• Thursday, July 18, 2024
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BusinessDay

‘Microfinance banks’ loans, advances to rise N900bn annually’

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The demand for loans and advances by customers of microfinance banks (MFBs) operating in the country is expected to rise to about N900 billion annually.

This was disclosed by Godwin Ehigiamusoe, managing director, LAPO Microfinance Bank Limited, at BusinessDay’s in-house briefing in Lagos.

As of the 2011 year-end, MFBs loans and advances stood at N68 billion based on the Central Bank of Nigeria (CBN). This implies that for the MFBs to meet the rising demand, they will have to mobilise deposits above N900 billion annually.

BusinessDay investigation has revealed that in Lagos State alone, MFBs empowered over 1.2 million low income earners who are enterprising to the tune of N100 billion in 2012. Meanwhile, LAPO Microfinance Bank alone as at the end of 2012 disbursed N46.7 billion just as the bank is targeting N61 billion by end of 2013.

“The challenge we have in the economy is that of access to fund rather than pricing. That is why you see many microfinance banks charging so high lending rates between 5 and 10 percent monthly and people still go there. We said that we are doing N61 billion this year, which is just a drop of water in the ocean, in what is being demanded in microfinance banks. I think that the demand for microfinance services could grow to about N900 billion annually in this economy”.

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Well-managed MFBs continue to enjoy significant patronage from the banking public because of the specialised services they provide. This is evident in the 2011 annual report of the Central Bank of Nigeria (CBN) which indicated that the short term loans and advances of MFBs constituted 89.7 percent while the short term deposits represented 93.2 percent.

Also, MFBs disbursed loans and advances to entrepreneurs in the agriculture and forestry, mining and quarrying, manufacturing, real estate and construction and commerce. Others include transportation/communication and other sectors of the economy.

However, in order to meet the rising demand for MFB services and to minimise risk, the CBN has mandated all the existing MFBs to recapitalise by year end. Consequently, a unit MFB should capitalise to the tune of N20 million, state MFB to N100 million, while national MFB to the tune of N2 billion. A unit MFB is expected to operate in a single location, state MFB will only operate at different locations within a state while a national MFB is expected to operate at different locations within the nation.

Ehigiamusoe explains that LAPO means “Lift Above Poverty Organisation”. It started with 3 women as clients and N300 deposits as far back as 1988. It enjoys the partnership of USAID, The Grameen Foundation and IFC. It presently has about 900,000 active borrowers.

“LAPO has just launched its 5-year strategy which will run from 2013 to 2017. One of the things we intend to achieve is to hit 5 million clients by the end of the period”.

Over time the company has spread its reach to 26 states of the federation and Abuja.

LAPO’s retained earnings as at 2012 year end were about N5 billion. According to him, one of the reasons the company has remained profitable is due to the adoption of client protection principles which are the policies employed by the global microfinance community. The clients’ protection principles are part of the microfinance-industry initiative to ensure that low-income clients are adequately protected against explosion and unethical practices.

Small loans are disbursed to new clients and gradually increased in subsequent cycles; clients cannot have loans of more than two types at the same time; rates and charges are presented in a manner that clients can easily understand and are displayed in all branch offices; client support officers (CSOs) are required to treat clients with dignity and courtesy; and client support officers are forbidden to accept gifts from clients.

LAPO practices finance plus because it pays 4 percent on deposits, 2.5 percent on loans while its corporate social responsibilities involve scholarship grants to children of indigent customers.