The former chairman of the defunct National Association of Microfinance Banks of Nigeria, (NAMFBIN) Mr. Olutayo Adenekan, has asked the Central Bank of Nigeria, CBN, not to use the same yardsticks in measuring microfinance banks, MFBs, and commercial banks.

Pointing out that the Nigerian microfinance sector is still too young, Adenekan, described the poor asset quality of MFBs as one of the toothing problems to be encountered.

“The CBN has to understand that the sector is still young in the business. We are like a crawling child who is prone to breaking things in the process of getting up.

“Equally, just as you can’t measure a child with the same yardsticks used for a man, the CBN should stop measuring us with the same yardsticks used for commercial banks because the regulators and operators are in the learning process of how to run the MFB sector; and if any of us start to panic, it would lead to confidence crisis in the investing public, which would sound the death knell for the sector. So, this makes it important for all of us to be trained on how to operate and regulate the sector.”

Adenekan urged the CBN to review the MFB operating policy so as to chart a better course on the way forward that would equip MFBs to achieve the purposes they were licensed to.

“As a sector, we ought to look at our failures as a tool for making corrections for the future and to operate in a manner those mistakes would not be repeated.”

At its last Committee of Microfinance Bank in Nigeria (COMBIN) meeting, the CBN stated that the asset quality of most MFBs is still worrisome, while some have their capital eroded below the minimum required level of N20m.

According to the CBN, “asset quality was worrisome as 45 per cent of the loans and advances were non-performing with Performance At Risk value of above 44 per cent. There were also non-performing insider-related credits, which is attributed the large volume of non-performing credits to the backlog transferred from the community banking era.”

The CBN advised that since most of these non-performing credits had been in the banks’ books for some years, board approval should be obtained and other necessary steps taken to write them off. It warned that director-related credits should not be written off without the prior approval of the CBN in writing.

The CBN also stated that average capital was above the minimum capital requirement of N20m. Though the average capital was N40m, some of the examined institutions had their capital eroded below the minimum required level of N20 million.

“Liquidity is high, but there are few cases of illiquidity due to the fact that some MFBs have high level of insider credit, especially their directors, high investment in fixed assets, making it difficult for operators to match assets to liabilities. These have greatly contributed to the high level of illiquidity which leads confidence crisis.”

The CBN, while observing that improper practices have led to an increase in the generation of poor quality loan assets, said some MFIs have 45 per cent of non-performing assets on their loan portfolio.

“You must all go out to recover outstanding loans to your customers while at the same time ensure that you maintain quality assets from now,” the CBN warned. “About 51 MFBs have not rendered their returns for some time now. You all know that the action is criminal and could be sanctioned with revocation of license, and that may assist in reducing the number of operators in the country,” a CBN official stated.

Not only is the MFB sector bedeviled with poor asset quality, the issue of corporate governance is now topical, with most of operators flouting it. The CBN lamented that corporate governance was still a major problem faced by MFBs.

A recent examination revealed that directors were not meeting regularly and the quality of deliberations was not incisive; overbearing influence of the supervisory directors (an office not recognized by the CBN); non-functional Board Committees to help the board in its oversight functions; sit-tight directors; and dearth of skilled management staff.

Section 20(2)(a) of BOFIA, 1991 stipulates that a bank shall not, without prior approval in writing of the CBN, permit to be outstanding, unsecured advances, loans or unsecured credit facilities of an aggregate amount in excess of N50,000 to any of its directors, to any firm, partnership or private company that any of its directors is a guarantor or any public or private company in which any of its directors maintains a shareholding of not less than 5 per cent, either directly or indirectly.