• Default in premium payment to NDIC
BY KUNMI AKANJI
There are indications that the microfinance bank model of the Central Bank of Nigeria may soon be reviewed following the reports of pervading distress in the microfinance sector of the Nigerian banking industry.
Sources, however, disclosed that the current board of the CBN may not tinker with the policy until a new governor comes on board at the expiration of the five-year tenure of the incumbent governor, Sanusi Lamido Sanusi in June next year.
Western Post’s investigations showed that most of the 872 microfinance banks have been experiencing low patronage for a while, a development which is seriously eating deep into the returns of the affected banks.
Managing Director of the Nigerian Deposit Insurance Corporation, (NDIC) Alhaji Umaru Ibrahim, who confirmed the dwindling fortune of the microfinance bank, said many of them are defaulting in their premium payment to the NDIC.
He said the default is already threatening the ongoing financial inclusion policy of the CBN.
He disclosed that many of the 103 microfinance banks forced to close shops three years ago defaulted in premium payment and so do not have enough money to liquidate their debts. “We had to pay their premiums from fund from other banks. We were more or less subsidising them,” he said.
Umaru said the failure of some of the microfinance banks could pose a challenge to the policy on financial inclusion because it could erode the confidence of the informal sector from banking.
The NDIC boss disclosed that many of the microfinance banks are not doing well, an indication that what most of the institutions have left are their buildings. In a veiled reference to the collapse of microfinance model, Umaru said for instance in Jigawa State, there are only five functional microfinance banks in the state.
He said that financial exclusion can be detrimental to any economy. “The lack of access to financial services and at affordable cost in Nigeria implies that the growth of small and medium enterprises will be impaired. Currently, only large corporate and guaranteed wage earners in the public and private sector have access to credit. It also means that the CBN will be unable to efficiently carry out its duty of conducting monetary policy due to the present inefficient transmission mechanisms,” he said.
Banking industry watchers said a review of the microfinance policy is one of the few policies to be tampered with by the incoming board of the CBN considering the overwhelming complaints over the dwindling performance of a number of licensed microfinance firms.
Analysts believed the current tough operating environment in which money deposit banks operate is one of the contributory factors to the poor finances of the microfinance banks. “We are in an era where sources of revenue of money deposit banks have considerably shrunk, this development has forced some of the money deposit banks to shut their doors against microfinance banks,” a bank chief said.
The practice of microfinance in Nigeria is culturally rooted and dates Back to several centuries. The traditional microfinance institutions provide access to credit for the rural and urban, low-income earners. They are mainly of the informal Self-Help Groups (SHGs) or Rotating Savings and Credit Associations (ROSCAs) types. Other providers of microfinance services include savings collectors and co-operative societies. The informal financial institutions generally have limited outreach due primarily to paucity of loanable funds.
In order to enhance the flow of financial services to Nigerian rural areas, government has, in the past, initiated a series of publicly-financed micro/rural credit programmes and policies targetted at the poor. Notable among such programmes were the Rural Banking Programme, sectoral allocation of credits, a concessionary interest rate, and the Agricultural Credit Guarantee Scheme (ACGS).
Other institutional arrangements were the establishment of the Nigerian Agricultural and Co-operative Bank Limited (NACB), the National Directorate of Employment (NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank of Nigeria (PBN), the Community Banks (CBs), and the Family Economic Advancement Programme (FEAP).
In 2000, Government merged the NACB with the PBN and FEAP to form the Nigerian Agricultural Co-operative and Rural Development Bank Limited (NACRDB) to enhance the provision of finance to the agricultural sector. It also created the National Poverty Eradication Programme (NAPEP) with the mandate of providing financial services to alleviate poverty.