The deadline for the implementation of the revised microfinance policy framework expired at the end of last month, with a lot of operators yet to comply. Obinna Chima examines the issues surrounding non-compliance with the guidelines
Globally, microfinance banking is used to provide financial services to micro-entrepreneurs and small businesses with the primary aim of poverty alleviation and financial inclusion.
Microfinance banks (MFBs) were established to fill the gap created by the commercial banking sub-sector by improving the socio-economic condition of the poor income generation.
As a result of the essential role small and medium scale enterprises (SMEs), which are mostly described as the fulcrum for economic growth, play in any economy, a vibrant microfinance banking system is always the target of policy makers.
Unfortunately, the MFB sub-sector in Nigeria has not been able to meet its objectives. In fact, as a result of failure of the sub-sector, the Central Bank of Nigeria (CBN) had in 2010, revoked the operating licenses of 224 MFBs . The apex bank had attributed its action to the high level of non-performing loans, which resulted to high portfolio at risk (PAR) that had impaired their capital, as well as gross undercapitalisation in those affected. A lot of them had also adopted faulty business strategy.
Thus, in order to revamp the sub-sector, the CBN had in August 2011, unveiled the Revised Microfinance Policy Framework last year, with a deadline of December 31, 2012.
But THISDAY findings showed that most MFBs in the country were yet to comply with the new guidelines, even as some of them urged the regulator to extend the deadline.
Revised Policy Framework
Part of the revised guidelines stipulates that all MFBs that have elected to remain as Unit MFBs, as indicated in the compliance plans, are required to close any existing branches/cash centers, etc., subject to prior approval of the CBN in writing and adequate notification to existing customers, who should be advised to migrate their accounts to the MFB's head office, while dissenting customers should be settled.
A Unit MFB is authorised to operate in one location. It shall be required to have a minimum paid-up capital of N20 million and is prohibited from having branches and/or cash centers.
Also, a State MFB is authorised to operate in one state or the Federal Capital Territory (FCT). It shall be required to have a minimum paid-up capital of N100 million and is allowed to open branches within the same State or the Federal Capital Territory (FCT), subject to prior written approval of the CBN for each new branch or cash centre.
In the same vein, a National MFB is authorised to operate in more than one state including the FCT. It shall be required to have a minimum paid-up capital of N2 billion, and is allowed to open branches in all States of the federation and the FCT, subject to prior written approval of the CBN for each new branch or cash centre.
The CBN added: "For the avoidance of doubt, all customer interaction centers, meeting points and customer service centers, or similar outlets, once located outside the registered business premises of a Unit MFB shall be regarded as unauthorised/unapproved branches/cash centers.
"All previous approvals for such outlets for Unit MFBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN."
According to the CBN, the penalty for operating a branch/cash centre without its prior approval as stipulated in Section 13.1(b) of the revised guidelines attracts a fine of N250,000 per branch for a Unit MFB, N500,000 per branch for a State MFB and N1,000,000 per branch for a National MFB.
"In addition, such unapproved branched/cash centers shall be closed within thirty (30) days. Failure to close an unapproved branch or cash centre shall attract a fine of N5, 000 for each day of default, irrespective of the category of MFB. Moreover, failure to comply with any directive issued by the CBN, as stipulated in Section 19(i) of the revised guidelines, is a ground for revocation of licences.
Pushing for Extension
But despite the expiration of the deadline, operators of MFBs in the country said they are still negotiating with the CBN for an extension of the deadline on the implementation of the revised guideline.
National President, National Association of Microfinance Bank (NAMB), Mr. Jethro Akun, who spoke with THISDAY, said: "We are still negotiating with the CBN. What is important in this type of situation is dialogue. We are working with our people to make sure we comply. We are also listening, not just to the operators, but also to the investors."
On his part, the Chairman, NAMB, South-west Chapter, Mr. Olufemi Babajide, pointed out that MFB operators did not have problem with the new capital requirement, which categorises microfinance banks. However, he argued that the deadline of December 31, 2012, "is not feasible."
Babajide explained: "Categorisation is also a welcome development. The deadline of December 31st, 2012 is not feasible. We want the deadline to be extended till December 31st, 2014. The sub-sector is not presently attractive to existing and new investors in view of the economic meltdown of 2008 and the license revocation of 2010.
"Mergers and acquisition, outright sales are going on in the sub-sector, but the pace is slow in view of lack of funds and the need to carry out due diligence which requires time."
He hinged his call for an extension of the deadline to 2014, on the expectation that by next year, the CBN support fund, the Nigerian Incentive-based Risk Sharing Agricultural Lending (NIRSAL) fund, and other donor funds would have been disbursed to MFBs. These, he argued, would make the sub-sector very attractive to investors.
Babajide said further: "Under the NIRSAL programme, which is an initiative of the CBN, farmers have already been paired with the branches of MFBs. If such branches are closed, it will be a setback for the programme. This will compound the low productivity in the Agricultual Sector. Nigerians will surely go hungry.
"The Rural Agricultural Programme has already started with the branches of MFBs. If they are closed down, colossal losses will be recorded by RUFFIN, Farmers, Cooperative societies, the host communities and MFBs
"Other initiatives such as the UNDP Solar power, Oando Gas that the branches of MFBs have signed on will automatically collapse. By the Year 2014 the apex association would have put in place very firmly, our self-regulation and supervisory structure which will assist the regulatory authorities in their supervisory roles."
He insisted that the deadline of December 31st, 2012, if implemented would erode the gains already recorded in the sub-sector, especially its stability.
He declared that MFBs are currently apprehensive because of the pronouncement of the CBN.
Continuing, Babajide said: "They are not sending their staff for the Certification programme which the CBN is spending money on. They are not paying their annual dues, staff members are afraid of Job loss. State Governments are beginning to withdraw their patronage of MFBs. Depositors are afraid. Our regular capacity building cannot be organised because of the fear of another 'Tsunami' that may hit the sector.
"Loans have been disbursed by the various branches to customers, whose tenor vary from 30 days to 720 days. If such branches are closed down, that will automatically result into bad debt. Branch closure will reduce the reach out to extend financial services to the poor and under-banked in Nigeria. This will further compound the crime rate in the country."
But in his opinion, Managing Director/Chief Executive Officer, GTI Microfinance Bank Limited, Mr. Abimbola Adewale, disagreed with Babajide, saying that the banking sector regulator did its best by unveiling the guideline in 2011, which to him was enough time for MFBs to comply.
"CBN has done its best by issuing the policy as far back as 2011 and microfinance banks were given 18 months to comply. So, CBN gave sufficient time for microfinance banks to recapitalise. For me, I think it is a wonderful policy and I don't see why some people would say that it is not feasible," the GTI boss said.
Similarly, Managing Director/Chief Executive Officer, Complete Trust Microfinance Bank Limited, Mr. Chinedu Nwogem, who said that the revised guideline would promote stability in the system, also called for an extension of the deadline.
"The December 31, 2012 deadline is not feasible because the industry is just trying to recover from the 2010 intervention which made so many people to lost interest in the sector.
"The CBN should find out those MFBs that have growth potentials and support them because further closure of MFBs would spell doom for the economy," Nwogem added.
When contacted on the development, Director, Corporate Communications, CBN, Mr. Ugo Okoroafor, said: "We want people to take CBN guidelines seriously. We don't just give directives; we give directives for people involved to comply with and we have given enough time."