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Micro-finance banks lack proper understanding of concept, best practice , CBN

By Oscarline Onwuemenyi
The Central Bank of Nigeria (CBN) has said that it is in the process of reviewing the licenses of some micro-finance banks in the country, citing a complete lack of understanding of the ideal and the methods for operating such banks.

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The Deputy Governor in charge of Financial Sector Stability, CBN, Dr. Kingsley Muoghalu, stated this on Tuesday at the maiden Micro-finance Certification Training Programme of Operators of Micro-finance banks, organised by the CBN in conjunction with the Nigeria Deposit Insurance Corporation (NDIC) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), in Abuja.

According to him, the reason for the collapse of  some micro-finance institutions in the country was attributable to poor corporate governance, non-adherence to best practice and ownership problems.

Muoghalu said, “In the course of on-site and off-site supervision of the micro-finance banks, so many issues bordering on corporate governance, adherence to best practice and ownership problems were identified.

“In addition, the banks had performed poorly due to lack of proper understanding of the micro-finance concept, method and best practice, and lack of proper orientation on how to deliver micro-finance services.” Other challenges faced by micro-finance bank operators, according to Muoghalu, include poor understanding of the provisions of the guidelines of the micro-finance policy and regulatory framework, and high rate of non-performing director-related facilities.

“Some of the directors, our investigations have shown, have over-bearing influence on management staff, who themselves lack relevant skills and knowledge in various micro-finance lending models and operational service delivery models,” he stated.

Muoghalu further revealed that the micro-finance banks lost focus and became too ambitious, which led them to attempt to operate as universal banks. He also linked absence of approapriate internal capacity building strategy, poor risk management procedures and internal control measures as some reasons behind the failure of the banks.

“Some of these banks had huge cost outlay in the acquisition of fixed assets before attaining minimum scale and efficiency level required to breakeven and become profitable,” he added.

He stated that the CBN had successfully organised an interim capacity building workshop for key management staff of the MFBs in September, 2008, and for non-executive directors in November of the same year.

“We had stated then that the interim workshop was a fore-runner of this comprehensive certification programme, which was initiated to create a pool of skilled manpower for the sub-sector,” he noted.

Meanwhile, the Director General of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Mr. Muhammad Nadada Umar, has stressed that the country would not be able to achieve the Millennium Development Goals (MDGs) and Vision 202020, unless the micro-finance sub-sector is strengthened and restructured.

According to him, “It goes without saying that micro-finance is the last hope of the low_income entrepreneurs and the economically active poor who cannot meet the lending conditions of the commercial institutions.”

He added that, “Micro-finance services are also an essential tool required by us if we achieve the MDGs and Vision 202020. Nigeria needs to make a success of our MFB system like other developing countries like India, Bangladesh and Latin American countries.”

Umar further noted that microfinance was very critical in achieving the mandate of SMEDAN because it is the lifeline of micro, small and medium enterprises (MSME) financing.

“Our financial sector is currently undergoing some restructuring and the government should be applauded for the numerous positive impacts of this exercise on the economy. The responsibility is now on all of us to restore the confidence of the masses, especially the MSMEs in the banking sector,” he added. He said the training gives the Agency an opportunity to solidify its contribution to the economic development process of the MSMEs.


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