The Nation Newspaper

Tag: MfBs

  • ‘How MfBs can survive’

    What are the challenges of the micro finance bank?

    The first is overhead, however doing business in Nigeria is very difficult because there is no enabling society. What is this enabling environment,? First, it is power; for instance, we have being on generator since morning and you can’t run a bank without electricity. In a month we spend like N300, 000 on diesel, so all this things added up eat deep into our capital. This things affects all microfinance banks. Overhead, staff salary and at the initial stage they asked us to get a graduate. There is no way a unit microfinance bank can operate with graduates; all we need is two graduates that can coordinate the other workers.

    So when Lamido came in, he asked us to go on low key and it has being helping us for instance we have only five graduates and 30 foot soldiers. That is the way it being operated in Indonesia. Let’s say we employ a graduate for N40,000 a month, he won’t want to stoop so low to meet all this petty traders to be collecting N1000 a day daily contribution, he will want to be comparing himself with his counterparts in other commercials banks that being paid higher and are not being stressed. So we were asked to employ school cert holders who will take N20, 000 a month and will be happy to do the field work and appreciate the opportunity and it has also helped us to reduce our expenses.

    How many MfBs were there before the CBN intervention and how many do we have now?

    Before the intervention we had about 858 microfinance banks but now we have lesser than 300, because when CBN gave us the guidelines, most of the banks that had their license revoked found it very difficult to come back. We have to give kudos to Sanusi. He ensures that we meet once in three months to discus and I believe that by 2014, microfinance banks in Nigeria will be a role model to other countries around the world. We send periodical report that must get to them on or before the 14th of every month; there is a lot of control and stability for the remaining microfinance banks.

    How have you been coping with your primary objectives?

    Before the revocation of our licence, we do give loan of N5 to N10 million to people, but the later made us to realise that is not our primary objective, the primary objective of the microfinance bank is to borrow money out to those small scale marketers who are coming up to introduce banking to them, when Sanusi came on board, he said we can’t be operating like that, if you N1million to an individual or an organisation, they may default, and if they do, it may destabilise the organisation. But if you share that same N1million among 20 marketers, there is no way the 20 of them will default and they will appreciate it. So, microfinance banks are not meant for big players or companies. The CBN has said we should put all these local traders into different groups and that is why we have a loan called the group loan. Five of them can form an association, after forming the organisation, they can apply for loan, we check the minutes of their meetings and make sure they part payment every week and it has helping us.

    Since the restoration of your licence, what has been the impact of your bank on the economy?

    When we came back on board, we had a meeting and decided to start with the schools around Mushin. We learnt that most of the parents of the students in private schools pay their ward’s school fees late. So, we sat down most of the principals and told them to arrange a meeting with the those parents so that we can approach them and help them start a small scale business so that it benefit both the parent and the school. We also assisted those private schools to pay their staff salary once they are short of cash. We give them loan of about N400, 000 and we are sure that they are schools that can pay back.

    We also sponsor educational programmes. The last was the primary school quiz competition that we conduction here in Mushin and the winner carted home a term scholarship and a bicycle. We also sponsored the last festival that was held in Mushin.

    I had a meeting with the Babaloja of Mushin on how we can better the lives of the traders in Mushin and how we can improve their business. When our licence was returned, people lost the trust they had in us but after most of the offers and sponsorship, we have won their heart back.

     

     

    Do microfinance banks have a limited amount that they can gives as loan?

    Not really, what CBN said is that we should not give more than 5% of our capital as loan, if as a company you have N10million as your capital, it is not ideal to give out N5million, though there are businesses that you can bring and will you get good results. For instance when we can finance LPO of N5million, what we just do is that we got the company that the LPO is being given and asked them to issue the cheque in our favor. We have customers that have being with us for over three years, some started with N100, 000 and gone into millions so we can borrow them any amount because of their success rate.

    How do you do the monitoring?

    What we do is, the moment you get the loan, there is an accountant that is in constant contact with the customer and keeps tab of the daily sales. If it is in case of the LPO, we monitor the customer and immediately he gets the cheque, he pays straight into our account. The group loan is the method of getting our returns, this group loan deals with the uneducated traders, they are more coordinated than the educated and are scared of debt, so if a group of five gets a loan, they communicate among themselves and try to pay as soon as possible, because they won’t want to be embarrassed. So we enjoy giving out the group loan and it requires less monitoring. Since we returned in 2010, we have not recorded any defaulter. We have lot things we consider

    You said there are have different types of microfinance banks; can you shed light on that?

    We have the unit microfinance bank, which has a capital base of N20million and has only one branch, the state microfinance bank has a capital base of N100million while the national which has it’s all over the federation has a capital base of N2billion. Before the Sanusi intervention, a unit microfinance bank can have many branches, so CBN made us to understand that that is the major cause of problem, because by the get all the necessary infrastructure in place and pay your staff salary, it will definitely be difficult to serve our customers. So they with N20million you must own a Unit microfinance bank then can upgrade to a state microfinance and later become a national microfinance bank. In our own case we already have the capital base for a state microfinance bank, we applied to the CBN and hopeful, they will issue us the license for a state microfinance bank. After the issuance of the license we can then be able to open two other branches.

    Is it true that as a microfinance bank you are limited to certain locations?

    No, it’s just an advice, imagine a microfinance bank operating in Victoria Island, how can it survive? Except the director owns the property, if not the rent alone will cart away its capital. Next who are the target customers? Looking at VI, it is not a residential area for low income earners; it is a place for big organizations whereby the loan they need is even more than your capital. The same applies to areas like Balogun, Ereko, Idumota, so the most of the micro finance banks there had to shut down. A shop in Balogun is N1million naira and you must pay for five years, that is definitely going to affect the smooth running of the organization. Taking a look at the micro finance banks abroad, they serve as neighborhood banks where you can just dash in borrow money and leave. You don’t expect a textile merchant to enter a bank for N20, 000 loan, it is not possible that means they should know their objectives and manage their targets. So places like Ojuelegba, Oyingbo are still okay because you have still have some low income earners and artisans there, even Ikeja and Agege are still manageable.

    Sir you said you have applied to the CBN to become a state microfinance bank, do you intend to move into the capital market to make more profit?

    Yes, that is our target, some of our friends that know we are doing well are already advising us to go into that, so we are looking at 2015 so that we can get ourselves prepared because we need to give them a report, if you are to buy the shares a company you must first look at their report, statement of account financial report and know if there are doing well. So we are doing well, we were able to break even at May this and we started since 2010. All this will come out in our report this year, so buy 2015, we should be comfortable.

    As part of the CBN intervention, they said, every director of the microfinance banks must meet at least four times a year, which is for us to know the ability of the microfinance and see whether we can bring in more money. It has gone a long way to help because we meet at least once in every quarter. So that it will not be a one man show of just the manager and the director, for you to make any decision, you have to consult the board. Apart from that, we also have the credit committee and the audit committee of which a member of the board must be there. With his intervention any microfinance bank that is still existence is okay.

     

  • CBN stops ‘Lender of Last Resort’ role in Real-Time payment

    CBN stops ‘Lender of Last Resort’ role in Real-Time payment

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    The Central Bank of Nigeria (CBN) said it would remove “its implicit role of ‘Lender of Last Resort’ for the Real-Time Gross Settlement (RTGS) payment system by December 2016.

    What this means is that while the CBN will continue with its explicit role lender of last resort to Deposit Money Banks (DMBs), Primary Mortgage Institutions (PMIs) and Microfinance Banks (MFBs), it will not lend for transactions from December 2016.

    The bank said it will also stop the Deferred Net Settlement systems by December 2019. An outline deployment plan Sanusi said will be published by the CBN, indicating interim steps to achieving this longer term objective.

    An outline deployment plan would be published by the CBN, indicating interim steps to achieving this longer term objective, the CBN Governor, Sanusi Lamido Sanusi, has said

    Sanusi, who spoke yesterday at the international conference on payment system in Abuja, directed that henceforth, no national payments system shall invoke the principle of unwind, meaning that after an electronic transaction has reached a certain stage, it can no longer be reversed.

    “CBN will formally inform the industry that unwinds must not be invoked in any national payment system,” he said, adding that “each payment scheme must define and formally document the exact point at which payments are deemed to be ‘final and irrevocable.”

    Other key recommendations in the revised document, which Sanusi, said, resulted from identified deficiencies due to the significant progress already achieved with payment system in Nigeria, will include: “Strengthening the Scheme Governance structure to reflect the significantly greater responsibility of scheme management, covering all aspects of risk, business  management and operational resilience.”

    Also it must be ensured that each Scheme Management Board must carry out an annual self-assessment against the CPSS/IOSCO PFMI. An independent review should be undertaken every four years, with the target to make the results publically available by end, 2017; Open formal engagement channels with CLS as a first step towards Naira becoming a CLS Settlement currency; Mandate the use of the SWIFT Sanctions Checking (or its equivalent) for international payment instructions originating from all banks in Nigeria; and Work jointly with the Securities and Exchange Commission (SEC) and other key stakeholders to sponsor a formal review of the Securities Markets in Nigeria. The review should be completed under the FSS2020.

    Sanusi noted that the apex bank commenced the operations of Real-Time Gross Settlement (RTGS) System on December 18, 2006, “to increase the efficiency of time-critical payments with all the Deposit Money Banks and Discount Houses as direct participants.”

    The prevailing market needs, best practice and technology, he said rendered the existing RTGS System inadequate as it did not meet current user requirements.

  • CBN plans special vehicles to drive mortgage firms, MfBs

    Why is the property market not well funded? It isbecause of the dearth of long-term funds, says the Central Bank of Nigeria (CBN).

    Acording to a Financial Stability Report released by the CBN, the dominance of short-term funds has led to a mismatch between the long-term mortgage assets and short-term-oriented liabilities of primary mortgage banks (PMBs).

    To address this problem, the CBN is promoting the establishment of a mortgage re-finance company (MRC) in collaboration with other stakeholders.

    According to the report, the real-estate sector contributed 1.73 per cent to the Gross Domestic Product (GDP) last year. Credit to the real-estate sector declined to N376.6 billion in December last year, from N380.7 billion at the end of June that year. The quality of the exposures measured by the ratio of the sector’s non-performing loans (NPLs) to total credit, however, improved to 3.1 per cent as against 4.2 per cent during the same periods.

    As part of efforts to address the disparity between long and short-term funds, the CBN is collaborating with other stakeholders. The PMBs are also being repositioned to serve as veritable channels for mortgage/housing finance and home ownership. The MRC will provide short-term liquidity and long-term funding or guarantees to mortgage originators and housing finance lenders. It will also serve as a catalyst for the development of the secondary mortgage market and a precursor to mortgage-backed securitisation.

    To minimise the risks associated with the operation of MRC and ensure it remains mission-focused, the Regulatory and Supervisory Framework for the operation of MRC has been drafted, in collaboration with the World Bank, the report said.

    The CBN is also planning to launch a Microfinance Development Fund (MDF) for microfinance banks (MfBs) the sector’s capability to grant loans.

    CBN Director, Other Financial Institutions Supervision Department (OFISD), Olufemi Fabamwo, at a confab for the MfBs in Lagos said the MDF was a pool of funds created for MfBs to enhance their lending.

    He said part of the criteria to access the loan include show of track-record of good performance and low loan default by operators. This, he said, would show that beneficiaries have the capability to lend to MfBs.

    The CBN, he said, would provide guidelines on how the fund will be accessed by beneficiaries, adding that the delay in not releasing the fund is to ensure that appropriate frameworks are in place. The CBN reiterated its commitment to deepening the financial system by providing loan and introducing new products and appropriate control structures.

    The MDF, when established, would assist in addressing the challenges of underfunding for microfinance institutions. It will further complement past and current efforts aimed at strengthening the microfinance sub-sector; improve financial inclusion and the Gross Domestic Product (GDP).

    The structure of commercial banks’credit as at December last year showed that short term maturities remained dominant. Outstanding credits maturing within one year accounted for 57.6 per cent, compared with 59.1 per cent at the end of the first half of last year.

    Similarly, deposits below one year constituted 97.5 per cent of the total, of which 76.31 per cent had maturities of less than 30 days, while long-term deposits constituted only 0.01 per cent.

    “In addition to the consequences of the maturity mismatch, the near-absence of long-term deposits continued to constrain the ability of banks to create long-tenored risk assets crucial for economic development,” the report noted.

     

  • CBN to launch microfinance fund in August

    The Central Bank of Nigeria (CBN) is considering launching a Microfinance Development Fund (MDF) in August, to enhance credit flow into key sectors of the economy.

    Speaking at a workshop organised for Microfinance Banks (MfBs) in Lagos, CBN Director, Other Financial Institutions Supervision Department (OFISD), Olufemi Fabamwo, said the MDF is a pool of funds created for MfBs to enhance on-lending to their customers.

    He said the fund is not for every MfB, but for those that have met the guideline, which entails having a track-record of good performance that shows that they have low loan default. This, he said, will show that beneficiaries have the capability to lend within the concept and principles of MfB.

    He said the CBN will provide guideline on how the fund will be accessed by beneficiaries, adding that delay in not releasing the fund was to ensure that appropriate frameworks are in place.

    The CBN has reiterated its commitment to deepening the Nigerian financial system by providing loans, introduction of new products and appropriate control structures.

    The MDF, when established, would assist in addressing teething challenge of underfunding for microfinance institutions in the country. It will further complement past and current efforts aimed at strengthening the microfinance sub-sector of the financial system, improve financial inclusion and by implication improve the nation’s Gross Domestic Product (GDP) rate significantly.

    The CBN also disclosed that efforts were also being made by the to consolidate on the achievements recorded so far by the country in the development of micro finance banks by strengthening the regulatory frameworks and other guidelines. This also includes formation of National Microfinance development Strategy with the United Nations Development Programme (UNDP) and the recent signing of a major agreement with the Alliance for a Green Revolution in Africa (AGRA).

    To strengthen the microfinance subs-sector, the CBN has also instituted new guidelines for their operations. Under the new rule, microfinance banks would operate under three categories, which include Unit, State and National Microfinance banks.

    A unit of the bank is authorised to operate in one location without branches/cash centres and is required to have a minimum paid up capital of N20 million. The state microfinance bank requires a minimum paid up capital of N100 million. It is allowed to open branches within the same state or the Federal Capital Territory (FCT).

    But the national microfinance bank is authorised to operate in more than one state, including the FCT. It is requires a minimum paid up capital of N2 billion and is allowed to open branches in all states and the FCT, although subject to prior written approval by the CBN.

  • NDIC frets over MfBs’ poor rendering of returns

    NDIC frets over MfBs’ poor rendering of returns

    The Nigeria Deposit Insurance Corporation(NDIC) has expressed concern about poor rendering of returns by some of the 880 microfinance banks (MfBs) operating in the country.

    NDIC Managing Director, Umaru Ibrahim raised this alarm yesterday at a workshop organised by Corporation for MfBs in Lagos. He noted that since the extension of deposit insurance to MfBs in 2008 to date, only N1.1 billion has been collected as premium by regulators from the sub-sector.

    He said that so far, N2.5 billion had been paid to depositors of the closed MfBs, out of total insured deposits of N4.5 billion. The NDIC boss said, the figure is by far, lower than the insured deposits in the sub-sector, citing the case in September 2010 when 103 MfBs were closed by the regulatory authorities.

    Ibrahim, who was represented by Bashir Dada Umar, NDIC Director Special Insured Institutions Department, said regulatory authorities will continue to take measures to enhance their effectiveness in the discharge of their mandate to the sub-sector to ensure the realisation of policy objectives.

    “We are concerned that many MfBs are not operating as they should, neither are they playing by the rules. As many as 15 per cent of the over 880 MfBs operating in the country fail to render returns to the supervisory authorities, as and at when due, while as many fail to pay their annual premium as required by law,” he said.

    However, he said that to tackle failure to pay premium by some MfBs, the corporation has proposed tripartite agreement whereby the correspondent banks of the MfBs will  be required to debit their accounts and credit the corporation with the premium due.

    The NDIC boss said the regulators are however, not unaware of the challenges facing the MfB subsector in the country.

    He cited issues relating to undercapitalisation, illiquidity, high cost of funds, high operating cost, poor infrastructure, false life style of managers, among others.

    Ibrahim said the regulators are taking appropriate measures to provide relief to the sub-sector. He said that with an estimated 160 million population in the country, 70 per cent of whom are involved in the informal sector and 76.8 per cent of the rural residents unbanked, it shows that there exists a huge untapped potential for financial services at the micro level of the economy.

  • Mfbs reject farmers’ loan proposals

    Mfbs reject farmers’ loan proposals

    Microfinancebanks’ (MfBs) operators are turning down loan proposals from farmers due to cash crunch, it was gathered.

    Some operators, who spoke on condition of anonymity, said the banks do not have enough cash to lend to the farmers.

    Confirming the development, the Chairman, National Association of Microfinance Banks (NAMBs), Southwest, Mr Olufemi Babajide, said many farmers who opened accounts were finding it difficult to access credit.

    He said some farmers opened accounts with N100, adding that the system has been made flexible for the growth of the farmers. He said virtually all the banks are afraid of taking the risk of lending to farmers because they are not sure of when CBN will release NIRSAL funds.

    He said many of the banks are not liquid, and therefore, not ready to advance credit to a sector where they are not sure of recouping their money immediately. He said the idea runs contrary to the provisions of the NIRSAL.

    He said: “Under NIRSAL, microfinance banks are expected to contribute 15 per cent, farmers (10 per cent) while NIRSAL provides the balance. The total would be handed over to the banks for lending to farmers. The agreement stipulates that each farmer will get 10 times whatever they have in their accounts with the banks. If, for instance, a farmer opens an account with N10,000, he is expected to get N100,000 as loan. Though CBN has promised to release the N75billion for lending to the farmers, the money is not forthcoming.”

    Adding that” the banks do not want to sound stupid. CBN told the mfb operators to lend to the farmers, while promising to pay them back from NIRSAL fund. Do you think a bank that is battling will take that risk and still continue in business,” No, it is not possible.

    Speaking on the issue, the Managing Director, Best Foods Limited, Mr Emmanuel Ijiwere said agricultural sector has suffered a lot in the hands of the banks. Ijiwere said the level of credit to the sector is less than 1 per cent, arguing that the issue is having a telling effect on the sector. He said farmers have been trying to access credit for operations, butin most cases have their proposals rejected by the banks.

  • MfBs shun N60b micro insurance market

    Despite its N60 billion potentials, microfinance banks (MfBs) are not showing interest in micro-finance insurance (MfI), it has been learnt.

    Last year, the National Insurance Commission (NAICOM) unveiled plans to exploit the MfI potentials using the MfBs.

    According to operators, the inability of underwriters to have well-defined and simple products may mar the success of the initiative.

    Managing Director, LAPO Microfinance Bank Limited, Mr Godwin Ehigiamusoe, said some operators were sceptical about the terms and conditions of various products offered by insurance firms and may not be obliged to patronise them.

    Ehigiamusoe said the products were too complex, adding that they are too high for a sub-sector that is struggling to make profit.

    Insurance firms, he said, had not done enough to convince the banks on the need to buy into the initiative.

    He said the insurers need to be providing innovative products and services before they can be accepted by the banks, advising them to work out plans on how to insure credit risks in the banks. He said the importance of micro insurance to the poor cannot be underestimated, stressing that they need it more than the rich people.

    Ehigiamusoe said: “The poor need insurance services than even the rich people. While a financially comfortable person can access medical care, the poor cannot and in the long run, may die from preventable services if he/she does not have a policy.”

    Managing Director Sapida Microfinance Bank, Mr Lukman Oyebamiji, said micro insurance scheme is a welcome development for the sub-sector, if properly structured and administered.

    Oyebamiji said if the initiative is well-administered, Mfbs will reduce cases of loan defaults generate more money.

    He urged insurers to come up with products that are simple and affordable to microfinance clients to make the scheme work.

    Similarly, the Chairman, National Association of Microfinance Banks (NAMBs), Mr Olufemi Babajide, appealed to underwriting firms to extend the services to the grassroots where microfinance clients reside to deepen the insurance market.

    Babajide said a well simplified and affordable product is what insurance firms need to make the scheme work, stressing that anything short of this would not augur well for the industry.

    He said the decision of insurance companies to continue to focus on the lucrative sectors only will affect penetration and the purpose for which the micro insurance initiative was mooted.

    “For instance, we always give loans to poor people and if their businesses suffer mishap, it will affect their repayment flow, hence making loan recovery difficult. But with micro insurance, we are rest assured that our money is safe because if our customers suffer fire-outbreak, theft, among other risks, the underwriting firm is there to compensate them and as a result, they can repay their loans,” he said.

     

  • MfBs seek assistance to recapitalise

    MfBs seek assistance to recapitalise

    Microfinance Banks (MfBs) are seeking the support of Federal Government and Development Finance Institutions (DFIs) to meet Central Bank of Nigeria’s (CBN’s) December deadline on recapitalisation.

    Speaking with The Nation, the Managing Director, Support Microfinance Bank, Sunny Akahmiorkhor, said majority of the MfBs were not able to recapitalise because there was no support from the government.

    According to the CBN, they are supposed to recapitalise into the following categories: state and national. Those which are unable are to remain as units.

    To recapitalise, a unit MFB needs N20million, state N100 million and a national MfB N2 billion.

    He regretted that though the 2005 MfB framework set by the CBN requires state governments and local governments to contribute one per cent and five per cent of their yearly budget to MfBs’ operations, this is not being implemented.

    He said the government’s non-commitment to the operations of MfBs have made it difficult for leading DFIs, such as the International Finance Corporation, International Development Bank, and Department for International Development (DFID), to commit funds to them. He said DFIs are expected to give grants to MfBs to fund their operations.

    The CBN said many MfBs were deficient in their understanding of the microfinance concept. It said poor corporate governance and a high level of non-performing loans, among others, are also key challenges facing the subsector.

    According to CBN’s operational guidelines for the establishment of microfinance banks, they are not expected to engage in excessive spending.

    The CBN had shifted the recapitalisation deadline for the subsector by one year to December 31, 2013.

    In a circular to banks before the new deadline, CBN Director, Other Financial Institutions, O.A. Fabamwo, said it was exigent to remind directors and shareholders of MfBs that the deadline is sacrosanct.

    He, however, advised the banks to conduct due diligence and seek legal and financial advice. He reminded directors and shareholders of MfBs on the deadline for compliance with the Revised Microfinance Policy Framework, particularly on the capital requirements for each category of MfBs and branches/cash centres.

    He said henceforth, ‘customer interaction centres’, ‘meeting points’ and ‘customer service centres’, or similar outlets, located outside the registered business premises of a unit MfB shall be regarded as unauthorised/unapproved branches/cash centres if the deadline is not met.

    Besides, previous approvals for such outlets for unit MfBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN.

    Many of the MfBs liquidated by the Nigeria Deposit Insurance Corporation (NDIC) ran into trouble when their debtors refused to pay back their loans, over 80 per cent of which were unsecured. Besides, some of the MfBs were taking excessive risks, and branching out too quickly without considering resources at their disposal and whether utilised funds were short or long term obligations.

    A unit MfB bank is authorised to operate in one location without branches/cash centres while that of a state is allowed to open branches in the same state or the Federal Capital Territory (FCT). But a national MfB can operate in more than one state, including the FCT. It is allowed to open branches in the states and the FCT, though subject to the approval of the CBN.

  • MfBs reject N20m proposed capital for unit operators

    MfBs reject N20m proposed capital for unit operators

    Microfinance Banks (MfBs) have rejected the N20 million capital proposed by the Central Bank of Nigeria (CBN) for unit operators.

    The National Association of Microfinance Banks (NAMBs) said many unit operators would die if the proposed capital is implemented.

    The proposed capital “is too high”, NAMBs Lagos Chapter Chairman Valentine Whensu said.

    In a statement, Whensu appealed to the banking watchdog to allow the operators to open more branches to enable them raise the N20 million capital base. He said when the banks are allowed to open more branches, it would be easier for them to generate enough profit.

    He said it would be more convenient for operators at the state level to raise the N100 million capital base required of them.

    Citing Lagos, Whensu said the state has 20 local government areas and 37 local council development areas, adding that these would make it easier for those that want to play at the state level to get enough funds for recapitalisation.

    He advised CBN to consider the association requests, adding that the Microfinance Banks are committed to serve the poor in the country.

    Whensu commended the apex bank for extending the recapitalisation deadline to December 2013 from December last year, stressing that this will enable the banks to shop for more funds.

    The Managing Director, Gold Microfinance Bank Limited, Mr Lanre Abiola, said there is need to have a critical look at the recapitalisation fees of the banks, adding the fees must be moderate to foster growth of the operators.

    Abiola said the bad economy is taking its toll on the banks, arguing that it is becoming increasingly difficult for some operators to raise the minimum capital base of N20 million.

    He said: “The cost of operations of microfinance banks is high in Nigeria. When you consider the cost of procuring diesel to provide alternative alternative power supply, payment of salaries of staff, among others, one would discover it is not easy to operate MfBs in a country with poor infrastructure.

    “Besides, it is difficult to satisfy all the customers that are coming for loans. The reason is because savings is very low in the banks. The money that the banks are giving as loans comes from the savings. In a situation where a customer lodge in let say, N60,000 for a year or two, and is expecting a loan of N300,000 or N500,000. That is impossible. There are many problems facing the banks, of which illiquidity is the major one.”

    NAMB Chairman, Mr Olufemi Babajide, said liquidity is the major problem among the banks, in spite of the flexible recapitalisation fees imposed on the banks by the CBN.

    Babajide advised banks to choose from the N20 million, N100 million and N2 billion capital base to serve their customers better.

    He said the association few years ago divided the banks in Lagos into six zones to enable them to serve their customers well in their zones and get enough money for recapitalisation.

  • MfBs, insurers to explore N60b micro-insurance potential

    Ahead of the release of guidelines for micro-insurance operation, micro-finance banks (MfBs) and insurance companies are contemplating how to explore the potential of the subsector said to be worth N60 billion.

    The National Insurance Commission (NAICOM) is expected to release the frameworks for the implementation of micro insurance operation in a few weeks.

    Through micro insurance, MfBs would be able to sell insurance products to those at the bottom of the pyramid. The initiative is expected to bring in more revenue and expand the markets of the insurance firms and the banks for growth.

    Insurance Commissioner, Mr Fola Daniel, said plans were underway to release the micro insurance guidelines before the end of next month to enable operators benefit from scheme.

    He said the guidelines would enable insurance operators take micro insurance policy to the grassroots where microfinance banks are major players.

    He said when the micro insurance guidelines are out soon, poor Nigerians can buy insurance at a cheaper rate. He added that the idea would ensure insurance penetration, especially in the rural areas where underwriting firms have done little to capture.

    Chairman, National Association of Microfinance Banks (NAMBs), Southwest region, Mr Olufemi Babajide, said the association is waiting for the guidelines to enable its members key into the scheme.

    Babajide said when the guidelines are out, the banks would be able to help in selling insurance products to its customers.

    He said the banks were not new to insurance, adding that they have been rendering insurance advisory services to people. He advised MfBs to tap into the opportunities offered by the micro insurance scheme.

    Babajide urged insurance companies to come up with simplified products and services that will be affordable to microfinance clients, taken into consideration the nature of the market they want to play. He said when the guidelines are able to solve technical issues relating to micro insurance products, there would not be problems in selling them.

    He said: “The issue of micro insurance is a good one. It is a positive development, and no doubt, we will embrace it with our two hands. The idea of micro insurance will help in safeguarding the investments in microfinance banks, especially in lending. For instance, we always give loans to poor people, and if their businesses suffer mishap, it will affect their repayment flow, hence making low recovery difficult. But with micro insurance, we are rest assured that our money is safe because if our customers suffer fire outbreak, theft among other risks, the underwriting firm is there to compensate them, and as a result they can repay their loans.”

    Managing Director, LAPO Microfinance Bank, Mr Godwin Ehigiamusoe, said the poor were more vulnerable to risks, adding that the impacts on them are always severe. This, he said, means that they need insurance more than the wealthy people.

    “The poor needs insurance services than even the rich people. While a financially comfortable person can access medical care, the poor cannot and in the long run, may die from preventable diseases. Based on this, the micro insurance is needed for the poor, which form the basis of micro banking activities,” he added.