By Amaka Agwuegbo
TheÂ microfinamce bank inter-bank market must be credible to attractÂ patronage from operators of microfinance banks (MFBs).
The Managing Director/Chief Executive Officer, Moorgate MFB, Lagos, Mr. Gbolahan Bello, said that because MFB operators have little control over what the inter-bank market does with the funds, operators need to have a full understanding of the workings of the inter-bank market before investing their depositorsâ€™ funds.
â€œThe MFB inter-bank market is a welcome initiative, but the industry is still young and operators donâ€™t have a deep knowledge of each other. We need to know who we are dealing with and have an idea of what they do there before you can give out your funds. The reason is that our funds are from customersâ€™ deposits who believe and trust that we would manage their funds judiciously and will get it when they need it.â€
â€œThe essence of the market is that any MFB that has excess capacity can shed some for others who might need it. But, since we donâ€™t have control over what they do with the funds, we need to have an idea of how they operate and trust them before we can give them our depositorsâ€™ funds.â€
The MFB inter-bank market, an initiative of Financial and Derivative Company and Kakawa Discount House, aims at providing opportunities for increased mobility of funds among MFB operators, reducing cost of funding and improving the net interest margin by providing micro credits banks with a solid funding base to address the problems of short and medium term requirements.
It would operate like the conventional interbank money market, except that Kakawa Discount House would act as the settlement institution or the intermediary for MFBs.
According to the operators of the inter-bank market, this is because MFBs with single funding base face greater exposure and are more vulnerable to the effects of exogenous shocks and market volatility which result in low net interest margin due to the huge gap between the low deposit rates earned by commercial bank and high interest rate paid on their credit lines.
â€œMost times, banks get closed down when they are faced with liquidity problems than when they encounter solvency challenges,â€ said Bismarck Rewane, MD, Financial Derivatives Company, at the official launch of the Microfinance interbank market.
With an inter-bank market having suppliers and buyers of funds, the price recovery mechanism will be more efficient and their bargaining power will be higher. This will, in turn, deepen the microfinance sub-sector of the Nigerian financial services industry and mitigate to a large extent, the risk of a systemic failure.
The banks are to have a trading account with Kakawa Discount House, who can also offer facilities including meeting any overnight urgent demand.Bello pointed out that though the market will grow with time, the best way to increase patronage is for the MFB operators to meet, relate, understand and have confidence in each other before they can put their funds in the inter-bank market.