By Angela Adegboyega
The essence of regulation is not to parade government institutions as lords at whose mercies businesses exist or not, but to create a fair environment for businesses to thrive and contribute to national economic growth. This is the legitimate platform on which democratic governments are established.
It is very disheartening to note that the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) merely relied on the powers conferred on them by statutes, as the basis to revoke licenses without very thorough thoughts of the implications and consequences a major policy decision of mass revocation of microfinance bank (MFBs) licenses will have.
Just notifying the public that “by the powers conferred on them”… is a casual approach to regulation. The CBN should take on the rigours of informing the public what steps have been taken to forestall the painful experience of revoking licenses and how it became inevitable.
What did the CBN do to support these MFBs, many of whom were set up with personal funds? Billions of Naira have been used to bail out commercial banks, yet, nothing has been issued to support MFBs – the banks of the poor.
Based on Nigerian government socio-policy direction that private sector enterprises hold the key to economic development in the country, government, in 2005, set up the microfinance policy to develop and grow the small and private entrepreneurs in the informal sectors of the economy.
It was for this purpose that government deemed fit to license MFBs as retail outlets for small and private entrepreneurs to be financially empowered to do their businesses and contribute to national economic development, while many NGO’s, groups of individuals, and private entities were encouraged to establish MFBs.
The policy also recognized that CBN would need to encourage the organic growth path of the Micro finance banks at all times.
The CBN and other government agencies then took experience from other countries in terms of how MFBs have been able to support the informal business sectors financially.
From Nigerian statistics, 70% of Nigerians are recorded to be living under poverty level of less than $1 per day; majority of whom are artisans and petty traders and are not literate enough to write feasibility studies or financial projections for their businesses to be supported by traditional banks.
These level of businesses also can’t afford the services of business management consultants, hence could not benefit from the financial system in terms of loans and advances to do their businesses. This category of entrepreneurs has no collateral to approach commercial banks for loans.
It was therefore considered important to empower these people financially through the setting up of MFBs as it was realized that these businesses contribute to the employment of a larger percentage of our population who are unemployed, retrenched or just eking out a living for themselves.
The MFBs commenced operations with their own funds and capital, and a number of them operated to achieve the purpose for which they were set up. If you examine the loans and deposits of most of these MFBs, you will see businesses like welding, plumbing, auto mechanics, motor-cycle repairers, foodstuff sellers, pepper sellers, fishmongers, butchers, etc.
When the wind of the global meltdown blew, it affected a number of MFBs as well as their borrowers and some of them became insolvent while others became financially weak. However, many of them were still able to maintain positive balances in their shareholders’ funds and liquid assets.
According to the Deputy Governor, CBN, Kingsley Moghalu, target examinations were carried out between March and June 2010 and reports were made to advise some of them on what to do to improve their operations. However, no time deadlines were given, follow up examinations or discussions were not carried out to verify the compliance nor were timelines given for compliance.
Whilst some of the MFBs had complied with CBN’s advice of injecting more capital and recovering some of the loans granted, others needed more time to implement. For others, CBN had just concluded the target examination and enough time had not been given for compliance before the revocation exercise came on. CBN failed in its supervisory function to this sub sector by the claim that so many MFBs are insolvent.
One would think that a responsible regulatory authority would give thought to the very objective why these institutions were set up, and therefore operate as a lender of last resort to support those MFBs that can be supported while those that can’t be allowed to quit the business.
Recognizing the fact that the country wishes to keep the youths out of unemployment with the consequent insecurity implications, it seems irresponsible to kill the institutions that sustain the employment of the poor and informal sector.
Without any trial, the CBN suddenly in a manner similar to that of a Taliban leadership on Friday, 24th September, 2010, procured a gazette and published 2 days after in the pages of the newspaper, through the Nigeria Deposit Insurance Corporation [NDIC] that 224 MFBs’ licenses, irrespective of their current situation, have been revoked, and that the NDIC would be their undertakers. This smacks of carelessness on the part of the CBN that should take account of stakeholders’ input in its policy formulation.
Such revocation order is an unwarranted policy summersault which is unhelpful to the economy. It further depicts the arrogance and recklessness of some people we saddle with responsibility and authority in Nigeria.
MFBs whose licenses have been revoked are employing over 5,000 persons directly and by projection, 20,000 dependants, with over 500,000 loans and deposit customers.
These banks are contributing immensely to the economy and if not for them the security problems would have been worse. Granted some MFBs are beyond help, but, many whose licenses were revoked were operating effectively.
The MFBs have not asked the CBN to compulsorily bail them out; many of them are meeting matured obligations as at when due and the CBN should have followed the steps as contained under the law before unilaterally revoking the licenses. The blanket revocation of MFBs’ licenses by the CBN has grave and disastrous implications for the survival of the whole sub sector
Prior to the mass revocation, some MFBs had closed shop, yet CBN’s list of those whose licenses had been revoked did not include some of them. Why should the CBN revoke licenses of those who are still in operation, are meeting matured obligations, are contributing positively and have potential for growth?
It is pertinent to note that it is not only charity organizations, NGOs or foundations that would solve the economic problems of the poor in a sustainable manner. A structured institution which will empower them financially to do businesses and engage their creative capabilities is what the poor masses need.
Those who despise the poor despise their Maker and we need to do things in a Godly and holistic manner so that we can have a peaceful society.
•Dr. Angela Adegboyega is a financial consultant based in Lagos.