The Managing Director, Umuchinemere Pro-Credit Micro Finance Bank, UPMFB, Enugu, Mrs. Nnenna Ekete, in this interview said that Nigeria’s legal system encourages loan while highlighting other issues that affect the subsector.
Excerpt.

By Providence Emmanuel

HOW would you assess operation of MfBs in view of the economic situation in the country?

The activities of MfBs in Nigeria have not been smooth under the current economic situation of the country. The high cost of doing business in Nigeria is nothing to write home about. The MfBs are the most affected sector. The high cost of acquiring, fuelling and running generator for 24 hours have eaten deep into the little profit of the MfBs.

*Mrs. Nnenna Ekete, MD, UPMFB, Enugu,

Do you agree with the plan to increase minimum capital requirement for MfBs?

I totally agree that Central Bank of Nigeria, CBN, should increase the capital requirement of   MfBs in Nigeria. They collect deposits from the public and use this fund to do business. One of the best ways to protect the uninformed depositors is to ensure that each deposit taking institution is adequately capitalized. As it stands now, there are many microfinance banks in Nigeria that are poorly capitalized. As a result of this, some of them don’t render monthly returns to CBN.

Some don’t hold annual general meetings, while others are struggling with high portfolio at risk (PAR). The danger is that if these MfBs are allowed to crash, it will send wrong signals to the public on the activities of the subsector. In view of this, it is safer to raise the bar through increase in capital requirement so as to protect the depositors and also the sector from crises. Increasing the capital requirement will force some of the poorly funded MfBs to merge and form a formidable institution that can stand the test of time. Therefore, the move by the CBN to raise the bar is a move in the right direction.

But some believe this move will erode public confidence in MfBs?  

 Capitalization will increase rather than erode the confidence of the depositing public in MfBs. Adequate capitalisation will save the subsector from financial crises and the resultant closure of banks. It will also reduce the proliferation of MfB across the country. Most of the MfBs are owned by individuals who cannot be trusted with public funds. Some of them use MfB to run their private businesses, a situation that is not good for the development of the subsector. Recapitalization will force them to merge, thereby reducing insider related abuses that are common in most of the MfBs in the country. 

Why are the MfBs not accessing intervention funds?  

MfBs are not accessing the intervention funds due to two major reasons: First is the stringent eligibility criterion by the CBN, Bank of Industry, BOI and other providers of the funds. The conditions make the funds impossible to be accessed. A good example is the N220 billion micro small and medium enterprises development MSMED Fund. Second reason is that some of the intervention funds are expensive. When you consider the interest rate, you begin to consider using internal funds rather than access the funds.

A good example is the CBN Housing Microfinance Scheme which is currently being offered to participating MfBs at 18 per cent (that is, Treasury bill rate plus two per cent) per annum for on lending. This rate is too high, considering the cost of doing business in Nigeria, the cost of monitoring and recovering of the loans. 

Are you saying the criteria for accessing the funds are stringent?  

The criteria for accessing some of the funds are too stringent, making the funds impossible to be accessed. It will be good if the fund providers can review the conditions for accessing them, otherwise the purpose of the funds will be defeated.