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CBN reads riot act on MFB insider abuse

By Amaka Agwuegbo
The Central Bank of Nigeria, CBN, has said in other to protect depositors’ funds, it would no longer tolerate insider dealings presently going on in the microfinance banking sector as it would hand over managing directors and directors who abuse office privileges by engaging in such practices to the Economic and Financial Crimes Commission, EFCC.

Vanguard’s investigations reveal that though 160 more banks have been examined, bringing the number of examined banks to 520, but the problems of insider dealings and other fraudulent acts still persist in the sector.

According to a source, “The CBN would expose and hand over fraudulent operators to EFCC, especially those who still engage in insider dealings as this is one singular factor that is responsible for the directors of such banks not allowing their banks to practice microfinancing since they abuse such privileges by dipping their hands into the depositors’ funds.

“This situation can be prevented and that is why the CBN is insisting on zero tolerance for insider related dealings and other fraudulent practices. Also, the operating policy makes it clear that managing directors and directors of MFBs are not to engage in insider abuses and fraudulent acts that would endanger depositors’ funds.”

Pointing out that the apex bank will deal decisively with any director that abuses such privilege since they are not allowed to approve such loans for themselves, the CBN said such erring MDs or directors would be handed over to the EFCC and would lose their positions in their banks.

“The moment we start dealing with some erring directors by arresting and handing them over to the EFCC, others are bound to sit up.

“The law provides that 20 per cent of loans should be commercial loans while the remaining 80 per cent micro loans. But some MFB management converts 80-95 per cent of their loans to commercial loans, while some banks are no longer rendering the services they are licensed to do but rather use their banks as an avenue to service their personal needs and those of their friends.”

Vanguard’s investigations reveal that the on-going examination is causing uneasiness in the sector as most banks, especially those with weak capital base who have embarked on aggressive loan recovery to make their banks liquid.
According to the source “After the examination, a list of the affected banks would be compiled, made public, and most likely, the management of such banks would be prosecuted.”

Joining forces with the CBN is the National Association of Microfinance Banks (NAMB), which is equally determined to rid the sector of quack and fraudulent operators.

“Since our aim is to ensure that stronger and more vibrant microfinance banks (MFBs) emerge through the sanitization of the sector, we looked at our internal problems and the most important is to fashion out ways of sanitizing the sector. This we hope to achieve by strategically partnering with the CBN, NDIC and EFCC on the possibilities of flushing out illegal and fraudulent operators from the system.

“Top on our blueprint under the strategic partnership with the CBN, NDIC and EFCC is to fish out and report illegal MFB operators and members of NAMB who engage in fraudulent, unethical and below-the-counter practices that are not approved by the regulatory bodies.

Speaking further on the certification programme, the CBN source said the programme, which is intended to build capacity and will be handled by the Chartered Institute of Banking in Nigeria, CIBN, would start today.

It would be recalled that the certificate programme, which is part of the operating policy framework for MFBs, is aimed at building capacity in the MFB sector which would help resolve the crisis in the sector.

As disclosed by the Deputy Governor, Financial System Stability, CBN, Dr. Kingsley Moghalu, the aim of the examination was to identify weak banks. The examination is intended to sanitise the MFB sector so that mushroom and weak MFBs would give way for stronger ones who are capable of truly extending financial services to the active poor, thus, creating job opportunities and contributing to the National Gross Domestic Product (GDP).

“The examiners would be assessing the banks’ capital adequacy, liquidity and corporate governance with a view to making quality policy and regulatory decisions on specific microfinance banks in 2010.”

“Capacity building is mostly required in the MFB sector because we need to have a critical mass of knowledgeable and skilled personnel that would drive the sector since most operators do not understand the concept of microfinancing and this makes them operate like commercial banks, which is not helping the sector.”

“This resulted from the present situation we have in which operators in the sector are from different backgrounds and have various degrees, thus, most of them not to understand the concept of microfinancing, which is responsible for their operating like commercial banks and this is not helping the sector.

“The programme is to be basic enough and anyone who has paid attention in class should be able to pass the examinations. But if they don’t, they will have one more chance too do a repeat programme, and if they still fail, the CBN has no choice but to advise the boards of their institutions about their poor performances.

“Though some MFBs are still solvent, but the needed management experts would be given some kind of special restructuring.”

On the issue of wealth creation, the CBN source said MFBs, being developmental banks and are closer to the grass root, can create more wealth in the economy through the small and medium businesses by simply doing what they are licensed to do.


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