By Amaka Agwuegbo
The managing director of Integrated Microfinance Bank, Mr. Adamu Ibrahim, has said microfinance banks (MFBs) can fight poverty if appropriate structures and the needed expertise are put in place.

Speaking with Vanguard, Ibrahim said MFBs ought to provide the best opportunities to address the issue of poverty since government lack such mechanisms to facilitate the eradicating of poverty.

“Government can’t handle poverty alleviation alone because their microfinance programs are often perceived as social welfare, as opposed to economic development efforts.

“NAPEP is a typical example of government efforts at poverty alleviation which has not yielded the desired results because there is no reliable means of delivering the money to the people.

“For any microfinance program to succeed, it must be commercially sustainable. Micro credit should never be a dole out. It is meant for the productive and active poor who have a desire to change their status. The poor don’t need sympathy but empowerment.

“By contrast, commercial banks not only suffer from an informational disadvantage and an inability to enforce contracts, but prohibitively high transactions costs of lending small amounts make it all but impossible to extend credit profitably.”
Aside lack of structures and expertise, Ibrahim said most MFBs face the challenges of inadequate capital and dearth of experienced manpower.
“We lack experienced hands to effectively man over 900 MFBs today. What we have in most cases is family MFB and under such a set up, serious mistakes are bound to be made especially in the area of lending.

“The principles of lending must be well understood because lending is lending, whether micro or big ticket. With a paid up capital of N20m, an MFB can’t attract quality staff. The most critical obstacle to expanding the MFB sector today is the lack of knowledgeable MFB technicians to help institutions develop their management systems.

“Also, a typical scenario for a start up MFB is that promoters will rally round and borrow money to meet preoperational expenses and statutory deposits. As soon as the bank commences operations, it is saddled with repaying back the money it took to start the business and, most times, the money attracts high interest rates.

“The bank will try to meet the debt obligations from customer deposits collected and high rates of interests are given to quickly attract deposits. Since most money collected from customers is used to meet debt obligations, little or no money is left to lend in order to generate income. Meanwhile operational expenses are running.

“After sometime, the bank will no longer be able to meet its obligations to customers; and once there are many cases of default, news will go round and a run will automatically be triggered and the bank will run in to liquidity problems.”