Huge financial cost, running into millions of naira is scaring most of Nigeria’s over 800 Microfinance banks from adopting the International Financial Reporting Standards (IFRS), BusinessDay investigations have shown.
The MFBs problems are compounded by the fact that many of them are yet to raise the funds to meet the capital requirements of N20 million, for those in the Unit category, N100 million for states and N2 billion for National category, stipulated by the Central Bank of Nigeria ( CBN).
Consequently, only about six out of the 800 operating unit banks have successfully converted from the conventional reporting standard to the new one, which allows the investing public and other stakeholders access to records of operations of the banks. Some of the banks that have complied and which represent about 0.75 percent of the total operating institutions, are FirstBank MFB, LAPO MFB, NPF MFB and three others.
Further investigations showed that one of the MFBs that has the backing of a foreign institution, spent about N11.5 million to complete the process of IFRS conversion.
Operators who spoke with BuinessDay at the weekend, said they spent huge sums of money on training, getting technical assistance companies and on the actual conversion itself.
“We are publishing our IFRS audited 2013 financial result this year. We got a consultancy company that helped us covert to the new reporting standard”, Godwin Ehigiamusoe, managing director/chief executive officer of LAPO Microfinance Bank, told BusinessDay on phone.
Indeed, some of the operators have ruled out the possibility of mergers, as according to them, it will cost each bank in the group at least N3.5 million, a development they claim will defeat the purpose of the exercise.
The deadline for the adoption of IFRS given to MFBs by the Financial Reporting Council (FRC) was December 31, 2013 but operators are asking for three years extension to comply. Meanwhile the
CBN had advised all existing MFBs to comply with the IFRS.
BusinessDay gathered that the FRC wants Microfinance banks to make a representation at the Federal Executive Council (FEC) justifying the need for another extension.
Pauline Nsa, managing director of FirstBank Microfinance Bank limited said, “Its not easy”. She added that MFBs have no choice than to comply by adopting the new reporting standard, notwithstanding the cost of operation which she said is too high.
When contacted, Valentine Whensu, chairman, National Association of Microfinance Banks (NAMB) Lagos chapter, said it is not that Microfinance banks do not want to comply but that the cost of doing so is huge. “If you do a conversion for N11.5 million out of N20 million for a bank that has been struggling to raise capital, it is a major challenge that we are having”, he said.
Jim Obazee, executive secretary of FRC had five months ago disclosed that apart from Deposit Money Banks, the other financial institutions have weak financial reporting. A significant number of them did not pass the IFRS readiness test.
Analysts said the IFRS will allow for proper reporting and disclosure in microfinance banks and other corporate organisations. According to them, the IFRS will allow investors and shareholders to be able to assess microfinance banks proper.
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