By Amaka Agwuegbo
The Central Bank ofÂ Nigeria has asserted that most microfinance banks in the country have poor asset quality, with average non-performing loan at 40% and Performance at Risk at 45% as against the 25% prescribed for MFBs.
Speaking at the 2nd Committee of Microfinance Banks in Nigeria (COMBIN) Lagos zone held, weekend, in Lagos, the Acting Director, Other Financial Institutions Department, OFID of CBN, Mr. Femi Fabamwo, expressed displeasure over the non submission of final licence application by some MFBs, saying that such is sanctionable by the CBN.
According to Fabamwo, â€œThough majority of MFBs have their licence, but some have not submitted their application for final licence. You have till this month end to submit your applications for final licence or risk having your provisional approval withdrawn while the CBN would commence the process of closing such institutions.â€
Fabamwo bemoaned the low level of monthly returns by some microfinance banks. â€œWe were hoping to get 100% rendition of returns from all MFBs but 46 MFB have failed to so do. We rely on the monthly returns to know where the MFBs have problem and how to address such.â€
He admonished that failure to render monthly returns by any microfinance bank for 6 consecutive months in one calendar year would result to the revocation of their operating license.
MFBs are to submit monthly returns to the Director, Other Financial Institutions Depart-ment (OFID) of the CBN as well as to Director, Special Insured Institutions Department of the Nigeria Deposit Insurance Corporation (NDIC) not later than 10 working days after the relevant month.
Fabamwo said though most MFBs are liquid, have moderate earnings and report profit, but, the quality of management is still poor with weak board members with 19% of MFBs sustaining losses.
â€œLiquidity is high, but there are few cases of illiquidity due to the fact that some MFBs have high level of insider credit, especially their directors, high investment in fixed assets, making it difficult for operators to match assets to liabilities.
â€œThese have greatly contributed to the high level of illiquidity which leads confidence crisis. I advise the MDs to quickly call the board of directors when they sense signs of illiquidity.â€
Operators were cautioned against exposing themselves to high level of insider-related credits which are always beyond the stipulated limits by the law establishing MFBs.
Section 20(2)(a) of BOFIA, 1991 stipulates that a bank shall not, without prior approval in writing of the CBN, permit to be outstanding, unsecured advances, loans or unsecured credit facilities of an aggregate amount in excess of N50,000 to any of its directors, to any firm, partner-ship or private company that any of its directors is a guarantor or any public or private company in which any of its directors maintains a shareholding of not less than 5%, either directly or indirectly.
Secured loans, advances and other credit facilities, which are secured by acceptable collaterals shall not exceed 1% of the share-holdersâ€™ fund for any individual borrower and 5% for group borrowers.
Aggregate insider-related lending shall not exceed 5% of paid up capital of any MFB at any time. This includes both secured and unsecured lending, but excludes staff loans and advances. But it is expected that the share-holdersâ€™ fund would be higher than the paid-up capital.
The Acting Director of OFID cautioned MFB operators, chairmen, directors and management against issuing falsified or forged statements of accounts on behalf of their customers (and even non-customers) with a view to exaggerating the financial standing of the affected persons.
In a circular sent to all chairmen, directors, MDs and staff of all PMIs and MFBs, and signed by Olufemi Fabamwo, Acting Director, OFID, it stated that some MFBs and PMIs issue false/forged statements of account for presentation to embassies and high commissions in support of applications for entry visa to the affected countries.
â€œThese immoral, unethical and illegal acts undermine the integrity of the financial system in general and the other financial institutions (OFIs) sub-sector in particular.
â€œFor the avoidance of doubt, any staff of any financial institution found to be engaged in this act shall be blacklisted and referred to the Police and the EFCC for further investigation and prosecution, while the affected institution shall be appropriately sanctioned.â€
The Committee of the Microfinance Banks in Nigeria (COMBIN), which is made up of the managing directors and CEOs of microfinance banks is an advisory and advocacy committee that will promote professionalism, high ethical standards and build some capacity trainings for their members to complement the efforts of the regulatory authorities in promoting stability, especially financial stability.