June 17, 2009

MFBs cautioned against branch expansion

By Amaka Agwuegbo
The Chairman, Lagos  State Association of  Microfinance Banks, Chief. D. O. Adenekan, has  warned  microfinance bank operators against the risk of embarking on hasty  branch expansion programme so as to avoid over-capitalizing and over-stretching their facilities.

In recent times, some microfinance bank operators  have called on the Central Bank of Nigeria (CBN) to review the operational guidelines of the microfinance banks, especially the organic growth, saying the present guideline inhibits the growth of microfinance banks.

But in an interview with Vanguard, Adenekan noted that the present guidelines on the organic growth of microfinance banks is designed to ensure that they don’t over-stretch and over-expand themselves by over-capitalising.

“Our mission as microfinance banks is to grow the country from the bottom and to develop the ‘active poor’ to become ‘active rich’.  Since that is the only way the country can gain from us as microfinance banks hence the  the CBN stipulated that we should  grow organically.”

The organic growth ensures that as a unit bank, the bank will cover its local government and state before it can move to another state.

This is to be achieved with each microfinance bank having various meeting points in the local government. This ensures that they grow by experience, since the practice is still new in Nigeria.

Adenekan also expressed fears at the rate at which some MFBs are expanding, saying that they are going about it the wrong way.

“Some of the fast-growing microfinance banks are on the wrong path because, as an industry, we still lack the experience since microfinancing is not meant to do what commercial banks do because we are in a slightly different industry.

“We need to garner the needed experience, knowledge and understanding of the customers. We also need funds to be able to meet our customers’ needs, since our type of lending is slightly different as a result of the type of customers we have,” he said.

He added that in spite of the fact that most microfinance bank operators have previously worked with commercial banks, there is a world of difference between commercial and microfinance banking.

He, therefore encouraged microfinance banks to grow organically since in Lagos State alone there are over 140 microfinance banks, which is more than one for every local government.

“Instead, the banks should have meeting points of one room with two staff where your customers in that area can transact business. This can gradually be expanded to become a sub-branch or branch,” he advised, adding, “because of the difference between our profit and that of commercial banks, some of our banks are not doing well, profit-wise, which will account for why some are closing down.”

It should be recalled that the minimum capital base for unit microfinance bank is N20 million, while that of state is N1billion.