Micro borrowers are facing tough times getting loans and things look set to get even worse, following prevailing economic headwinds, resulting in a fall in household incomes and strained purchasing power.
Furthermore, the growing loss of jobs and revenue, following a contraction of the economy, seem to be compounding troubles of customers. Consequently the unfavourable business environment has reduced credit to the customers.
The rising Non-Performing Loans (NPLs) of Nigeria’s micro institutions stood at 23.13 percent in 2015 from 18.54 percent in 2014 according to a report by the Nigeria Deposit Insurance Corporation (NDIC). Analysts say the earnings of these micro institutions would further deteriorate and that the worsening condition of microfinance banks would further leave micro borrowers who are meant to be served by MFBs, credit starved.
Last year, when the economy was fairly stable, the total earnings of the microfinance bank sub-sector declined by 77.63 percent to N1.68 billion in 2015 from N7.51 billion in 2014, BusinessDay findings indicate.
Specifically, one of the leading microfinance banks with a national banking license, reported a drop in profit after tax from N622,555 million in 2014 to N545,941 million in 2015, representing 12.3 percent decrease.
Also, Nigerian MFBs’ return on assets (ROA) and return on equity (ROE) for the subsector declined from 3.39 percent and 14.70 percent in 2014 to 0.47 percent and 13.74 percent in 2015, respectively.
Analysts believe that the recent slowdown in economic activity which has impacted on business and personal finances, would have taken a toll on the accounts of the MFBs as well.
“ Given that they have weaker balance sheet size and advance mostly micro credits to businesses and individuals, non-payment of salaries, rising unemployment and lower sales by SMEs could have resulted in NPLs which would have necessitated provisioning for impairment charges and also resulted in lower profitability”, Robert Omotunde, head investment research, Afrinvest Securities limited, said.
According to Omotunde, the implication of this is that the MFBs will likely restrain from expanding credit until such a time that the economy stabilizes and normalcy returns to the market, thus impacting their ability to support businesses and catapult the economy to achieving greater growth potentials.
“The way out of this financial conundrum is for the monetary and fiscal authorities to intensify in implementing policies that will help reflate the economy and make it achieve its optimum potentials”, he added.
The Central Bank of Nigeria (CBN) conducted the risk based supervision of 236 microfinance banks, spot checks on five others that applied for voluntary winding up, existence checks on 30 institutions that defaulted in rendering returns consecutively, over a period of six months, and target examination for capital verification of 135 MFBs earlier issued regulatory directive to beef up their capital bases.
The results of the examinations revealed that 27 MFBs were moderate, 83 – had above average and 126 had “High” composite risk ratings.
Solomon Aderoju, National Association of Small and Medium Enterprises (NSME), told BusinessDay by phone that the problem with Nigerian micro borrowers is that their businesses are not structured. Aderoju further observes that they do not have financial track records.
However, Godwin Ehigiamusoe, managing director/CEO LAPO Microfinance Bank limited, said the prospect for microfinance in Nigeria is bright, considering the large population and also the microfinance policy and regulatory framework, which was designed to grow the sector. “I also see MFBs making enormous contributions to the economy in the coming years,” he said.
HOPE MOSES-ASHIKE
