Nigeria: Giving Microfinance Banking a Facelift

May 2013
Nigeria, May, 08 2013 - The author, Obinna Chima, examines efforts by operators of microfinance banks to comply with the revised microfinance policy framework.

Globally, microfinance banks (MFBs) are known for their intermediation role, especially in the provision of financial services to micro and small businesses with the primary aim of poverty alleviation and financial inclusion. MFBs were established to fill the gap created by the commercial banks by improving the socio-economic condition of the poor in the society.

As a result of the essential role small and medium scale enterprises (SMEs) that are largely described as the catalyst for economic growth, play in any economy, a vibrant microfinance banking system is always the target of policy makers.
Unfortunately, the MFB subsector in Nigeria has not been able to meet its objectives.
Consequently, in order to revamp the subsector, the Central Bank of Nigeria (CBN) recently extended the deadline for the implementation of the Revised Microfinance Policy Framework from December 31, 2012, to December 31, 2013.

The Director, Other Financial Institutions Department (OFID), CBN, Mr. Olufemi Fabamwo, had explained that the decision to extend the deadline was “to allow more time for capital raising and business combination options towards meeting the capital requirements for each category of MFB and for rationalising the existing branches/cash centres, etc., where necessary. Also, the uneven spread of MFBs in the country has remained a source of concern to operators. For instance, the Nigeria Deposit Insurance Corporation (NDIC) recently expressed concern over the poor presence of MFBs in the Northern part of the country.

The Managing Director/Chief Executive Officer, NDIC, Mr. Umaru Ibrahim, insisted that the “grossly uneven” distribution of MFBs in the country was frustrating the country’s financial inclusion strategy. Ibrahim pointed out that out of the 869 MFBs in existence, 346 (39.81 per cent) were located in the South-west, 162 (18.64 per cent) in the South-east, 158 (18.8 per cent) in the North-central, while only 63 (7.5 per cent) and 32 (3.68 per cent) are located in the North-west and North-east respectively. He disclosed that Lagos, Anambra and Abuja had the highest number of MFBs. “The uneven distribution has exposed the untapped potentials that require attention in order to realise the government’s policy on financial inclusion,” the NDIC boss added.

The Revised Microfinance Policy Framework

Part of the revised guidelines stipulates that all MFBs that have elected to remain as Unit MFBs as indicated in the compliance plans, are required to close any existing branches/cash centres, etc., subject to prior approval of the CBN in writing and adequate notification to existing customers, who should be advised to migrate their accounts to the MFB’s head office, while dissenting customers should be settled.
A Unit MFB is authorised to operate in one location. It shall be required to have a minimum paid-up capital of N20 million and is prohibited from having branches and/or cash centers.

Also, a State MFB is authorised to operate in one state or the Federal Capital Territory (FCT). It shall be required to have a minimum paid-up capital of N100 million and is allowed to open branches within the same state or FCT, subject to prior written approval of the CBN for each new branch or cash centre.

In the same vein, a National MFB is authorised to operate in more than one state including the FCT. It shall be required to have a minimum paid-up capital of N2 billion, and is allowed to open branches in all states of the federation and the FCT, subject to prior written approval of the CBN for each new branch or cash centre.

The CBN added: “For the avoidance of doubt, all ‘customer interaction centers, meeting points and customer service centres, or similar outlets, once located outside the registered business premises of a Unit MFB shall be regarded as unauthorised/unapproved branches/cash centres.

“All previous approvals for such outlets for Unit MFBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN.”

According to the CBN, penalty for operating a branch/cash centre without its prior approval as stipulated in Section 13.1(b) of the Revised Guidelines for MFBs attracts fine of N250,000 per branch for a Unit MFB, N500,000 per branch for a State MFB and N1,000,000 per branch for a National MFB.

“In addition, such unapproved branched/cash centers shall be closed within thirty (30) days. Failure to close an unapproved branch or cash centre shall attract a fine of N5, 000 for each day of default, irrespective of the category of MFB. Moreover, failure to comply with any directive issued by the CBN, as stipulated in Section 19(i) of the Revised Guidelines for MFBs, is a ground for revocation of licenses.

Ensuring Compliance

The National President, National Association of Microfinance Bank (NAMB), Mr. Jethro Akun, who spoke with THISDAY, welcomed the decision of the central bank to extend the deadline. He assured that his members would comply with the new deadline. However, Akun expressed disapproval over what he described as ‘policy inconsistency’ in the revised policy framework.

He explained: “The issue is that when we met with the central bank governor, we told him that the policy can be amended. If you say national microfinance banks can open branches all over the federation with CBN’s approval, state microfinance banks can open branches all over the state with CBN’s approval, what stops the CBN from also saying that unit microfinance banks can open branches all over the local government with CBN’s approval?

“Why are they limiting the unit microfinance banks? That shows policy inconsistency. If someone has decided to remain a unit microfinance bank, you can’t restrict him.” Akun, however, revealed that the central bank has set up a technical committee to look into the matter, even as he expressed optimism that it would be resolved before December.

Commenting on the extension of the deadline, he said: “We are working with our people to make sure we comply. We are also listening, not just to the operators, but also to the investors.

“But we are happy with the disposition of the CBN towards us. It is the microfinance banks that will promote the central bank’s financial inclusion strategy and financial literacy in this country.”

On his part, the Chairman, NAMB, South-west Chapter, Mr. Olufemi Babajide, pointed out that MFB operators did not have problem with the new capital requirement that goes with the revised framework. Babajide added: “There is stability in the sub-sector. What we need now is funding. The Microfinance Development Fund needs to be released so that our members can access it.”

On his part, the Managing Director/Chief Executive Officer, GTI Microfinance Bank Limited, Mr. Abimbola Adewale, commended the central bank over the revised policy framework for MFBs.

“The CBN has done its best by issuing the policy. For me, I think it is a wonderful policy,” the GTI boss said. Similarly, the Managing Director/Chief Executive Officer, Complete Trust Microfinance Bank Limited, Mr. Chinedu Nwogem, said that the revised guideline would promote stability in the industry.


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