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Target examination will reveal health of MFBs

By Amaka Agwuegbo

With the recent conclusion of the target examination of 360 of the 900 licensed microfinance banks (MFBs) by the Central Bank of Nigeria (CBN) in conjunction with the Nigeria Deposit Insurance Corporation (NDIC), MFB operators are optimistic that such moves would separate healthy MFBs from those that are not healthy.

The target examination of the MFBs commenced early this year following signs of distress in some of the MFBs and growing complaints of fraudulent practices already being alleged against some of the operators.

CBN’s Deputy Governor (Financial Sector Stability), Dr. Kingsley Moghalu, disclosed that detailed guidelines regulating the operations of the MFB sub-sector would be released mid year.

Moghalu said CBN was not contemplating outsourcing the regulation of the MFBs as it has never been done in any country. Rather, CBN’s current challenge includes strengthening the regulatory guidelines so as to enhance efficient operation of the sector.

According to the CBN Deputy Governor, “We have embarked on a comprehensive target examination of all the MFBs in Nigeria and a total of 360 of the 900 licensed MFBs have been reviewed. The result of this examination will form the basis of detailed policy guidelines of the MFB sector to be released by the middle of the year.

“We have not seen any jurisdiction where the supervision and regulation of MFBs is outsourced because it has always been undertaken by the Central Banks. Though we have not made the final decision, but it is most unlikely that we will outsource the regulation of MFBs. The challenge we have now is to restructure the sector to make it more efficient to enhance our regulatory capacity.”

But through the target examinations, the NDIC had, among others things, hoped to determine the exact number and financial conditions of all licensed MFBs, identify those with signs of distress so as to decide on the appropriate distress resolution options and also to identify the number of those that have closed shop.

Citing Section 2 of the NDIC Act No. 16 of 2006, Head of Communications and Public Affairs, NDIC, Mr. Sule Birch, said the Corporation is empowered to insure deposit liabilities of all licensed MFBs since 2008, prompting it to embark on target examination to maintain depositors’ confidence and to encourage savings among the rural active poor.

“The target examination became necessary following the outcome of the recent routine examination of some licensed MFBs by NDIC and CBN, which revealed that some of the MFBs have begun to harbour serious corporate governance weaknesses and infractions.

“These include granting of insider loans and advances without adherence to regulatory standards, outright frauds and forgeries as well as poor risk management practices.
“Also, some MFBs even closed shop without notifying the supervisory authorities, thereby trapping their depositors’ funds. The Corporation has also been inundated with serious complaints and petitions from depositors of these MFBs over lack of access to their deposits.”

However, a cross section of MFB operators have commended the regulatory bodies for embarking on the target examination of microfinance banks as it would separate healthy MFBs from unhealthy banks.

Mrs. Angela Iroh, Managing Director, Petra MFB, praised the CBN and NDIC in ensuring that MFBs remain healthy as it would boost public confidence.

“The target examination is good because the regulatory bodies want to ensure that MFBs are healthy. The results would also help them determine if they would assist the sector by injecting more funds into the banks so as to boost public confidence in the sector.

“It is really good and would help in separating healthy from unhealthy MFBs as we would not have the time to cover our dirty tracks.”

In agreement is Mr. Phillips Okuabor, Managing Director of Citigate MFB, who pointed out that the aim of the target examination is to see that things go on well in the sector.

“I really commend them for the job they are doing. They have been to my banks twice but I’m sure it is for the better. Though some operators prefer to term it as witch-hunting, but this is not targeted at hunting anyone or bank down.

“We operators have made a lot of mistakes in the past and the CBN and NDIC want to ensure that we don’t continue to repeat such mistakes. It is a good move because they are just doing their jobs to ensure that depositors’ money is safe.”
Pointing out that officials of CBN have been to his bank, Mr. Ejike Azubuike, Managing Director, Imperial MFB, said the target examination is good since it is aimed at determining the state of the banks.

“The examination is aimed at determining the health of MFBs in terms of liquidity and capital base so as to direct those that my have problems to recapitalize or inject fresh funds. But it is most welcome.”

For the Managing Director of Good Neighbours MFB, Mr. Ikechukwu Awa, the regulatory bodies are free to conduct any exam that they know will stabilize the microfinance banking system and ensure the safety of depositors’ funds.
According to Mr. Segun Odumoye, Managing Director, Adkolm MFB, the target examinations would make operators be on their toes since they know the regulators would come knocking without notice.

“This is a good thing to happen to the sector, but where there would be problem is if the recommendations of the reports are not implemented. It is expected that those that are found wanting be penalized, else, we would go back to square one.”
But the Managing Director of Accion MFB, Mrs. Bunmi Lawson, said though her bank has not been examined, she stressed that the regulatory bodies should first focus on policy reforms.

“I think the target examination is not the most important thing and is coming a bit too early because the CBN should first focus on policy reforms, after which we would be given some time to implement them. After some time which they believe we would have implemented the reforms has elapsed, they can then start target examining us. This is because public confidence in the sector right now is shaky and needs to be boosted.

Microfinance banking was introduced in 2005 following the launching of the microfinance policy by the CBN. But almost 5 years after inception, the sector is basseted with problems ranging from fake operators, illiquidity and poor corporate governance.


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