By Graham Orodje, Editor Microfinance Nigeria -
I read and republished an article on this website entitled ‘Depositors Always Suffer’. In it the article claims CBN should be blamed for the current problem engulfing Microfinance in Nigeria. The article also claims that the problems are as a result of CBN’s policy. Please read the article on the link before reading further http://www.vanguardngr.com/2010/10/depositors-always-suffer/.
This article, in my opinion, is symptomatic of many things that hold the country back from achieving economic success.
There is no doubt that CBN should shoulder some of the blame. It did not act quickly enough to stop the problems in the sector. Some of these were very obvious, but in its defence withdrawing licenses and closing Banks generally have catastrophic consequences to the wider community. For any Federal Bank to make such a decision it must be absolutely sure that is the last and only course of action. That is why none of the commercial banks were left to go bankrupt.
Let’s look at what has happened with CBN in the last six years. In 2004, the Government of the day appointed Professor Chukwuma Soludo as Governor of CBN, a talented and experienced individual, but one who had no banking experience or experience in highly regulated sectors such as banking. CBN then commenced an exercise of shotgun marriages between Banks in the name of consolidation, with many of these banks overstating or even falsifying the value of their Balance Sheet in order to complete this sham exercise. I don’t think I need to continue. We all know the ending to that disaster movie.
Now let’s roll forward to Microfinance Banks. CBN granted over 800 licenses. Many of these licenses were to Community Banks looking to convert to Microfinance Banks. Based on the evidence to date it can be suggested that not enough due diligence was done on these Community Banks before licenses were granted. But what are Community Banks and what do they do? Community Banks serve local communities banking requirements, especially the unbanked, low income and Micro businesses. The services Community Banks provide are exactly the same as those Microfinance Banks were set up to provide, so what was required of them was not different from the services they were already providing.
So how is the CBN to blame for the current state of Microfinance in Nigeria? Is it because they granted licenses to Community Banks to become Microfinance Banks? Absolutely not. The management of those Banks that had their licenses cancelled should be to blame. Firstly, they took the license as a license to spend recklessly with high salaries, benefits, unrealistic Overheads. Yet somehow this is the fault of CBN because they didn’t visit the offices every week to make sure they were adhering to the terms of their license.
So what share of this responsibility should the management of the Microfinance Bank take? Let’s remember these are supposedly experienced bankers with many years knowledge in banking and banking regulations. People with years of working experience who were well aware of their responsibilities to their customers and their need to adhere to terms of their license. Yet they chose to go down the well-travelled Nigerian way of acquiring wealth, embezzlement, fraud and mismanagement. They treated depositors funds as their own and provided loans to friends, had unbelievable salaries and benefits and many still wonder why CBN took the steps that was necessary to stop the abuse of the poor.