Indications are that the fate of the over 28,000 staff members of the 968 microfinance banks spread across the federation remains uncertain judging by the present economic crisis which has rendered the banking sector almost comatose with most of the microfinance banks battling to stay afloat. Ibrahim Apekhade Yusuf examines the clear and present dangers confronting MfBs
The biting economic crunch, no doubt is also having a rippled effect on the activities of the microfinance institutions what with the low uptake and lull in business activities within the sector.
An insider’s perspective
To say that many of the MfBs are battling intractable debts is certainly stating the obvious. The bad debts coupled with the unfriendly business climate in the country have rendered many of the MfBs prostrate.
One person who should know better is Ms. Bunmi Lawson. Ms Lawson, who sits atop as Chief Executive Officer of Accion Microfinance Bank, has decried the cost of doing business in Nigeria, stressing that the hash operating environment is hindering the growth of microfinance banks in the country.
Speaking with newsmen in Lagos recently, she stressed that the major challenge for MfBs and other growth companies was the cost of doing business in Nigeria.
Specifically, she said, “You have to spend a lot on infrastructure. You have to generate your own power, water supply, connectivity. So we spend a lot to bring these services to people at a cheap rate at cost that they can afford and is sustainable.
“Thankfully we have started to see some improvement and we hope that the government would continue to invest in infrastructure, power especially and technology to ensure that banks like us can operate and reduce our cost of operation and that would make us provide better services to our customers.”
She also disclosed that the sector witnessed low loan repayment last year as a result of the challenges most businesses faced in the outgoing year.
“Although when you look at the decline in oil prices and the deterioration of the naira, it may be a tough time. But God willing, we would be able to turn things around and ensure we continue to grow businesses and that people are able to repay their loans, “she stated.
On how MfBs can survive the hash operating environment, she said microfinance banks must have the right products and be more creative.
She stated that despite the economic turndown, tight liquidity and the devaluation of the naira businesses that it fund continue to thrive.
“So the impact of that downturn is not felt immediate on them and sometimes even the small businesses may then need our support and some who didn’t need our support would need it so the economic downturn does not affect them in a negative way. In fact with the downturn, microfinance banks are even more required for people to save their money to also access loans to ensure that they are growing their business.
“We did a study recently that people who had consistently banked with us over the period of five have been able to increase their income almost 300 per cent so certainly we know that what we are doing helps people to improve their income and grow their businesses. It rewarding to hear and that we are actually achieving what microfinance banks is set out to do,” she stated.
A divergent view
According to Mr. Femi Fapohunda, Managing Director, Ospoly Microfinance Bank in Iree, Osun State, the recent austerity measures taken by the Federal Government to address the effect of the dwindling oil price on the economy, a proactive board and management of microfinance banks should see the austerity measures rather as an impetus for higher performance.
Such MfBs, he stressed, will go to the drawing board once again, plan new strategy and re-engineer all their policies for enhanced performance, which will also lead to higher profitability and productivity.
To mitigate bad debt under the microcredit scheme, Fapohunda said the Osun State took a credit life policy upon all the beneficiaries, wherein, they pay one per cent premium to insurance company to insure the beneficiaries against death.
“This means that if the beneficiaries die, the affected insurance company will pay the default amount, but if they don’t die, it is the customers that will pay. Insurance companies only have credit life insurance and that is what we have done, it is not credit insurance. No insurance company in Nigeria insures credit because of our nature and culture of fraud.”
Trouble accessing N220 billion MSMEs Development Fund to MfBs
The N220billion Micro Small and Medium Enterprise Development Funds set up by the Central Bank of Nigeria (CBN) to increase access has largely remained inaccessible due to collateral requirements.
However, Fapohunda said the process is so easy. “The template is easy for proactive MfBs. For instance, the issue of Portfolio At Risk (PAR) is one of the conditions that the Central Bank of Nigeria (CBN) outlined for any MfB to access it. CBN has done well by launching the fund to be able to alleviate poverty in the country, but I want to correct an impression that the fund is a bailout fund. No, it is not a bailout fund, but a fund to enhance the financial inclusion of the active poor; a fund to enable artisans, petty traders, market women and SMEs to enlarge their coast.”
While noting that it is not a bailout fund as one of the conditions when it was released by CBN was that such fund should not be allowed to stay more than five days before disbursement to the beneficiaries, Fapohunda said, it is to enhance financial inclusion and eradicate poverty in the country.
How new benchmark changed the face of MfBs
In the view of analysts, the increase the minimum paid-up capital of unit MfBs by 500 per cent to N100 million and State MfBs by 100 per cent to N2 billion, by the Central Bank of Nigeria (CBN) in 2006 may have changed the narrative for the MfBs.
According to the policy, Unit MFBs (licensed to operate as Unit banks) shall be community- based banks. Such banks can operate branches and/or cash centres subject to meeting the prescribed prudential requirements and availability of free funds for opening branches/cash centres.
On the other hand, a State MfB (licensed to operate in a state) shall be authorised to operate in all parts of the state (or the Federal Capital Territory) in which they are registered, subject to meeting the prescribed prudential requirements and availability of free funds for opening branches.
Investigation revealed that the apex bank met with selected chief executives of MfBs two weeks ago to intimate them of the coming reforms. It was gathered that the apex bank asked them to go and study the document and send their comments and observations back to it soonest.
However, the chief executives were divided over the appropriateness of the new minimum paid-up capital at the time with some saying it was necessary while others believe that the level of increase was too much and suggested graduated increase.
The policy was influenced by the globally acclaimed impact of micro-finance in helping the economically active poor to exit the poverty threshold and thus leading to significant poverty reduction. Hence micro-finance banking was introduced with the expectation that over time, it would help in reducing poverty in the country.
Hence, as stated in section 4:2:1 of the micro-finance policy, the policy target includes “covering the majority of the poor but economically active population by 2020 thereby creating millions of jobs and reducing poverty.
According to the policy, micro-finance banks are to:
Mobilise savings for intermediation; Create 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;
Provide veritable avenues for the administration of the micro credit programmes of government and high net worth individuals on a non-recourse case basis.
In particular, this policy ensures that state governments shall dedicate an amount of not less than one per cent of their annual budgets for the on-lending activities of micro-finance banks in favour of their residents; and Render payment services, such as salaries, gratuities, and pensions for various tiers of government.
Thus, microfinance banks were established to help the poor and micro businesses by extending financial services to them and in the process help them grow, generate income and employment.
But unknown to depositors as well as the regulators, many of the promoters of these MfBs were not in the business for the poor, they saw the microfinance banking policy as opportunity to obtain banking license on a platter of gold, and thereby mobilise deposit which could be used for personal purposes.
Even those that were not converting depositors’ money to personal use were not investing the money as stipulated by the guidelines.
Rather than lend to micro businesses as expected and directed by the CBN, they were investing the money in real estate, petroleum business, schools, stock markets and to fund LPOs.
These investments, however, became trapped following the impact of the global financial crisis on the economy.
As a result, the MfBs started having liquidity problem and overtime, they could not meet obligation to customers.
These, coupled with fraudulent practices by the officials of some MfBs, culminated to the avalanche of closed MfBs across the country.
In Lagos State, about three cases of such banks are with the police.
To address the crisis in the sub-sector, the CBN and the Nigeria Deposit Insurance Corporation (NDIC) conducted an examination of MfBs. This was followed by a target examination of some MfBs discovered to be having serious liquidity problem.
Something to cheer about
Despite the uncertainty in the economy occasioned by the credit crunch, the microfinance institutions is said to have boosted the national economy with about N185 billion savings, with no fewer than 100,000 Nigerians rescued from poverty through linkage to finances, sensitisation, capacity building and networking.
President, Association of Non-Bank Microfinance Institutions of Nigeria (ANMFIN), Hamid G. Afolabi who made this disclosure in Ilorin, the Kwara State capital, recently, said the group is marching into the hinterlands with its services.
