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CBN warns against abuse as MFBs float liquidity placement platform

To address the short-term liquidity challenges in the sub-sector, microfinance banks in Nigeria, in collaboration with Microfinance Development Company Limited (MDCL), on Wednesday floated the inter-member liquidity placement platform and introduced the digital lending for micro-loans platform, with the CBN warning the directors of the MDCL against insider abuse of the initiative.

The major benefit of the platform to the operators includes visibility, access to liquidity and shared prosperity.

The MFBs industry has always reported high liquidity ratios averaging 90 percent to 100 percent.

“This can only depict one picture, an imbalance of the liquidity among the MFBs. We believe that an inter-member liquidity platform will correct this disequilibrium in the industry,” Nkiru Asiegbu, director, Other Financial Institutions Department (OFID) at the Central Bank of Nigeria (CBN), said.

Asiegbu, however, recalled a similar private initiative in 2008-2010 which was championed by the defunct Integrated Microfinance Bank but eventually collapsed by the same bank.

Asiegbu, who was represented by Akinlade Idowu, deputy director, MFB coordinating group, OFIDs, said promoting financial stability is the core function of the CBN, hence the promoters must mitigate cyber risks, operational risks, credit risk, compliance/money laundering risks and data security.

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“We have also noted the initiative to embrace technology to overcome one of the major problems of the industry – illiquidity,” Asiegbu said.

With the product launch of the inter-member liquidity placement platform, she said the CBN regulatory standards and prudential ratios aim to show that banks holding more liquid portfolio assets are better able to manage the maturity mismatch between assets and liabilities.

“The directors of Microfinance Development Company Limited should however avoid insider abuse of the initiative. Hence, fairness, transparency and accountability should be your watchword,” she said.

According to her, the CBN regulatory framework ensures that financial and operational risks are adequately integrated and moral hazards are avoided. The CBN will adopt a professional approach to the regulation of emerging platforms and technologies in consultation with the industry.

“By working together we can unlock the full promise of FinTech and other digital solutions and ensure a smooth evolution to tomorrow’s financial system to make it sound and safe, efficient and effectively serve the people who rely on it,” she said.

In his opening remarks, Rogers Nwoke, chairman of MDCL, said he was delighted that the sector has taken a very strong approach towards addressing short-term liquidity.

He said the market will be a lot more interesting while regretting that MFBs keep their money with commercial banks and they don’t give anything in return. Nwoke assured that the platform would not lead to systemic distress as controls are in place.

Obinna Onunkwo, managing director/CEO, MDCL, said the company is an initiative of the Association of Microfinance Banks (NAMB) and some microfinance banks aimed at creating a private sector-led institution that can access on-lending and special intervention funds for the microfinance sub-sector, enhance liquidity management efficiency and ultimately drive financial inclusion.

The company adopts a shared-service approach to solving the major challenges within the industry.

He said the sole aim of the event was to discuss ways to drive financial inclusion, using technology.

“We are privileged to have the greatest minds in the financial ecosystem at this event,” he said.

Yusuf Ahmed Gyallesu, national president, NAMB, encouraged his members to take advantage of the platform and enhance their operations.

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