By Amaka Abayomi
Despite the number of microfinance banks in operation, MFBs, the Central Bank of Nigeria, CBN, has employed more measures to reduce the number of economically active poor that are excluded from any form of formal financial services.

Though recent studies have shown that the percentage of those financially excluded have dropped to 46.3 per cent from 65 per cent prior to the launch of the MFB Policy, the CBN said all must be actively involved to ensure that everyone enjoys some form of formal financial services.

Speaking on the development of the microfinance Sub-sector at the just concluded 5th annual Microfinance and Entrepreneurship Awards, the Director, Development Finance Department, CBN, Mr. Joe Alegieuno, said more needs to be done to enlighten the financially excluded on the opportunities in the microfinance sector so as to enable them access financial services.

“All parties have roles to play in ensuring that we achieve total financial inclusion in the nearest future. Government can encourage them to participate in the sub-sector and contribute to its development in the interest of their subjects, as well as educate them on ways of promoting sustainable microfinance programmes.

“Deposit Money Banks, DMBs, should participate in microfinancing by setting up subsidiaries, departments or engaging in wholesale funding activities in favour of microfinance institutions while Development Partners should ensure that their activities in the microfinance sector are aligned with the National Financial Sector Policy.”

Attributing the lack of financial inclusion to the low level of bank penetration, the CBN Governor, Sanusi Lamido Sanusi, in his welcome address said the 6,605 branches of DMBs and MFBs are insufficient to service the Nigerian adult banking population.

“With the over 150 million people in Nigeria, it implies a population of 22,710 people to a bank branch and higher ratios in the rural areas where there is absolute dearth of depositories.”

Stating that such situation is unacceptable, Sanusi said the empowering of this segment is necessary for the growth of the economy, and this has prompted the apex bank to improve access to financial services and to maintain stability in the financial system. The CBN Governor listed the challenges hindering MFBs from achieving total financial inclusion to include sparse location of target groups, poor infrastructure, difficult physical access, lack of awareness, low income, social exclusion, and distance from bank branch, among others.

Pointing out that MFBs are like the okada man that takes people to their doorsteps, the Director, Other Financial Institutions Department, OFID (CBN), Mr. Femi Fabamwo, said despite the challenges faced, MFBs are the last resort of financial solution to the lower end of the economic ladder.

“MFBs are unique outfits that the CBN has licensed to provide financial services and solutions to the active poor. We would not continue to tolerate MFBs that are not safe and sound, but are rather death traps for depositors.

“Just as we have the trucks, buses and okadas on the roads, so do we have the commercial, regional and MFBs who are providing financial services. The commercial and regional banks are like the trucks and buses that usually have difficulties in manueovering, the MFBs, who are like the okada, will get you to your door step with little difficulty.

“I’m appealing to MFBs and MFIs to strive to be like the okada and provide simple financial access and solutions to those that lack access to financial services or under-banked. MFBs should stop operating like ‘micro-commercial banks’ with flamboyance, incompetent and ineffective oversight of the board, poor risk management and weak internal controls.”

Commenting on the asset quality of the MFBs, Fabamwo observed that though the quality of loan portfolio is a key driver of profitability, bad debt ratio and write off ratio are very high in the sector.

“On the double bottom line, emphasis on their social missions is negligible as most of the MFBs are highly commercialized. Net interest margins have shown that higher rates are charged more than the mainstream banks. On the cost of operation, relatively smaller size and shorter maturity of loans drive transaction costs higher. Therefore, cost per borrower and operating expenses to total assets are high.

Long term funding has seen MFBs invest heavily in fixed assets, capital market and branch expansion. Thus, there is pronounced asset-liability mismatch.”

Explaining further, the OFID Director said as against 2007, the total assets of MFBs grew by 136.3 per cent from N75,549.92 to N178,516.34. Aggregate deposit also grew by 101.6 per cent from N41,217.71 to N83,072.97. Number of customers as at 31st October 2010 stood at 2,020,567 while the average deposit size was 41,110.

Aggregate loans and advances rose by 170.5 per cent from N22,850.23 to N61,811.52. The number of loan account as at 31st October 2010 was 623,353, average loan size was 104,750, while average case load was 144.

While lauding the apex bank for its efforts at sanitizing the sector, operators urged the CBN to put in place a mechanism that would enable it detect, early enough, weak banks rather than leaving them till they are really irredeemable. They also tasked the CBN to review the policy to make it friendly, pragmatic and result oriented.

“Microfinance has to be tailor made. Even though there are international standards and approaches, we should adopt the ones that suit our economy and culture. Until we domesticate most of these policies and infuse them with global best practices, we will not be able to run proper microfinancing to make any meaningful impact,” majority of the MFB operators stated.