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MFBs need a lender of last resort – Babajide

By Amaka Abayomi
In this interview with Vanguard, the Ag Chairman, National Association of Microfinance Banks, NAMB, Lagos State Chapter, Mr. Olufemi Babajide, talks about the contributions of microfinance banks (MFBs), challenges they face and investment by Oiko Credit.
Excerpts.

What measures are being taken to reposition members of NAMB, Lagos chapter?

When I took over the leadership of the chapter in November 2010, the attendance to general meetings was low and this was attributed to the complexity of the state. The executives decided to group the MFBs into smaller units with each unit having a chairman, secretary and treasurer. They meet monthly with their members but meet quarterly with the state executives.

So in all, we have 14 mini-chapters and they have been inaugurated and has eradicated the situation whereby MDs were sending secretaries or junior officers who can’t take decisions for their banks to represent them. It also allows members to participate more and we disseminate information to our members faster.

The executives also came up with a 10-point agenda which are being implemented and we have also set up various committees that would support the executives and members of these committees are drawn from the 57 LGAs of the state.

It is true that our contribution to the economy is one per cent, but the truth is that the one per cent we contribute is providing for over 70 per cent of the populace so we should be given better recognition.

As a result, we are also setting up a Trust Fund that would provide funding support for our members. This is because some of these banks were closed because they couldn’t afford as little as N3m to keep them liquid. The Fund would be managed by trustees, the Board of Governor and an independent fund manager, while a deposit money bank would be the custodian.

For the MFB sector to grow and for people to have confidence in us again, we must be able to regulate ourselves. And because we disburse funds to the underbanked and people who may not be willing to pay back as most of them don’t have means of identification.

This makes training and retraining necessary because despite how long some of us may have spent in mega banks, we still need to learn the nitty gritty of microfinancing so as to deliver financial services and remain in business. Our capacity building committee is coming up with a training schedule for members.

What, in your opinion, are MFBs not doing well, bearing in mind that Lagos State has the most number of closed MFBs?
There are numerous reasons why these MFBs were closed but our biggest challenge is bad debt. We have issues with high cost of operation, bad debt, no lender of last resort, among others, just because microfinancing is still a new in Nigeria.

MFBs need a lender of last resort as the meltdown affected us and there was nowhere to run to, but if we had an available discount window, those closed banks would not be closed. Imagine what would have become of the commercial banks if not for the lender of last resort.

We are now operating according to the rules but we still need support for us to continue to survive because the operating environment is not conducive and people that want to invest are scared of the risks involved.

The yet to be established Microfinance Development Fund would solve most of the problems the operators are facing and bring relief to us. If the CBN says it has set aside N1bn for MFBs, the scenario would change and people would have confidence in us. It would also bring down the cost of fund and once that is done, the interest rate would be reduced.

Also, because MFBs are channels through which government can disburse funds to the poor as the poor would not go to Zenith Bank, FirstBank or GTBank, the regulatory bodies should put in place a company that would buy off MFBs’ bad debts as we are not under AMCON since we don’t collaterise our loans.

What is being done to attract international funding?

The challenge of lack of access to funds can be attributed to the drop in confidence in the sector. The flight to safety of funds by MFBs’ customers really affected us negatively and we are not getting any support from the government, CBN or commercial banks.

This led us to shop for funds and institutions that will support us and Netherlands based Oiko Credit, one of the world’s largest private microfinance financiers, is willing to finance and refinance some of our projects.

We equally approached the Lagos State government through its Lagos State Microfinance Institution (LASMI) and the Ministry of Women’s Affairs and they are willing to work with us.

How much is Oiko Credit making available and how can members access the fund?

Oiko Credit is willing to make available a minimum of 60,000 euros (N12.69m) and a maximum of 2 million euros (N423m) for funding and refinancing of projects. All members need to do is approach them with the data of the project they want to be financed and if they find it vialble after inspection, they make the money available.

How would the partnership with LASMI and WAPA work?

The aim of the meetings was to ask for some money to be set aside for our members for poverty alleviation and empowerment programmes for project financing and refinancing. We also want them to partner with more MFBs and the responses are very positive.

Though the Commissioner expressed misgivings about the sector, but made her know that the partnership would boost confidence in the sector. This is because as an association, we know ourselves and know who to recommend for them to work with. We assured them that the fund would be disbursed directly to the underbanked and not to be used for the acquisition of assets.

To ensure even participation of all MFBs so that it won’t be like it is only those MFBs that are close to LASMI or WAPA that are benefiting, we wrote to all units to send in their applications for loans so as to know those that qualify for the first batch because these organizations don’t have the infrastructure to deal with all the MFBs at once.


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