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Tenure of CBN’s MSMED fund not development-friendly — MD, NPF MfB

By Providence Emmanuel

The Managing Director/Chief Executive Officer, NPF Microfinance Bank Plc, NPF MfB,  Mr. Akin Lawal, in this interview, highlights some of the short-comings of the Micro, Small and Medium Enterprises Development, MSMED, Fund of the Central Bank of Nigeria (CBN) and SME funding from the Development Bank of Nigeria (DBN). He also provided insight to lending activities of the NPF MfB.   Excerpt:

Mr. Akin Lawal

WHAT does NPF Microfinance Bank stands for?

We started as NPF Community Bank way back in 1993 and we were converted to a microfinance bank in 2007 when the then Governor of the Central Bank asked community banks to convert to MfB while new MfBs were licensed. We are quoted on the floor of the Nigeria Stock Exchange, NSE, we have consistently paid dividend in the last 20 years.

The bank was set up by the NPF Cooperative arm, who is the core investor because they own 65 percent of the share. We have another arm of the police, the Nigeria Police Welfare Insurance Scheme, which owns 10 percent of the share, making a bulk holding of 75 percent on the part of the institution. The balance of the 25 percent is owned by officers and members of the general public.

We are into the business of microfinance, supporting the micro businesses of our community and the general public. We have 28 branches and we hope to cover the 36 states of the federation through support from our financials. We are a National MfB with over N4.5billion shareholders fund. Police is our primary constituency but we are open to the general public. Our last 10 branches were outside the police constituency. We remained in our constituency to create that stability, until we found that we have capacity to absorb the general public.

What is your assessment of the N220 billion MSMED fund?

We have accessed the fund. We got N500 million and it is fully paid-up. We channeled it to the productive sector of the economy. The fund came at single digit and it was deployed as such. The only challenge with that fund is the tenure.   It is a developmental fund, so it should have remained as such, that is, a tenure of three to five years and at that rate. Not requesting that the fund be paid back within a space of one year.

While carrying out their developmental function, I think the CBN should be able to bring such fund to the market with a higher tenure beyond what they have done before. In that wise they would be supporting the productive sector of the economy. Long term funds are absent in the market, only short term working capital are available. We have reapplied for N1billion of that fund but we are still waiting to get it. The main trust is that, that fund should come at single digit with a longer tenure, so as to stabilize the sub sector.

What about the requirements for getting the fund?

We are a quoted company that can dance naked. We have all the information required. We can easily supply them and they are verifiable. CBN also have their team in terms of monitoring and supervision to check your record to know if your account has been published and your corporate governance structure.

I gathered that you have benefitted from Development Bank of Nigeria’s fund?

We are a beneficiary of that fund and each of these funds come with their challenges. The problem with that fund is that, while it has a minimum tenure of three to 10 years, it is coming at a double digit commercial rate. So you can now see that the rate is on the high side for the sector that you want this fund to be deployed to. From DBN, the tenure is right but the rate is competitive because it is priced on the rate of bonds in the economy. Sukkuk is the latest bond in the economy and the rate is about 16.5+2 percent. They will not give those funds at their own conditions because it is coming from the IFC and the World Bank. My take is that the government should look out for ways of subsidizing to stabilize the economy and promote the productive sector, the SMEs which are the engine room of the economy. This would encourage entrepreneurs and reduce the number of unemployed who are roaming the street.

Could this have contributed to the subsector’s high interest rate?

Generally, interest rate in the MfB is high because the level of confidence of people banking with MfBs is low.   If you are bringing money to a microfinance bank, the cost of that fund is already high and by the time I add my overhead and the deployment of overheads in microfinance is higher because we do a lot of collateral substitute. I need to do so much supervision and these increases my cost.

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