June 22, 2009

Micro-Finance Banks: Operators Call for Policy Fine-tuning

By Amaka Agwuegbo
As the new CBN governor, Sanusi Lamido Sanusi, settles down to duties and unveils his plans for the nation’s monetary and fiscal direction, stakeholders in the micro-finance sector have called for a review of the micro-finance policy, Amaka Agwuegbo reports Micro-Finance Banks, MFBs,     operators see great wisdom in the     micro-finance policy of the former Central Bank of Nigeria, CBN, governor that led to the establishment of micro-finance banks across the country. They believe that by that decision, banking services was brought to millions of Nigeria’s un-banked population.



But they would however want the new CBN governor to review some aspect of the policy to enable them perform their roles in the economy better, particularly in its role of poverty alleviation and aiding sustainable growth of SMEs described as the bedrock of developed economies.

They would want Sanusi to straighten some of the policy guidelines that look somewhat ambiguous. This they believe would help to eliminate multiple and wrong interpretation of the rules and create effective modalities for intermediation in the sub-sector.

The managing director of Good Neighbours MFB, Mr. Ike Awa, believes as a result of the economic environment, “the policy should be reviewed to give us more room to operate. Also, I think the CBN should constitute an agency to overlook the affairs of MFBs and Bureaux de Change, BDCs, since it looks like the CBN is biting more than it can chew.”

Mr. Kevin Iyamu, managing director, Bank of Industry (BoI) MFB on the other hand is advocating for the review of some grey areas in the micro-finance policy, especially the organic growth as it is not allowing the sector to grow as it should.

On the contentious issue of funding, MFB’s operators not only want government funding to stimulate SMEs for effective poverty alleviation in the economy but also want easy access to the N50 billion Fund set up by government to enable them service loans and other financial obligations to their customers.

The law setting up the micro-finance banks stipulates that state and local governments are supposed to set aside an amount not less than 1.0 percent of their annual budget for on-lending activities through the micro-finance banks.
To this effect, President Yar’Adua announced the creation of a N50 billion micro-credit development fund to be administered by the CBN, which will be used to provide existing microfinance institutions with funding for credit creation and operational expenses.

But operators are advocating for access to the said funds from both federal and state government, saying that only a select group of micro-finance banks are allowed access.

The managing director of Citigate MFB, Mr. Phillip Okuabor, bemoaned government’s inability to provide funds for the banks, an agenda Prof. Charles Soludo could not see to fruition before the expiration of his tenure.

He also pointed out that the 1.0 percent fund that ought to come from government is not forthcoming. Even when the fund is available, government decides who the money should go to. “The state and local governments are supposed to set aside an amount not less than 1.0 percent of their annual budget for on-lending activities through the micro-finance banks. But none of the local governments have done so. At the state level, it has not been integrated and is being done haphazardly.

“The Federal Government’s N50 billion is even worse, because we thought that the money will go through us, but we later heard that it would go through the states, making it a political gimmick. If MFBs are supposed to collect the money and they can’t decide who the money goes to, then there is a problem,” Mr. Okuabor said.

Mr. Iyamu also stressed the need for MFBs to have access to the N50 billion funds as this will encourage a lot of MFBs to grant more loans to the poor.

The managing director of Maxitrust MFB, Port Harcourt, Mr. Emeka Anakwe, would want the government funding to come through the Central Bank of Nigeria. “We need assistance from government because, right now, we are only accessing the shareholders’ fund. We need more funding from the Central Bank. I don’t know what yardsticks they have used in selecting the MFBs that would access the fund, but I believe the fund should be for every micro-finance bank so that we can serve the poor better.”

Mr. Awa requested that access to the said fund be made transparent with equal access opportunities by all MFBs. “I don’t know the yardstick they used in selecting the MFBs they have decided to allow access, but the fund should go round because, if the CBN has given us licenses to operate, we should be given equal opportunities to access the fund,” he said.

It should be noted that in the guidelines setting up MFBs by the Central Bank of Nigeria stipulated that funding for the banks activities is only to come from the following sources; shareholders’ fund, made up of share capital and reserve; deposit/savings of customers; debenture/qualifying medium to long term loans; grants/donations from individual, organizational, national government and national sources; fees and commissions; and interest income.

Apart from calling for equal opportunity to access the fund, the operators would also want Sanusi to come up with policies that would make MFBs demand for more stringent collateral measures in securing loans to stem the tide of loan default that is bedeviling the sector at the moment. This is because with the limited funds, default on loans will, ultimately, affect the number of Nigerians that the MFBs can provide loans for and their ability to succeed in its mandate of promoting growth of SMEs and poverty alleviation.

The managing director of Good Neighbour MFB, said: “In developed economies, the people are more trust worthy with money, but our people are not. The average Nigerian would want to have loans without having the intentions to pay back. Nigeria is not the first country where micro-financing has been practiced, but the activities of these defaulters are killing the industry. We want government and the CBN to help us implement stringent measures to safe guard our investors’ deposit.” he said.

This was corroborated by Mr. Ezama, managing director of Meridian MFB, who noted that such a trend is on the increase and has altered the intention of the MFBs. “Micro-financing is mass banking and we know that majority of Nigerians can’t access loans from commercial banks. Sometimes, people ask for loan to stock their shops, only to use the money to pay rents or school fees. When it is time to pay back such loan, they would not be able to do so since they didn’t restock their shops.”

Regarding the appointment of Sanusi and his ability to deliver on the review of the micro finance policy and access to increased funds, as canvassed for by the sector, some operators opine that since the CBN governor is from a royal family and has not experienced poverty, he might not be predisposed to handle the sector with the required amount of seriousness it deserves.

But, at a session at the National Assembly prior to his confirmation, Mr. Sanusi allayed this fear when he posited for the inclusion of SMEs and the integration of the rural economy for meaningful and sustainable growth of the economy.
According to Sanusi,

“You create new industries with power; the small-scale industries we are talking about cannot survive without power. All of us grow up in villages where people had grinding machines. In a village where a woman has a deep freezer and by simply selling ice water, she is able to pay electricity bills and feed herself and her family, we are reducing poverty rate. No cottage industry can survive without power.”

The Central Bank of Nigeria, in 2005, designed the Microfinance Policy Regulatory and Supervisory framework, which was launched by the then president, Obasanjo, on December 15, 2005.

The objectives of the microfinance policy are to make financial services accessible to the 65 per cent of productive Nigerian population, which otherwise would have had little or no access to financial services and empower them to contribute to rural transformation; promote linkage platforms among universal/development banks, specialized institutions and microfinance banks; promote linkage programmes between universal/development banks, specialized institutions and micro-finance banks; enhance service delivery by micro-finance institutions to micro, small and medium scale entrepreneurs; and promote synergy and mainstream the informal sub-sector into the national financial system.

The policy targets are to, among others, cover the majority of the poor but economically active population by year 2020, thereby reducing unemployment and poverty; increase the share of micro credit as percentage of total credit to the economy from 0.9 per cent in 2005 to, at least, 20 per cent in 2020, and the share of micro credit as percentage of GDP from 0.2 per cent in 2005 to, at least, 5 per cent in 2020; enhance women’s access to financial services by 5 per cent annually; and promote the participation of, at least, two-thirds of state and local government in micro credit by 2015.

How well these above set target is met by the MFBs by 2020, according to analysts, will depend on regular review and improvement of the policy, access to funds by the MFBs and increased supervision of the sector in the years leading to 2020, particularly the actions and inaction of Sanusi’s 5 years tenure.