CBN AND MICROFINANCE BANKS  

The supervisory authorities should address the issue of poor management of funds

Exercising its mandate, the Central Bank of Nigeria (CBN) last week revoked the operating licenses of 132 microfinance banks (MFBs) alongside three finance companies and four primary mortgage banks. According to the Governor of the apex bank, Godwin Emefiele, the firms had failed to fulfil or comply with the conditions for which their licences were issued for a continuous period of six months. The affected companies include Royal Microfinance Bank, Statesman Microfinance Bank, Vibrant Microfinance Bank, and Zamare Microfinance Bank. They have thus joined several dozens of other microfinance banks shut down for non-compliance with the apex bank’s statutory requirements.  

In 2005, the CBN came up with a regulatory and supervisory framework for the establishment of MFBs as a means of providing access to financial services to the unbanked population. The framework was designed to attract new capital as well as to regularise community banks (CBs), which had been established since the early 1990s, to provide conduits for lending. The banks solicit deposits which are guaranteed by the Nigeria Deposit Insurance Corporation (NDIC).  

Across the world, micro-lending carries the image of social investment, classified as a development issue in the mould of education, health, and related policies. The scheme provides financial services to micro, small and medium enterprises (MSMEs), across numerous industries such as trade, commerce, education, tailoring, carpentry, fishing, and transportation. These account for a significant percentage of businesses in Nigeria. Moreover, they are meant to cut down the number of the unemployed in the street and help to address insecurity across the country.     

But the microfinance institutions are plagued with plenty challenges. Most of them have low capital base while some are involved in diversion of funds. “The major challenge of the MFIs was access to finance,” noted Taiwo Oyedele, a partner at PwC Nigeria. “The major reason SMEs cannot access loans of commercial banks was that they cannot provide collateral. But the MFIs were asking them all manner of things they could not provide. You cannot treat SMEs like multinationals, asking them to provide financials, cash flow and projects, they will go away.” Indeed, their operational style is the same with commercial banks. Most of them are in urban areas instead of the rural communities where they are most needed. In addition, there are high loan defaults, heavy transaction cost, and low technical skills, among operators. Frequent changes in government policies also add to their woes.  

There are no adequate data on the total credit of the industry, but stakeholders believe its performance is a far cry of the need of SMEs. All these are not helped by the impact of technology. The microfinance banks are competing with online banks which do not have to set up elaborate structures such as offices. Perhaps, all this prompted the CBN, in 2013, to issue the revised regulatory and supervisory guidelines for microfinance banks, to address challenges observed in the implementation of the microfinance policy of 2005 and emerging developments in the industry. But for now, the impact is hardly noticeable. The NDIC released a list of 42 operators whose licences were revoked in November 2020.  

Out of desperation, many of these MFBs have resorted to using criminal and unorthodox methods to compel their borrowers to pay. They not only name and shame but also deploy the services of thugs. Going forward, the supervisory authorities should enforce standards and address the issue of poor management of funds meant for credit disbursement. Besides, the capital base of micro finance institutions should be strengthened in order to mobilise domestic savings and promote banking culture among low-income groups.