By Amaka Abayomi
The Central Bank of Nigeria (CBN) has soft-pedaled in taking appropriate actions on the 121 microfinance banks (MFBs) granted provisional licences by the apex bank.

Vanguard’s investigation reveals that the CBN is yet to take the necessary actions despite the expiration of the January 25, 2011 deadline given the 121 MFBs to recapitalise.

Agreeing that actions ought to have been taken by the apex bank, a source close to the CBN, who spoke on the condition of anonymity said it would take some time before any action can be taken by the CBN.

“The CBN is aware of the expiration but it would take some time before the CBN can take actions because it has to cross-check the books of the 121 MFBs to know those that have complied and the level to which they complied.”

Vanguard’s investigation reveals that there are likely indications that the CBN would grant the 121 MFBs more time to recapitalise as the affected banks have appealed to the apex bank for an extension.

“Before the revocation of their operating licences, the CBN saw signs of capital injection by some of the affected banks and all that is needed is time for them to tidy such up. The 121 MFBs are asking for a three-month extension to enable them source for more funds for them to recapitalise better but the CBN can’t afford to give such time. Even if there would be an extension, it would not be up to three months.

“Their argument is that when the licence revocation was announced, it created a run on the banks which most of them are yet to recover from. The capital flight they experienced depleted their depositors’ fund and you know it would take more time and a lot of efforts for them to get depositors to have confidence in them.

“Though the damage has been done, I think it is important for the CBN to grant them an extension for them to get their acts together and tidy their books.”

Though the source noted that the possible closure of some of the 121 MFBs would have negative effects on the sector, but he is optimistic that the cleansing being carried out by the apex bank would restore public confidence.

“The possible liquidation of more MFBs would further deepen the negative public perception that people already have of the sector, and this is not good for those doing good business.

“When the revocation was announced, there was panic in the sector and those that were sound and doing good business equally suffered the ripple effects as there were massive panic withdrawals by customers.

“But the apex bank is optimistic that the cleansing that is being carried out would help restore public confidence of the banking public and make them trust the functional MFBs enough as to deposit their money. The CBN would intensify its awareness campaign efforts so as to educate the public on banking with MFBs.”

The CBN, on September 24, 2010, revoked the operating licences of 224 MFBs for being ‘terminally distressed and technically insolvent.’ Announcing the decision, CBN’s Deputy Governor, Kingsley Moghalu, said 178 of the banks were technically insolvent while 46 were found to be terminally distressed and had closed operations for six months.

Total deposited amount in the 224 banks is N18.2bn, the total loan is N19.6bn, while the shareholders’ fund was N6.1bn, Moghalu said.
According to the CBN, the factors that contributed to the unsoundness of the MFBs were mission drift by some MFBs, weak capacity, poor understanding of the microfinance concept and the methodology for delivering microfinance services, high level of non-performing loan resulting in high portfolio at risk which had impaired the capital, gross under-capitalisation in relation to level of operations, poor corporate governance and incompetent boards.

On October 22 and 25, 2010, the CBN published the list of 121 MFBs that were granted provisional approval for new licenses out of the 224 that had their licenses revoked, subject to the fulfillment of some specific requirements within three months.

The requirements include the capitalisation of prior deposits for shares and the new capital injection to bring the shareholders’ fund unimpaired by losses to the prescribed minimum of N20m; good corporate governance; sound risk management system and strong internal controls to forestall avoidable losses. Others are closure of unapproved branches, cash centers and customer meeting points, adoption of a true microfinance model, among others.