• Thursday, March 28, 2024
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Government should use successful MFBs to push rural credit

CBN

There are over one thousand microfinance banks (MFBs), currently operating in Nigeria. There are also three categories of operators in that segment of the finance industry – the Unit MFBs have authority to run only one branch in the state where they are located, while the State operators are allowed to open as many branches as the CBN may allow in the state in which they are licensed to operate. The third category is the National MFBs, which are the big ones allowed to operate in every state and may locate in any state of their choice in the country.

These institutions had carried on business with authorised capital funds of N20 million, N100 million and N1 billion, respectively for unit, state and national microfinance banks. However, that era came to an end on October 22, 2018, when a new regulation on capitalisation was released. Going forward, anyone wishing to operate in the subsector would have to provide a capital fund of N200 million, N1billion and N5 billion respectively for unit, state and national MFBs. This is a clear call for consolidation, which was however, not unexpected, given recent developments in the subsector.

The industry has grown very rapidly and the things that go with maturity have begun to rare their heads, both ugly and pretty. As in humans, maturity and old age are good things but they bring with them, some not so-good-things – nagging grey hair that pops out from the nostrils and eye brows, waist pain, swollen legs and weak sight, among others. The microfinance industry has been experiencing some of that. There have been rising concerns over the health of many operators, and this, probably informed the recapitalisation program now underway.

Only last recently, the industry witnesses a lot of fatalities as the CBN revoked the licenses of about 154 microfinance banks, across the country, on grounds of sundry infractions and distress. According to the CBN, 62 of the failed operators had already closed shop while 74 of them had become insolvent. It added that 12 were terminally distressed; while six had been voluntarily liquidated. Over the years, the Nigerian Deposit Insurance Corporation has had to part with substantial parts of its deposit insurance fund in order to meet liabilities arising from failure of some operators. Evidently, the time has come for sweeping changes, if the industry is to meet the objectives of its designers and other stakeholders. With the new capital requirement, the changes have begun to come, with a sign that more are in the offing.

Evidently, the time has come for sweeping changes, if the industry is to meet the objectives of its designers and other stakeholders. With the new capital requirement, the changes have begun to come, with a sign that more are in the offing

But there should be no responsibility without empowerment. We can jack up the capital base of operators the much we want but that is not the only challenge. The poor creatures, ignore their frailties for a moment, operate in one of the harshest environments in the developing world. Undoubtedly, the idea of a strong microfinance industry is unassailable. We cannot continue to pretend that all is well. The dearth of any kind of meaningful infrastructure in Nigeria, especially in the rural areas where microfinancing is a life-giver is shameful. It is the main cause of the systemic risk in the subsector.

We now have a national microfinance bank, which though sounds like another Peoples’ Bank of Nigeria – a good idea that was crucified on the altar of public ownership, the challenge of operating environment is not a respecter of ownership of financial institutions. That institution will have to overcome the same challenges as the privately owns operators. Certain problems are largely a product of ownership structure and will not go away until steps are taken to fix them.

Some of the recent policies implemented in the sector are yielding good fruits, and need to be given a chance to nurture. The Secured Transactions in Movable Assets Act, which my readers know am leading promoter, is a case in point. In my trips around the country interpreting the Act to operators in seminars and lectures, I found that, as expected, that Act is beginning to positively impact both microfinance banks and their clients. Reports have it that by April 2018, total credit to that sector was about N400 billion but by November, it had jumped to about N1.1 trillion. As at October 8, 2018, 560 financial institutions had responded to our campaign, registered and are now leveraging the infrastructure of the National Collateral Registry to advance credits to clients.

Several financing statements have been registered worth several billions of Naira. I believe this is making lending more secure and safer. Surely, there is virtue in de-risking lending to such risky sectors as a general benefit to all Nigerians, rich or poor. Among the over 560 institutions registered to use the Collateral Registry as at October 2018, MFBs are 483. It means that an increasing component of the loans booked by the participating microfinance banks will be secured with movable assets. That tells us something about the future of lending and Performing Loans in the sector. It is bright.

As I have said elsewhere, despite the fact that a National microfinance bank has been established, we need to use the industry champions to push credit to the poor. It is not too late for CBN to use these industry champions, such as LAO, Grooming Centre and others, to disburse the N5 billion fund it has created. These industry champions are not hungry for business. Rather they will be doing the nation a favour to deploy their expertise to ensure that the economically active poor actually access the funds. These industry champions have distinguished themselves and can be trusted with government funds, have attracted multilateral funds and managed them well. Some of them are already accessing huge funds from even more discerning investors from abroad. We could use them to disburse the AGSMEIS funds more productively, rather than the Deposit Money Banks, that are content with oil and gas revenues.

Similarly, the CBN can introduce new monitoring indices, as they did in Kenya, where economic and social indicators have been introduced, including employment generated and contribution to literacy, in evaluating MFB performance. There is a business case for using the big MFBs to push public policy that are intended to touch people in the remote parts of the country.

Taken largely from my new book “Leading Essays on Microfinance”