By Hope Moses-Ashike, Business Day Online
Knowledge is an essential ingredient in microfinance business. Lack of capacity in practical microfinance banking has been a major challenge that has led to mission drift by operators of microfinance banks, MFBs.
It is in recognition of this that the Central Bank of Nigeria (CBN) stated in the revised microfinance policy guideline that in order to bridge the technical skills gap, especially among operators and the directors of MFBs, the policy recognises the need to set up an appropriate capacity building programme.
In this regard, the CBN has put in place the Microfinance Certification Programme (MCP) to ensure the acquisition of appropriate microfinance operational skills by staff and management of Microfinance Institutions, MFIs, in general and MFBs in particular.
Motivated by the knowledge gap in microfinance sub-sector of the economy, Godwin Ehigiamusoe, managing director, Lift Above Poverty Organisation (LAPO) Microfinance Bank Limited, officially lunched a book titled “Issues in Microfinance: Enhancing Financial Inclusion.” In a 311 pages made up of 15 chapters presented in three sections, he gave a critical perspective on the microfinance theory and practice in Nigeria.
Speaking at the official presentation of the book in Lagos recently, Hayford Alile, chairman of the occasion, said the book provides a reservoir of knowledge in whatever one wants to know in microfinance. He recommended the book to banks, MFBs, and other financial and management institutions, saying “I am very proud at what LAPO is doing and keep praying that it grows from strength to strength.”
Anya O. Anya, former chief executive, Nigerian Economic Summit Group (NESG), warned practitioners who do not have passion for the poor not to get involved in microfinance.
Reviewing the book, Steve Ogidan, represented by Akinyele Aluko, said the author’s contribution to the bourgeoning body of literature on microfinance should be seen as intellectual contribution of not only a theorist but also a well-informed practitioner who has been dreaming, living and practicing microfinance since the last 25 years.
According to him, in Nigeria as well as other parts of Africa, microfinance has gone through phases of development to become a feature in the financial landscape. In Nigeria, he said the stories of microfinance had been in bits and pieces, noting that people who should know to document the practices for posterity did not make concerted efforts. The main reason for this could be the fact that they seem too busy fighting poverty that their success stories were not documented.
“Godwin Ehigiamusoe has therefore taken the bull by the horns once again in pioneering intellectual contribution to this field of study,” he stated.
The author however said he was simply motivated by the fact that there was clear evidence of knowledge gap in the industry, not just about the industry even among the active operators in the sector. So, I decided therefore to put a book together that addresses the various part of microfinance, he said. It started from the principles of microfinance to the practice and even the history, especially in Nigeria.
By Hope Moses-Ashike, Businessday Online -
Lack of capacity in practical microfinance banking has been a major challenge for micro finance bank (MFB) operators, and has eventually spurred major mission drifts.
These included microfinance banks that were operating like ‘micro-commercial banks,’ with flamboyance, fleet of branded cars and high expenditure profile.
Other challenges are poor corporate governance and susceptibility to insider abuse, incompetence and ineffective oversight of the board, poor risk management, and weak internal controls.
Kingsley Moghalu, deputy governor, Financial System Stability, Central Bank of Nigeria (CBN), had stress the need for training in microfinance banks, as against much emphasis already placed on capital by most people.
“People place much emphasis on capital in this country; they do not understand that you can have all the capital in this world, yet your bank can fail because of poor corporate governance and poor internal controls. So, having capital is a buffer in a certain sense if it is not insured. There are other things you have to do; people who run microfinance banks need to be well trained. They need to understand the concept of what a microfinance bank is.
“It is not commercial banking. It is not at all the same thing. They have different models, and that is why we are undertaking a lot of training for all operators in the sector. Now, before anybody runs a microfinance bank going forward, you have to pass an exam the CBN is organising, so that you are sure of what you are doing,” Moghalu stated.
More importantly, with the establishment of Microfinance Certification Programme (MCP), it is expected that these challenges would be tackled.
Going by the 25 Microfinance Training Service Providers (MTSPs) accredited in 2009, the CBN noted that about 1,960 operators of microfinance banks were trained and sat for the Chartered Institute of Bankers of Nigeria (CIBN) Certification Examination (Level I) in 2010, while level II Training and Examinations would be conducted in 2011.
This formed part of a capacity-building programme which tries to make domestic microfinance industry more robust and transparent, therefore the need for certification programme, which was announced last year by the apex bank informing that CEOs of microfinance banks must pass certain examinations or lose their jobs.
One of the managing directors of microfinance banks in Lagos, who spoke with BusinessDay explained that there was a challenge of professionals and qualified manpower in the sub-sector, which would still take some time to improve.
“It is not something you build overnight; it must involve training and retraining. That is what formed the CBN’s decision to organise some courses for directors and management staff last year, and I am sure it is a continuous process too.”
To him, manpower problem has always been with the microfinance industry, and can only improve overtime.
“The leadership itself is young, as far as microfinance is concerned, so people have to learn along the line, but the major thing is for people to comply with the regulations and do real micro banking, not merging it with commercial banking system mentality.”
Bunmi Lawson, managing director, Accion Microfinance Bank Limited, Lagos, once stated that “One of the challenges the Nigerian microfinance banks face is in the area of capacity. Formal microfinance banks are relatively new in Nigeria. The policy came out in 2005, and we saw the granting of licences and conversions at the end of 2006.
“So, it is still a new field. Therefore, you will find that the human capacity, competence and skills required to run sustainable microfinance operation, is stretched even just by sheer number, having over 900 microfinance banks?
“So, I think this may be CBN’s way of addressing the problem by ensuring there is a benchmark they can apply to people who run and manage microfinance banks.”
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 India Microfinance -
Certified MFIs Can Report Results on the Microfinance Information Exchange . ESAF Microfinance is the first MFI in India to become certified in the pilot project.
Grameen Foundation yesterday launched a certification program that will officially recognize organizations complying with new Standards of Use for its poverty-assessment tool, the Progress out of Poverty Index™ (PPI™). Through this certification, microfinance institutions (MFIs) and other PPI users will receive a seal of approval signaling that they are using the tool correctly. In addition, certified MFIs will be recognized on the Microfinance Information Exchange (MIX), the primary source for published financial and social performance data on MFIs across the globe.
“Grameen Foundation firmly believes that microfinance institutions whose mission is focused on reducing poverty must rigorously measure their social performance, along with their financial performance. We are pleased to collaborate with the MIX in working toward this goal,” said Alex Counts, president of Grameen Foundation. “We are encouraging MFIs that are seeking to measure and improve their anti-poverty outcomes to get certified, as this will ensure they are using the PPI correctly. Use of the PPI by leading MFIs worldwide has shown how it can lead to better management decisions, while giving investors and donors reliable data for evaluating their commitments.”
“This certification process will verify that the PPI data MFIs are reporting to the MIX have been collected by following a proper methodology, which has been audited by Grameen Foundation,” said Micol Pistelli, manager of the MIX Social Performance Program. “MIX is coordinating with Grameen Foundation to ensure that the MFIs that have received a certification for the validation of the PPI will be visible on MIX Market starting from January 2011.”
The new process, the first of its kind for poverty-assessment tools, is designed to strengthen the use of the PPI by ensuring the accuracy of its results for multiple stakeholders, including PPI users, technical assistance providers, and such decision-makers as investors, donors and rating agencies. Additional information about the certification, including the application process, is available at http://www.progressoutofpoverty.org/certification.
The official roll-out of the certification program follows the earlier launch of the PPI Standards of Use, which were endorsed by key microfinance networks and investors, including Oikocredit, Catholic Relief Services and Plan International Asia. FINCA Peru and ESAF of India were the first two MFIs to be certified through the pilot process. Both were certified in two of the three levels of use: Basic and Advanced. The third level, Tracking Over Time, is applicable to MFIs that have made more than one PPI collection over time. Grameen Foundation expects to certify more than a dozen MFIs during the next six months.
“We were pleased that our use of the PPI met all the standards for Basic and Advanced certification,” said Benita Mathew, manager, Research and Development, ESAF Microfinance. “The process was systematic, direct and inclusive, which touched all the components of operations, thus giving an overall perspective of the process. In addition, the process showed us specifically not only where our program was strong, but also where we could improve.”
To conduct certifications globally, Grameen Foundation is using a cadre of volunteer professionals selected through its Bankers without Borders™ initiative. Each volunteer will meet with an organization’s operational and management staff during a four-day period to assess its compliance with the Standards of Use.
The Progress out of Poverty Index™ (PPI™) is a country-specific assessment tool that helps institutions measure outreach to the poor, monitor changes in economic well-being of clients and provide data that helps managers improve the effectiveness of programs and services.. Building on the concept of Grameen Bank’s 10-Point System, the PPI was commissioned by Grameen Foundation, in collaboration with Consultative Group to Assist the Poor (CGAP) , Ford Foundation and Microfinance Risk Management L.L.C. Launched in 2005, the PPI is now being used by 89 institutions worldwide. For more information, please visit progressoutofpoverty.org.
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.
By Hope Moses-Ashike, Businessday –
A lot of factors which include inability of microfinance banks to enlighten low income earners on their operations and poor corporate governance among others could be attributed to majority of the populace not having access to credit facilities.
From World Bank’s report of 2008, Nigeria has nearly 70 percent of its population living in poverty with more than 54 percent living below the poverty line (less than one US dollar a day). The 2008 Human Development survey of the United Nations ranks Nigeria among the 25 poorest countries, measured on the basis of standard of living, life expectancy and literacy.
Based on this, microfinance scheme was set up by the Central Bank of Nigeria (CBN) as an instrument for providing financial services to the poor who are traditionally not served by the conventional financial institutions.
The policy framework establishing microfinance in Nigeria saddles them with the responsibility of providing diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner, that would enable them to undertake and develop long-term, sustainable entrepreneurial activities mobilizing savings for intermediation and creating employment opportunities and increase the productivity of the active poor in the country, thereby increasing their individual household income and uplifting their standard of living.
However, most of these micro institutions have deviated from the core objective of serving the poor and have engaged in high profile lending as affirmed by Kingsley Muoghalu, deputy governor in charge of financial sector stability who said operators lack understanding of the ideal methods for operating microfinance banks. He attributed the collapse of most of the microfinance institutions to poor corporate governance, non-adherence to best practice and ownership problems.
Muoghalu who spoke at the maiden microfinance certification training programme of operators of MFBs organized by the CBN in conjunction with the Nigeria Deposit Insurance Corporation (NDIC) and Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), in Abuja said in the course of on-site and off-site supervision of the microfinance banks, so many issues bordering on corporate governance, adherence to best practice and ownership problems were identified.
“Some of the directors, our investigations have shown, have over-bearing influence on management staff, who themselves lack relevant skills and knowledge in various microfinance lending models and operational service delivery models”, he said.
Consequently, many of them went down with small savers’ money trapped. As it were, most of these micro savers have lost confidence in microfinance banks. For instance, Sunday Okoh, a barber said he has been saving with one of the microfinance banks but when he needed loan they could not give him because there was not enough money. Having saved up to N16,000 he demamded for aN20,000 but could not have access. Many of the microfinance banks are run like family business with the attendant insider related abuses. More so, they seem to be competing with Deposit Money Banks (DMB).
All these made President Goodluck Jonathan to slam the sub-sector over series of sharp practices saying that they have failed the nation.
Also, Sanusi Lamido Sanusi , affirmed that 65 percent of Nigeria’s population does not have access to credit facilities. Represented Emma Okoidegun, Senior Manager, Development Finance Office, CBN, at the opening of CBN Microfinance Certification Programme in Benin City, Sanusi said since this was no mean a number, the bankers’ bank has devices means of helping people key into the mainstream economy in order to reduce poverty and unemployment in the society.
According to him, the objective of the certification programme which was being held simultaneously in 24 centres in the country was to provide guidelines to micro-finance bank operations across the nation.
“For banking operation to go on smoothly, CBN decided that management staff of Micro-finance banks must undergo this certification programme to meet the requirements to operate”.