By Babajide Komolafe
CBN Governor, Mallam Lamido Sanusi gave this indication while speaking at the corporate headquarters of Vanguard last week. Speaking on theÂ measures to tackle the challenge of supervising the over 1000 microfinance banks in the country he said, “I have a team about to go out now to Ghana and South Africa to look at their model because the Central Bank of Ghana have farmed out the supervision of MFBs to independent audit firms.
The CBN needs to ask itself whether it has the capacity to take up all these institutions. The oversight capacity of the CBN in terms of human beings cannot cope with the supervision of these institutions.”
In less than three years of existence the microfinance banking sector is already experiencing widespread incidence of illiquidity crisis caused by non performing loans and fraudulent practices. The severity of the crisis is reflected in the increasing number of microfinance banks that have closed shop while their customers suffer the agony of not been able to access their money.Â Top on the list is the prominent and doyen of the sector, Integrated Microfinance Bank, which was forced to close shop by irate depositors that stormed its offices for the funds. Most worrisome is the case of fake MFBs like Allmon, which defrauded unsuspecting members of the public as well as the rising trend of fraudulent practices by staff and management of some MFBs.
The crisis in the sector has however raised concerns over the ability of the CBN and the Nigeria Deposit Insurance Corporation (NDIC) to effectively supervise the activities of these MFBs, especially in view of the number and widespread location across the country.
In an exclusive interview with Vanguard recently, former Director, Special Insured Institutions Department (SIID), NDIC, Mr. Joel AhimieÂ said, AConsidering the number of MFBs, I doubt if the CBN and NDIC would be able to carry out proper examination on them. The examination cycle is usually one year, so if the CBN and NDIC were to examine, it is not possible for the CBN to examine for 356 days in a year since it spends, at most, 3 days to carry out anÂ examination, so it would not be able to examine 400 nor can the NDIC.Â We also have to consider the quality of the examination and three days might be grossly inadequate to examine.”
To address this, Ahimie suggested that the apex bank should consider outsourcing the examination of MFBs. He said, “I should think that the CBN and NDIC, by now, should be thinking of outsourcing part of the supervision of the MFBs because when they were community banks, their examinations were outsourced by the CBN to some auditing firms. But we have to ask if the auditing firms are qualified enough to offer the kind of examinations that the Examination Department of the NDIC would provide.”
Industry operators are however divided over the idea of the outsourcing the examination ofÂ MFBs.Â Â Chairman, Lagos State chapter of the Association of Microfinance Banks of Nigeria, Mr. Adenekan, said he supports the outsourcing, saying the present master/servant relationship between the CBN and MFB operators doesn’t augur well with them.
“The outsourcing is long overdue because, with over 800 MFBs, there is no miracle that the CBN can do to examine all of us, except it wants to do a shoddy job. The examination should be outsourced to competent hands that would be given guidelines to follow so that the MFBs can work with them to make the examinations better.
“Also, with the outsourcing, a personal relationship between the MFB operators and the agency(s) will develop since they will have fewer MFBs to examine and monitor, thereby, make us grow. The present approach we have is a master/servant relationship and this doesn’t augur well with us.”
Also advocating for the outsourcing MFBs’ examination is Mr. Ikechukwu Awa, Managing Director, Good Neighbours MFB, who believes that the lack of adequate manpower is hindering the apex bank from carrying out its duties.
“It looks like the CBN is biting more than it can chew because the manpower to regulate over 800 MFBs is enormous, which it might not have, thereby, making it necessary for it to outsource the examination. Equally, the people should be properly trained to understand the MFB sector so as to do a good job. In line with this, I think the CBN should employ the services of it ex staff who understand the workings of the industry to make it better. But there is no denying the fact that there is the need for the CBN to outsource the examination of MFBs.”
But the Deputy Director, Other Financial Institutions Department (OFID), Mr. William Ogumba, is strongly opposed to the outsourcing of MFBs’ examination, explaining that microfinance banks should not be domiciled outside the CBN since their examination is just one of the functions of the CBN.
“If you want the examining, accepting and analyzing the returns, licensing, approval, change of names, etc, to be outsourced, then, it means you want to take microfinance banks from CBN and put in another body like is obtainable in Ghana.
“Rather than outsourcing and apart from OFID, the CBN can create another department that would focus primarily on MFBs. This way, they will have greater concentration since all they will dream and think about is microfinance. This is because, if it requires equipment, the CBN will bring in the needed equipment and if it is numbers, then we will increase the number of people.”
The Managing Director of Port Harcourt based Maxitrust MFB, Mr. Emeka Anekwe, said there is no reason for the CBN to outsource the examination.Â “I strongly oppose the outsourcing since there is no basis for the CBN to contract the examination because it is capable of carrying out its functions. Remember that at a point in the banking sector, there were over 80 commercial banks with numerous branches and the CBN conducted their examinations and supervision. So, I wonder why the examination of MFBs should be contracted, except someone is trying to create jobs for some people.”
Mr. Phillip Okuabor, Managing Director, Citigate MFB raised the issue of who will pay for the services notingÂ that the aim of the examination exerciseÂ may be defeated if individual morals are compromised.
“The examination helps to highlight what the MFBs are not doing well. If the CBN outsources the examination, it means someone will pay for it. Is it the CBN or MFBs that will pay for it? Even if MFBs are to pay for the services, it may go on well initially but because each person has a price, the whole efforts may be compromised.
“When the community banks were being supervised by the board of the community banks, people cried out, saying it was better for the CBN to do so. Today, the CBN is doing the supervision and people are crying again. I really must say that the CBN has honestly tried. It is a Herculean task to supervise over 800 MFBs. The OFID in CBN is a very large department and the staff is knowledgeable. I don’t know what else operators want because it would amount to over regulation.”
Mr. Ejike Azubuike, Managing Director, Imperial MFB,Â said the examinations can be outsourced if the agency reports toÂ and is under the supervision of the CBN adding that it is not an easy task to take over the functions of the CBN.
“The answer is yes and no. The examination can be outsourced if it requires normal auditing, and no if there are areas of examination that requires banking experience and if the examination is outsourced, it may not quiet be the same thing. But because the number of MFBs outweighs the manpower of the CBN, it’s better to outsource instead of not having any examination at all.”
Managing Director, Accion MFB, Mrs. Bunmi Lawson saidÂ that the CBN can outsource the examination of MFBs if it lacks the capacity to do so but should alsoÂ ensure that the examination isÂ outsourced to an agency that is competent and understands bank examination and the industry.