Need for asset re-financing company in microfinance sub-sector

Although, bad debt is common to every business, but that of microfinance banks (MFBs) that serve greater number of the uninformed populace is huge.

Poor asset quality, according to the Central Bank of Nigeria (CBN), remained the bane of MFBs, as their non-performing loans (NPLs) represented 61.9 percent of the total loan portfolio, as against the regulatory benchmark of 5 percent.

This was attributed to the fact that most of the institutions were yet to articulate their risk management frameworks.

While speaking with BusinessDay recently, Pauline Nsa, managing director, FBN Microfinance Bank Limited, noted that the operations of some of the micro institutions migrated from community banks to microfinance banks did not change dramatically as they had a lot of bad loans that weighed down on them and made them difficult to attract deposit.

In this regard, putting in place risk management measures that will ensure that bad debts do not disrupt business operations is important. MFBs across the country are faced with the challenge of bad debt, which calls for urgent attention by stakeholders.

In order to find solution to this problem, the National Association of Microfinance Bank (NAMB), Lagos State chapter, has called on the Central Bank of Nigeria (CBN) to set up companies that can buy up its bad debts.

The Federal Government through the CBN in 2010, set up Asset Management Corporation of Nigeria (AMCON), as a special purpose vehicle to manage bank toxic assets or bad and non-performing loans of the rescued commercial banks. Operators of the MFBs also want the regulatory authorities to replicate this in the sub-sector.

Charting the way forward for MFBs, operators say the CBN should help microfinance banks set up something like AMCON that will buy their bad debts, and subsequently they will repay over a period of time.

“We need a company that can buy up our debts. So, the CBN should help us set up something like AMCON. You with the big banks, their loans are collaterise, so they are able to sell all these loans to AMCON. In our own case, they are not collaterised. So, what they can do for us is to buy them up and then give us liquidity so that we can repay over a period of time. Bad debt is a must in this industry and we must put in place structure that will make sure that the bad debt does not hinder our operations.

“If they buy them up, we will repay over a period of time with interest and we will now use the fund for other businesses. From the businesses, we will be able to pay interest and the principal over a period of time. That is what we need next now. These are structures that will ensure that we have a sustainable

sub-sector,” they said.

They is unlike the Asian countries where somebody dies, they will not bury the person until the relatives pay the debt, they said further, noting that “we do not have that type here. What we need is a company that can buy all the debts of microfinance bank, give them money and they will repay it over a period of time.”

They explained that the CBN had invited memoranda from operators and those from Lagos State sent in a detailed one in that respect, “so, we believe they are working on it.”

To them, MFBs need special court that will try customers that refuse to pay their debts. This will ensure they deliver the desired services to their customers.