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Crisis may soon erupt in the Microfinance Banks (MFB) sub-sector as the total assets of 978 micro institutions decreased to N341.68 billion at the end-December 2016, from N455.96 billion at end-June 2016, reflecting a decrease of 25.06 percent.
The Financial Stability Report released on Wednesday by the Central Bank of Nigeria (CBN) revealed that shareholders’ funds also decreased by 42.91 per cent from N135.09 billion in June to N77.12 billion at the end-December 2016.
The decrease in shareholders’ funds was largely attributed to losses by the microfinance banks, resulting from increased provisioning for non-performing loans.
Total deposit liabilities and net loans/advances also decreased by 13.05 percent and 20.96 percent to N166.29 billion and N183.96 billion at the end-December 2016, compared with N191.25 billion and N232.73 billion at the end-June 2016, respectively. Reserves also decreased by 24.39 percent, to N16.80 billion at end-December 2016, from N22.22 billion at end-June 2016. The decrease in reserves was as a result of operational losses.
Taiwo Oyedele, PwC, head of tax and regulatory services, West Africa Tax Leader, said the report is a reflection of the general state of the economy. The significant decline in performance and assets is a source of concern, as it indicates that the micro and small enterprises, as well as the financially disadvantaged segment of the society, who are mostly customers of microfinance banks, are more negatively impacted by the current economic situation in the country.
“The way out is to improve the overall business environment and support for micro and small businesses. Where necessary, government should be willing to bailout microfinance banks, just as was done for large commercial banks, especially because if microfinance banks are allowed to fail, the impact will be more on the poor,” Oyedele said in an emailed response to BusinessDay.
Franklin Odoemenam, managing director, Fragg Investment Management limited, said the decrease in the total assets of MFBs is as a result of macro-economic factors.
Odoemenam said rather than inject new funds into the sub-sector, foreign investors retrieved their funds. According to him, due to insufficient foreign exchange, investors could not get their dividend and interest on investment.
“Foreign investors are afraid of injecting new funds into the sub-sector. What the sector does is to recycle what they have”, Odoemenam said by phone.
He further advised that the government and the CBN should address the foreign exchange problem and create an enabling environment for investors to feel free to invest.
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