Doing by recent reports, the nation’s microfinance landscape is about to change following the nod by the Central Bank of Nigeria for the establishment of a National Microfinance Bank. The new financial institution is a joint effort of the Bankers’ Committee, an umbrella body of the CBN and the Chief Executives of banks, expected to contribute N5bn as equity from its N60bn Agricultural Small and Medium Enterprises Investment Scheme Fund, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending and the Nigerian Postal Service leveraging its widespread offices across the country. The rationale for birthing a National Microfinance Bank, in spite of the plethora of microfinance institutions in the country, is to ‘deepen financial inclusion, provide easy access to credit and other financial services to SMEs, reduce unemployment rate in the rural areas as well as curb rural-urban migration’. As noted by Godwin Emefiele, the Governor of CBN, the NMFB has also become necessary in view of the high and ‘outrageous’ interest rates charged by existing microfinance banks.
However, this initiative is not going down well with some stakeholders, especially operators of microfinance banks, who argue that the role of the CBN in the microfinance space should be restricted to supervising its National Microfinance Policy Framework instead of participating directly as a competitor. In their contention, if MFBs charge exorbitant interest rates as being alleged, it is because of the high-risk environment under which they operate including the enormous operating costs associated with maintaining a minimum of 80 per cent for micro loans and a maximum of 20 per cent for SMEs in line with the prudential guideline regarding the composition of a MFB’s loan portfolio. There is also this apprehension that the NMFB will crowd out existing MFBs, thereby creating a monopoly with all the attendant inefficiencies.
Be that as it may, there is a widely-held view that the contribution of the microfinance sector to the nation’s economic growth and development leaves much to be desired. In a country like Nigeria with a relatively low rate of formal financial inclusion, rural outreach represents one major indicator of the economic impact of Micro Finance Banks. As revealed in the recently launched ‘revised National Financial Inclusion Strategy’ report, over 80 per cent of financially excluded adult populations in Nigeria reside in rural areas. Also, while the South-pWest geopolitical zone had the least exclusion rate of 18 per cent, financial exclusion rates were highest in the North-East and North-West regions at 62 per cent and 70 per cent, respectively. Regrettably, the geographical spread of MFBs has not helped to change this narrative. Driven primarily by profit motive, it is not surprising that many MFBs are located in urban centres.
Sometime in October last year, the CBN published a list of 882 licensed MFBs in Nigeria and their locations, which showed that in the city of Lagos alone, there were 170 MFBs in operation. Other states with a relatively strong presence of these banks include Anambra (75), Oyo (53) and Ogun (49). In contrast, Bayelsa and Taraba each had three MFBs, while Yobe had only one MFB operating in the state as of 30th September 2018. This gap is expected to be narrowed with the plan to have the branch of the National MFB in all the 774 local government areas of the country.
It is pertinent to note that the objective of the CBN’s revised (2011) Microfinance Policy, Regulatory and Supervisory Framework policy include to ‘increase the financial inclusion rate in the country, improve access to financial services for the active rural poor and pursue poverty eradication’. The achievement of this objective has remained a far cry due, in part, to the myriad challenges facing the microfinance banking sub-sector, namely ‘inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift’.
It goes without saying that many MFBs operating in the country are under the yoke of huge non-performing loans to the extent that late last year, the CBN disclosed that it would revoke the operating licences of 154 MFBs, among which were some 62 that had already closed shop; 74 that became insolvent; 12 that were terminally distressed and six that voluntarily liquidated.
It was against this backdrop that the CBN thought it wise to jerk up their minimum capital requirement, such that a Unit MFB needs a minimum capital of N200m while a State MFB and National MFB licence require N1 billion and N5bn, respectively. This is with effect from April 2020 for existing MFBs expected to explore the possibility of mergers and acquisitions and/or direct injection of funds. Recent reports say the CBN has reviewed this requirements allowing for phased recapitalisation and categorising Unit MFBs into tier-1 and tier-2 with the N200m minimum capital requirement applicable only to tier-1 MFBs, while tier-2 MFBs are expected to have N50m. Also, the deadline given to the MFBs to recapitalise has been extended to April 2021.
Considering that many MFBs may fold up due to their inability to meet up with the new capital requirements, the establishment of the NMFB will go a long way in repositioning the microfinance sector to meet the critical targets set out in the Microfinance Policy.
As the experience in other climes have shown, the NMFB can share the microfinance space with existing MFBs in a mutually beneficial manner, especially with the assurance coming from the apex bank that MFBs that ‘meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations would be channels for micro funding activities of the CBN and the Development Bank of Nigeria’.
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