Nigeria: Microfinance Banks to Set up Interbank Market

Sep 2008
Lagos, Nigeria, September, 01 2008 - Microfinance Banks in the country have commenced moves to set up an interbank money market for the sub-sector.

An interbank money market is a market where banks borrow and lend among one another. The market  provides opportunity to invest their excess funds, and also borrow to cover temporary shortfall in their liquidity position. Apart from the 24 banks, other players in the Nigeria interbank money market include the five discount houses.

However, other financial institutions like microfinance banks and primary mortgage institutions (PMIs) cannot participate in the market because they do not have direct access to the clearing house of the Central Bank of Nigeria.

Financial Vanguard, FV, investigation however reveals that some microfinance banks in collaboration with one of the discount houses have commenced moves to set an interbank money market for the sub-sector. It was gathered that market would also be open to PMIs that desire to participate.

Sources confirm to FV that the proposed microfinance interbank money market was initiated by Kakawa Discount House which hosted the first meeting with five microfinance banks last month. The second meeting was held last week and the microfinance banks in attendance include IMFB Microfinance Bank and Gapbridge Microfinance Bank.

A reliable source at the meeting told FV that the microfinance interbank market would operate like the conventional interbank money market. The only exception is that Kakawa discount House would act as the settlement institution or the intermediary for the microfinance bank.

Although details of the initiative is still been worked out, it was gathered that part of the preparatory measures is that microfinance banks would form money market association patterned after the Money Market Association of Nigeria (MMAN), which is the umbrella body for bank treasurers. It was also gathered that the constitution of the association is been worked out while effort is been made to reach out to as many microfinance bank as possible especially those outside Lagos. Just like it obtains in MMAN, the proposed association would be operated by the treasurers of microfinance banks while the banks would be members.

Another source who confirmed the development to FV explained that the interbank market is very necessary for the sub-sector as it would afford microfinance banks opportunities to earn some income from the excess funds while those with temporary liquidity shortfalls will not panic but have the confidence to carry on their operations knowing that there is a market where they can always access funds. The truth, according to the source is that no matter how you plan, there would always be occasional disruptions to your projection leading to temporary liquidity shortfall as well as excess liquidity. That is why the proposed microfinance interbank market would help stabilise the operations of microfinance banks and enhance their income.

Source : Vanguard

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