get them and at what rates.”
A senior official of First Bank had last year warned that the sector might soon collapse soon if the operators did not change their strategy. “Close monitoring is one of the major challenges of microfinance banks,” he said. “It is one thing for them to lend money to people to start up or run businesses; it is another thing for them to pay back.” He said microfinance banks have to employ a large number of staff to monitor their debtors, and this increases the overhead costs of running the banks.
Worse still are the fraudulent practices and mismanagement already noticed in the sector. Recently, the Economic and Financial Crimes Commission(EFCC) announced the arrest of the wife of a former governor over an alleged N190 million fraud. It is , however, gratifying that the apex bank has promised that the “directors and management of the closed banks that have abused their positions would be handed over to the law enforcement agencies for investigation and prosecution, and those found culpable would be blacklisted accordingly.”
What are the effects of the revocation on the economy?
There is palpable fear in some quarters that the licence revocation would affect the small business owners adversely. According to Mr Dele Oye, the President of Abuja Chambers of Commerce, Industry, Mines and Agriculture (ABUCCIMA), with this decision, many small businesses would fold up. he expressed his concerns to News Agency of Nigeria that the revocation was not a welcome idea except CBN could prove that it is in the best interest of the nation’s economy.
His words: “It is believed that the CBN is acting in the interest of the depositors and the customers and we cannot pass judgment now until we are able to know the reason behind the CBN action.We must not fail to realise that with this decision, it has caused the small businesses to fold.This is not a welcome idea except CBN can prove to the world that the reason for its action is in the best interest of the nation’s economy. This set of people depends mostly on the banks to finance their small businesses.” He then urged the CBN to ensure that the people at the grassroots were well informed on its recent decision as they were the most affected.
But how fast the regulators move to pay the depositors of the dead bank and as well contain the effects of the revocation will go a long way to make the micro finance policy succeed in the country.
Odogwu Emeka Odogwu, Daily Champion -
Awka — Operatives of the Nigeria Deposit Insurance Company (NDIC) have swooped on Microfinance banks in Anambra state, closing accounts and seizing the keys to the strong rooms of about 16 of them.
This has brought great tension and panic as their customers thronged the banks requesting for their monies to no avail.
This is coming as the over 200 Micro finance banks in the state has summoned an emergency meeting Friday,October 1, 2010 to discuss way forward and legal implications of the actions of the Central Bank of Nigeria (CBN) that ordered the withdrawal of their licenses and that of others across the country Monday without notice.
CBN had put advertorials announcing its intension to withdraw their licenses for not meeting up requirement.
Daily Champion gathered that NDIC appointed liquidators Tuesday swooped on Ndiolu Microfinance Bank behind Government House Awka stopping its activities.
This forced civil servants, to besiege it trying to withdraw their monies but were stopped by fierce and angry looking operatives of the law enforcement agencies.
A customer, Mr. Okereke John, was not happy that such could happen without allowing management of the bank to liquidate their bank. He said all the customers of the bank were dumbfounded that such could happen. They accused the manager and management of the bank of mismanaging their funds. They also blamed the CBN for not intervening on time only to expose many to untold hardship as they would have taken their money before the calamity.
But when Daily Champion contacted the chairman of the bank’s board, Comrade J.O Onuaku, he dismissed the claims by the banks customers saying their money was in intact, as they have more than enough money to pay off everybody should the option arose to close business.
Onuaku confirmed the report that NDIC came Tuesday and seized everything from staff of the bank, closed their accounts and took the keys.
He said the depositors were told by the NDIC to go and come back next week hence the tension and scene that was created as nobody was being paid.
He described the action of the CBN as acting in error as according to him there was no sign or notice and suddenly swooping on them.
He said financial matters are not treated like that even as he said they have shown the CBN their action plan to re-capitalise as directed but it (CBN) would not look at the copy having decided on the illegal action of closing banks without notice or warning to them.
“All these actions are in error , how can there be no notice and one day you swoop on people’s bank sending tension and panic everywhere,” he said.
By Onyinye Nwachukwu & Hope Moses-Ashike, Businessday -
The Central Bank of Nigeria (CBN) on Monday reassured that the remaining 596 micro-finance banks (MFBs) which still retain their licences after it withdrew those of 224 MFBs due to operational inefficiencies were healthy and running.
The reassurance was to douse concerns of the banking public on the true status of the MFBs following complaints by some operators that they have lost millions of deposits since CBN’s pronouncements on the sector last weekend.
BusinessDay also learnt that some of the MFBs customers were withdrawing their deposits in fear of not losing their money. But Mohammed Abdullahi, CBN head of communications, said there was no need to panic since the apex bank’s actions were to save the industry and in the best interest of the nation’s economy. CBN’s assertion came as the Nigeria Deposit Insurance Corporation (NDIC) said it has deployed some of its staff to the various branches of the affected 224 banks to verify their deposit liabilities with a view to expediting payment of insured deposits.
On concerns raised by the operators, he said, “We have brought out the list of the banks that have problems and we have assured that the remaining are healthy. If your bank does not have a problem there is no need to panic because it is safe and the deposits are secured.”
Meanwhile, NDIC as the provisional liquidator which is expected to take over the banks said it would pay up to the maximum insurance coverage of N100,000 per depositor in line with its statutory responsibility. A statement from the corporation disclosed that Umaru Ibrahim, NDIC acting managing director/chief executive of the corporation has received the assurance of the inspector-general of police to deploy his men to all branches of the affected banks to ensure safety of their assets.
It would be recalled that the apex bank in February began the examination of about 820 MFBs and last weekend announced it had withdrawn the operating licences of 224 MFBs that were found to be “terminally distressed” and “technically insolvent” in line with Section 12 of BOFIA 1991, as amended. Kingsley Moghalu, CBN deputy governor, financial sector stability, had said 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. “Given this scenario and following market reports about the failure of some MFBs to meet their matured obligations as well as several petitions received from aggrieved depositors, the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) embarked on a target examination of all MFBs in Nigeria, to identify the problem and ascertain the scope as well as the extent of damage done to the affected institutions,” he had explained.
Meanwhile, the failed microfinance banks have dragged the Central Bank of Nigeria (CBN) to court restraining it from taking over the banks. They complained that the CBN did not give them time to merge or beef up their capital base before revoking their licences.
Olutayo Adenekan, chairman, National Association of MFBs, Lagos State chapter, who spoke with BusinessDay said the association comprising of Lagos, Ondo, Ogun, Osun, Edo, Ekiti, Oyo and Kwara states has gone to the Federal High Court in Lagos and the injunction is still on. He added that the regulatory authority has no right to take over the bank until after the court case.
By Amaka Agwuegbo, Vanguard -
The Central Bank of Nigeria, CBN, has said high level of non-performing loans, resulting in high portfolio at risk (PAR), which had impaired their capital and gross undercapitalization in relation to the level of operations, are some of the reasons why the operating license of some microfinance banks (MFBs) were revoked.
The CBN had, last Friday, revoked the licenses of 224 MFBs while the affected banks’ directors and management would be handed over to the Law Enforcement Agencies for investigation and prosecution.
The CBN had, earlier in the year, conducted Target Exam on 820 MFBs across the country of which of 224, or 27 per cent, of them were found to be ‘terminally distressed’ and ‘technically insolvent’ and/or had closed shop for, at least, six months.
Vanguard had, on Jul 19, 2010, exclusively reported the result of the target exam conducted by CBN and Nigeria Deposit Insurance Corporation (NDIC), which revealed a lot irregularities and unethical practices besetting the MFB sector.
It is not surprising that the CBN has sanctioned 224 failed MFBs as the CBN had earlier, in Vanguard’s exclusive report, promised “to review the section of penalties to be meted out on offences committed with the aim of so as to reduce cases of unethical practices.”
According to Vanguard’s investigations, most MFBs are not investing, at least, 5 per cent of their deposits liabilities in treasury bill, which is against the CBN rule of them keeping, at least, 5 per cent of their deposits in liquid form by using it to buy treasury bills.
Also, it was also discovered that most MFBs have fixed assets above their limit of 20 per cent of their shareholders fund.
It was also discovered that the ratio of non-performing loans to total loans of most MFBs is above 2.5 per cent, which has resulted to poor credit management and loss of assets.
According to Deputy Governor, Financial System Stability (FSS), CBN, Dr. Kingsley Moghalu, non-performing loans, resulting in high portfolio at risk (PAR), which had impaired their capital; gross undercapita-lization 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 are some of the factors that contributed to the failure of these banks.
Others are poor asset-liability management owing to portfolio mismatch; 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.
To this effect, the operating licenses of the 224 MFBs that were found to be ‘Terminally Distressed’ and ‘Technically Insolvent’ have been revoked pursuant to S.12 of BOFIA 1991 (as amended).
As insured institutions, NDIC shall pay up to the maximum insurance coverage of N100,000 per depositor, while directors and management of the closed banks that have abused their positions would be handed over to the Law Enforcement Agencies for investigation and prosecution, and those found culpable would be blacklisted accordingly.
Continuing, Moghalu said the impact of the global financial crisis on MFBs had been more severe than anticipated as credit lines dried up, competition became more intense and credit risk increased while many customers of MFBs were unable to pay back their credit facilities owing to the hostile economic environment.
These combined factors had significantly weakened MFBs and their ability to achieve the policy objective of economic empowerment at the lower end of the market.