By Amaka Abayomi
The Central Bank of Nigeria, CBN, has said mission drift by some microfinance bank operators (MFBs), weak capacity, poor understanding of the microfinance concept and the methodology for delivering MF services are some of the reasons why the 103 liquidated MFBs failed.

Speaking on the Development of the Microfinance Sub-sector, the Director, Other Financial Institutions Department, OFID, Mr. Femi Fabamwo, said the CBN has adopted a four-pillar reform policy to enable it sanitise the sector.

“The MFBs are faced with numerous challenges such as operating like ‘micro-commercial banks’ with flamboyance, fleet of branded cars and high expenditure profile, hard impact of the global financial turbulence of 2008/2009, weak capitalisation, poor corporate governance and susceptibility to insider abuse, incompetence and ineffective oversight of the board, poor risk management and weak internal controls, and dearth of on-lending/external funding,’ and these are responsible for the revocation of operating licences and the subsequent liquidation of the 103 MFBs.

“To this end, the CBN has adopted a 4-pillar reform policy of sanitisation of the sector, capacity- building, restructuring and restoring public confidence to enable it reposition the sector.

“In sanitising the sector, CBN/NDIC Joint Target Examination was carried out on 820 MFBs in operation to determine capital adequacy, liquidity, level of non-performing loans and general financial health of MFBs with the aim of forestalling contagion, removing bad apples and avoiding total contamination of the industry.

“Two Hundred and Twenty-Four (224) ‘Terminally Distressed’ and ‘Technically Insolvent’ MFBs had their licences revoked. 121 MFBs that subsequently injected fresh capital were granted provisional approvals for new licences, subject to meeting specified conditions within three months, while the remaining103 MFBs are under liquidation.”

Fabamwo said in order to build capacity, the CBN established the Microfinance Certification Programme (MCP) and accredited 25 Microfinance Training Service Providers (MTSPs) in 2009. Also, 1,960 MFB operators were trained and sat for the CIBN Certification Examination (Level I) in 2010, with the Level II Training and Examinations taking place later in the year.

“In our bid to restructure the sector, the revision of the regulatory and supervisory framework and guidelines is on-going. We also set a new structure of tiered minimum capital requirement with internal restructuring of supervisory arrangement while we will adopt the Operational Template to benchmark MFBs.”

To restore public confidence, the OFID Director said the sanitisation exercise was carried out to ensure market discipline. Also, the actualisation of safety net through deposit insurance/protection scheme for MFBs’ depositors’ funds resulted to 99 per cent of depositors being paid.