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Poor asset quality: Operator supports risk management criteria

By Amaka Agwuegbo
The Managing Director of Meridian Microfinance Bank, Lagos, Mr. Innocent Ezema, is advocating the use of risk management elements by operators in the microfinance sector.

The Managing Director of Meridian Microfinance Bank, Lagos, Mr. Innocent Ezema, is advocating the use of risk management elements by operators in the microfinance sector to improve on their asset quality.

In a recent examination of the microfinance banks (MFBs) conducted by the Central Bank of Nigeria to ascertain the extent of compliance of the MFBs so as to ensure greater focus on core microfinance business, it was revealed that most MFBs generally have poor asset quality and weak corporate governance, though on the average, however, they were well capitalized above the prescribed minimum level of N20 million.

According to Ezema, “One of the policy goals of microfinance banks is to create employment opportunities and increase the productivity of the active poor in the country, thereby increasing their individual household income and uplifting their standard of living.

“This we do through giving loans to the active poor, but we been recording a high level of default in loans repayment due to the activities of some dubious people and this has led to a huge drop in our asset quality, which the Central Bank of Nigeria is harping on.”

The CBN observed that improper practices have led to an increase in the generation of poor quality loan assets, with some microfinance institutions (MFIs) and financial institutions having 20 percent of non-performing assets on their loan portfolio.

“You must all go out to recover outstanding loans to your customers while at the same time ensure that you maintain quality assets from now. About 46 MFBs have not rendered their returns for the past six months. You all know that the action is criminal and could be sanctioned with revocation of license, and that may assist in reducing the number of operators in the country.

“We are also aware that the sub-sector is bedeviled with poor quality of staff and all must be done to effect changes urgently. The issue of corporate governance is topical now and most of you are flouting it. The law will soon catch with those of you that are involved,” an official CBN warned.  Ezema is of the opinion that the asset quality of microfinance banks can be improved on if elements of risk management are employed.

“We scaled down on a lot of risk element principles that apply in normal lending propositions, but that doesn’t seem to be working. What we are doing now is to go back to risk management and try to put things in place to make sure that we improve on asset quality.”
Lately, a lot of microfinance institutions have been battling liquidity crisis, resulting in the sudden closure of some, while trapping thousands of depositors’ funds.


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