The N220 billion Micro Small and Medium Enterprise (MSME) development fund, along with depositor confidence, may be at risk as microfinance banks’ Portfolio-At-Risk (PAR) remain 45.70 percent, higher than the prescribed maximum ratio of 5 percent.
Although the figure declined from 61.9 percent, where it stood as at December 2012, available data indicate that total non-performing loans (NPLs) held by the microfinance banks (MFBs) as at the end of December 2013, stood at 45.70 percent of their total loan portfolio.
This development is worrisome, since the regulatory benchmark for the industry, according to the Central Bank of Nigeria (CBN), is 5 percent.
Analysts believe that the growing rate of NPLs among the MFBs is as a result of the fact that most of the institutions were yet to articulate their risk management frameworks.
They are concerned that if adequate measures are not put in place to tackle this menace, the N220 billion MSME development fund which has already been disbursed may be at risk.
However, the CBN has said it will continue to ensure effective supervision of the institutions, with a view to enhancing stability in the sub-sector.
Meanwhile, the CBN, in collaboration with the International Finance Corporation (IFC), is set to kick off the collateral registry for moveable assets in December. This, analysts believe would help reduce the huge non-performing loans of microfinance banks.
The Apex bank in December 2013 conducted on-site examination on 797 out of 821 microfinance banks operating in the country, while 24 MFBs were not examined, according to the CBN’s Financial Stability Report for the month of December 2013, released recently.
The 24 MFBs that were not examined comprised 18 newly licensed ones which had not operated for up to six months as at December 31, 2013 and six MFBs located in volatile parts of the North-East geo-political zone.
An analysis of the on-site examination revealed that 526 MFBs, or 66 per cent of the 797 MFBs met the capital adequacy ratio (CAR) of 10 percent. Furthermore, 568 MFBs or 71.27 percent satisfied the minimum liquidity ratio requirement of 20 per cent.
“To give greater attention to the supervision of MFBs and in consideration of their large number, the CBN engaged 116 consultants to carry out post-examination monitoring. The first round of the post-examination monitoring, involving 580 MFBs, took place in December 2013, the outcome of which is expected to inform appropriate supervisory action early in 2014” the CBN stated in the report.
Valentine Whensu, president, National Association of Microfinance Banks NAMB) said “Non-performing loans is huge. If it is too huge, it discourages investors from coming. In Lagos, so many efforts are geared towards reducing that through engagement of debt recovery agents, through direct contact, through credit bureaus, which has now reduced serial borrowers.
“ So it is reducing. It is the contribution of deposit money banks that set up AMCON. Microfinance banks do not have money to set up Asset Management Company of Nigeria (AMCON) but if there is a private investor interested in setting up a structure in that regard, it should come up and CBN will be willing to engage with it”.
In his e-mailed response, Wale Adeleke, managing director, Corestep Microfinance Bank Limited, Lagos, said “as per the bad loans portfolio in MFBs, I must say it is alarming and it is a major problem. A credit registry may be handy at this instance. This would be a deterrent to serial defaulters.
“ The regulatory bodies should also make defaults punishable by law, as court judgements are costly and end up making loans payable in three months to be repaid in two years, after prolonged waits for judgement. However, AMCON’s intervention would be most welcome. That could just be the lifeline for some of us”.