By Babajide Komolafe
NIGERIA is presently faced with the challenge of weak economic growth, which stood at 1.93 percent for 2018, and a huge population estimated at 201 million people. The impact of this challenge is reflected in the high unemployment figures, estimated at 23.1 percent, and the 86.9 million Nigerians living in extreme poverty.
At the core of this challenge is the large number of micro, small and medium enterprises (MSMEs), without access to credit as well as large population of Nigerians who are financially excluded, which means they do not have access to financial services.
Given that 80 percent of businesses in Nigeria are MSMEs which also generate about 80 percent of employment in Nigeria, and the well proven impact of financial inclusion on poverty reduction, addressing the challenge of weak economic growth and poverty requires a policy framework and direction that will help MSMEs to easily access credit and also extend financial services to the mass of Nigerians who financially excluded.
A policy initiative that has been globally proven to work in this regard is microfinance. Microfinance is the provision of financial services to the poor who are traditionally not served by the conventional banks. These financial services include credit, savings, micro-leasing, money transfer and payment services.
Unlike conventional banks, the distinct features of microfinance are: Smallness of loans advanced and savings collected; near absence of assets-based collateral; and simplicity of operations. Among other things, microfinance facilitates poverty alleviation, encourage development of micro enterprises as well as increase savings. It also helps individuals generate income, build asset base while leading to improved quality of life.
Nigeria’s Microfinance Policy
The above informed the development and introduction of the Microfinance Policy by the Central Bank of Nigeria, CBN, in 2005, which led to creation of Microfinance Banks, MFBs. The microfinance policy vis-a-vis the performance of the MfBs, challenges and regulatory efforts to revive the subsector were the focus of the CBN seminar for finance correspondents and business editors held recently in Gombe State.
The seminar with the theme, “Repositioning Micro-Finance Banks for Real Sector growth,” was declared open by the CBN Governor. Mr. Godwin Emefiele, while it also featured presentations by the Director, Other Financial Institutions Supervision Department, OFISD, Mrs. Tokunbo Martins. Explaining the rationale for the policy, Emefiele, who was represented by the Deputy Governor, Corporate Services, CBN, Mr. Edward Baru, said: “In a developing economy like ours. The link between microfinance and the real sector is quite strong. Microfinance banks are conceived to serve as critical financial lubricants for the real sector, which is the pillar of sustained economic growth. At the moment economic policy in Nigeria faces a major challenge of reviving growth which is the (only) sure path to ending pervasive poverty. Microfinance has worked in this regard in many climes and promises to work in Nigeria, it we get it right.
“By increasing access to credit and related services to the economically active segment of the low income population, microfinance directly contributes to expanding the production base and it is therefore a credible strategy for increasing financial inclusion and reducing unemployment.”
Speaking on the objectives of the MfB policy, Tokunbo Martins noted that the policy was in response to challenge of financing the real sector namely the Micro, Small and Medium Enterprises (MSME) and rural finance. She said: “The existence of the huge financing gap and un-served market, prompted the CBN to initiate a policy framework. The microfinance (MF) policy was initiated in December 2005.
“The principal objective of the MF policy is to create MFBs that are financially reliable, self sustaining and integral to the communities in which they operate, with the potential to attract more resources and expand services to their customers”, adding that this was in order to, “Provide access to financial services for the un-served and vulnerable groups; Promote synergy and mainstreaming of the informal subsector into the national financial system; Enhance service delivery by MFBs to MSMEs; Contribute to rural transformation; Promote linkage programmes between development finance institutions (DFIs) and MFBs.
She explained that the target of the policy includes: The economically active poor; low-income households; the un-banked and underserved people; vulnerable groups: women, youths, the physically challenged; informal sector operators, micro-entrepreneurs and subsistence farmers”.
She said that the benefits of MFBs to the poor include provision of employment opportunities, reduction in poverty and vulnerability, empowerment, as well as better economic opportunities for both clients and financial institutions lead to growth and development of the entire economy”
Performance of MfBs
Speaking on the performance of MfBs, Emefiele stated: “Data from the licensed credit bureaus indicate that the operations of micro finance banks have helped to improve financial inclusion amongst smallholder peasant farmers, artisans and other small business operators. As at December 2018, aggregate loans granted by MFBs was N482.9 billion. Of this amount loan sizes below N1.4 million accounted for 72 percent. We equally observed that small businesses have been more successful in securing credit from the microfinance institutions rather than conventional deposit money banks (DMBs).”
Martins also noted that in spite of some obvious challenges, some milestones have been achieved with respect to the MF policy. These milestones she noted include: “Increased awareness among key stakeholders; Enhanced supervision and regulation of MFBs, through; Licensing of Microfinance Banks, and Issuance of sector specific guidelines, codes, operating standards; Mission driven institutions to impact economic growth and development; Improved access to finance; Increased public confidence (Deposit Insurance Scheme); Capacity Building Programmes; Attraction of development partners and donor agencies; Encouraged self regulation (Apex Association of Microfinance Banks); and compliance with Anti-money Laundering Act.
“Financial inclusion has had a positive effect in Nigeria as the exclusion rate reduced from 53 percent in 2008 to 46.3 percent in 2010 and 36.8 percent in 2018.”
Challenges and reforms
Martins however stressed notwithstanding the above MfBs are yet to make the desired impact on the society, adding that this is due to a host of challenges undermining the subsector. These challenges she noted include: Inadequate capital base, dearth of skilled manpower in the sub sector, inaccurate/false data and lack of understanding of microfinance concept and methodology. Others include: Poor corporate governance and risk management practices; Activities of “Wonder banks”; High interest rates; High expenditure profile of operators; Lack of public confidence in MFBs; Mission drift and absence of basic infrastructure.
To address the above challenges, the CBN, according to Emefiele, in collaboration with other agencies of government, is implementing various intervention schemes in addition to promoting microfinance. To address the challenge of inadequate capital base, the CBN recently increased in the minimum capital requirement of MfBs and introduction of 2-Tiered Unit MfBs, namely rural Unit MfBs and Urban Unit MfBs. Thus the apex bank increase the capital base of Unit MfBs from N20 million to N50 million for rural MfBs and N200 million for urban Unit MfBs. That of State MfBs was increased to N1 billion from…while capital base of National MfBs was increased to N5 billion from N2 billion.
To address the challenge of non-performing loans, the CBN mandated the use of Credit Reference Bureaus for credit administration by MfBs. This was complemented with participation of MfBs in the National Collateral Registry and implementation of the National Association of Microfinance Banks Unified IT Platform (NAMBUIT) to address the challenge of data integrity and reliability.
In order to further leverage on the microfinance policy to facilitate credit to MSMEs at low interest rate, as well as address the limited spread of MfBs across the country, the CBN in conjunction with the Bankers Committee, Nigeria Incentive-Based Risk Sharing for Agricultural Lending (NIRSAL) and NIPOST recently established the NIRSAL MfB (NMfB).
Speaking at the seminar, Aliyu Abdulhameed, Managing Director/Chief Executive of NIRSAL said: “The NMfB will leverage on NIPOST’s geographical reach, via its 200 outlets across the country, NIRSAL’s credit de-risking infrastructure, Bankers’ Committee funding, adoption and deployment of cutting edge technology, in order to quickly meet the needs of its target market – Nigeria’s MSMEs.”
Represented by Steve Ogidan, the National Coordinating Consultant FCT Project, Monitoring Reporting and Remediation Office, Abdulhameed said: “The objectives ofNMfB is to enhance financial inclusion; create jobs and enhance the skills of citizens in rural communities; provide access to cheaper credit and other financial services for small-holder farmers; and improve and grow the economy.”
Speaking on the readiness of NIPOST to deploy its outlets across the country for the operations of NMfB, Postmaster General of the country, Adebisi Adegbuyi, said that 106 NIPOST outlets have already been selected for the first phase of the rollout of the NMFB branches across the country.
Adegbuyi who was represented at the seminar by NIPOST Director, Finance and Investment, Usman Shaba said: “A lot of Nigerians are unbanked and these unbanked people are mostly in the rural communities and these postal outlets will be leveraged upon to promote financial inclusion in the unbanked communities. So what NIPOST is doing essentially is to improve on these outlets. over 2000 of them nationwide to make available as outlets for the commercial banks and in particular the NMFB.
“Prior to this, the CBN having looked at the infrastructural spread of NIPOST have granted NIPOST a super-agent licence which makes it possible for NIPOST to render financial services on behalf of virtually all the commercial banks in Nigeria.
“NIPOST is very ready to deliver the 106 outlets that the NMFB has targeted for take-off. NIPOST officials along with NMFB and CBN have gone through all the regions of the country and the reason why we even selected the 106 is to make sure that each of the outlet we selected are good enough and ready”.