Bailing Out Microfinance Banks in Nigeria

With over close to over 1,000 microfinance banks in Nigeria, it would be easy to adjudge that the industry is doing so well and this is why we have so many number of microfinance springing up daily in with so much interest from foreign investor trooping in to acquire some and have a stock in the ever growing microfinance economy.

The irony on ground is that most of the microfinance banks and most especially the unit microfinance banks are not finding it easy. It is now more worrisome learning that they would have to source for extra funds to shore up their capital base.

The move to increase the capital base for microfinance bank as state in the circular is a move in the right direction to correct the anomaly in the sector. The new capital structure for increase sees that;

Unit Microfinance Banks be moved from N20, 000,000 to N200, 000,000

State Microfinance Banks be moved from N100, 000,000 to N1, 000,000,000

National Microfinance Banks be moved from N2, 000, 000,000 to N5, 000,000,000

The above re-capitalization process is necessary all a bid to bail the financial sub-sector out of the deplorable state it currently operates in. As enshrined in the microfinance regulatory policy, it would help boost financial inclusion in the country with overall agenda of eradicating poverty.

The CBN no doubt have plausible agenda by taking time to revise the policy framework which will no doubt increase access chances for poor people to have access to financial services all over the country.

The weak corporate governance structure of most MFBs has constantly lead to ineffective risk management practices which causes increase in dearth of capacity building for the institution.

MFBs all over Nigeria are not evenly placed and one challenge we have is the situation where we have very low number of MFBs concentrating in particular areas. For states like Yobe that has only one MFB as at 2018, what happens if they are unable to meet up with the recapitalization deadline? Do we revoke the MFB licence because they are unable to meet up?

List of MFB 2018 before recent revocations by CBN.

 Recently, the CBN revoked 154 microfinance banks license. Some of the MFBs operations had been self-closed, some had insolvency issues and some voluntary liquidated.

The effect of this is that, NDIC will be subjected to pay certain amount to depositors of the failed microfinance banks. Report from the dailies put the sum of N2.88 billion paid in September 2017 to 525,009 depositors. These MFBs shouldn’t have been closed down but was close, due to their weak capital base and other internal control issues.

Sufficient capital base will put microfinance banks in a stronger position to engage competent workforce while investing in financial inclusive tools needed to stabilize the microfinance financial system.