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Liquidity is the blood of micro-finance banks

The increasing rate at which microfinance banks (MFBs) are becoming distressed, coupled with the Central Bank of Nigeria’s insistence of not bailing out any MFB have compelled the Lagos State chapter of the National Association of Microfinance Banks (NAMB) to set up a Fund to cater for MFBs’ financial needs.

Chief Olutayo Adenekan

In this interview with Amaka Agwuegbo, the former state chairman of NAMB, Chief Olutayo Adenekan, talks about the essence of the Funds, among others.

What necessitated the setting up of the Intervention Fund?

The Intervention Fund is necessitated by the need of MFBs. This is because commercial banks have other windows of borrowing in cases of short falls, but there are no such opportunities for microfinance banks to get in cases of shortfalls.

The essence of the Fund is to ensure that the need for short term financial support is met. So, before we start asking questions pertaining to the cause of the problem, we inject money into the distressed bank because liquidity is the blood of bank and a bank can die if it is not liquid.

There are two essential arms to a bank – liquidity and management. In terms of liquidity, we felt it is important to have an institution that would make funds available to banks at the shortest possible time so that if a bank is short of funds and customers need to make withdrawals, behind the scene activities would go on between the bank and us which will enable us to transfer funds to the bank without the customers noticing that there is any problem.

This would help boost the confidence that customers have, not only for that particular MFB, but for the sector as a whole, which is the essence of the Fund.

Some MFBs are having problems because their customers needed money and it wasn’t available. Most of our customers are petty traders and the ‘active poor’ who become very irritated when their money is not forthcoming. Because of this, within hours, news will spread that such a bank is not paying and is about to go under.

This propelled us to put together a Fund that can easily be accessible to MFBs. Though there are other issues connected to that, we won’t give a bank money and go to sleep. But while the problem is being solved, we would look at the cause of the shortage and address such to avoid a reoccurrence.

An executive committee of the association was handling the Intervention Fund and we needed a commercial bank that would warehouse the Fund. But at a point, we realized that the work is enormous and time-consuming that neither the chairman nor the members of the executive committee could handle it. This necessitated the appointment of a consultant to oversee the activities of the Fund.

The consultant would liaise with officials of the CBN, appoint a commercial bank that would manage the Fund, make recommendations on the setting up of the management team and board of trustees, and generally facilitate the take_off of the Fund.

We are still expecting their report, but we’re assured that it would, hopefully, be ready by the end of this month. But we are hoping the Fund would take_off in a couple of weeks.

Is the Fund contributory and, if yes, how much is expected of members?

It is contributory and the minimum amount per member would be determined by the consultant. Though we had an amount in mind, but from their first report, we decided to let the consultant run the show.

But we intend for the Fund to accommodate non_MFBs because we want other institutions to contribute to the Fund for the profit since we intend for it to be a profit making venture. This will enable contributors have dividends at the end of the year.

Initially, we wanted the Fund to be a small thing within the neighbourhood of N200 million, but from the way the consultant has designed it, it is definitely going to be something very big so as to accommodate non_MFBs and others who might be interested in the Fund.

The only difference between this Fund and that of other institutions is that our members would have access to the Fund at the shortest notice.

We are equally looking at building into collateral in the sense that each bank would register collateral with us so that when they need cash, we don’t need to start vetting their banks.

This implies that if the collateral is worth N4 million, it means that at short notice, that bank can take a loan of N4 million.

What would qualify an MFB to partake of this Fund?

For a bank to be part of the Fund, it must be registered by the CBN and be issued final license; must be enrolled with the Fund by depositing the minimum amount required; must be a member of the association; must have registered a collateral with us, pay its dues regularly and be willing to open its books and doors to us.

Considering the Nigerian factor, how realistic is the Fund?

Once a bank doesn’t contribute to the Fund, it can’t partake and if a bank goes under because it refused to register with the Fund, the management of such bank would have no_one but itself to blame.

The minimum contribution is going to be very easy for any bank to comply with, but a bank can’t have access to the Fund if the contribution is not complete.

Secondly, we won’t give a bank the money and relax. If a bank needs N2 million, we will give the bank an amount we are sure would keep it afloat till we conclude our investigations before we then give you the full amount needed.

How would the exact amount needed by a distressed bank be determined?

Firstly, we are all microfinance banks and we know ourselves, and this is a major difference between us and the CBN. I know the banks because I’m involved.

Secondly, we have a technical committee that will investigate the cause of the shortage. So while the money is being processed, our technical committee members would be carrying out investigations at the bank.

The management team would move in to see what the problem really is and once the problem is determined, we will look at the recommendation as to how the problem can be resolved.

If the bank doesn’t want to resolve the matter, we have no choice but to withdraw our money, which is very simple since all we have to do is to realise the collateral.

What are the terms of repayment by the banks?

First and foremost, we have to consider the nature of the problem the bank had. This is because the Fund is not there to favour a particular board or management but to help solve an issue.

The truth is that the money will be with the bank for whatever period of time it would need to solve its problems.

So once the problem is solved, there will be a determined procedure for fund withdrawal that would not lead to the problem again. The essence of the Fund is to ensure that the bank doesn’t go down.

Since the Fund is aimed at reducing the rate of illiquidity in the sector, are you working in partnership with the CBN?

We have spoken to officials of the CBN and they are delighted with the idea. They equally promised to render whatever assistance we might need in the process of making the Fund a reality. But it is up to them to decide if they will contribute towards the Fund or not.

There is something about government funds that makes me restless. Everything government gets involved with comes with rules, regulations and control, some of which may not be conducive with the other party.

If the CBN is to contribute towards the Fund, there are tendencies that it would come with its problems and limitations which would hinder our progress.

But if they come up with money, we would accept it only when we are in agreement with the terms and conditions, but I’ll prefer if they don’t contribute so that we can run our show.


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