WITH the planned establishment of a National Microfinance Bank, NMFB, by the Central Bank of Nigeria, CBN, in collaboration with Bankers’ Committee and Nigerian Postal Services, NIPOST, CBN seem poised to repackage microfinance banking for the desired impact on the economy.
According to CBN, the reason for the planned NMFB is because “the task and responsibility to improve our rural communities lies in our hands and we believe strongly that using the infrastructure of the NMFB we would get to achieve the objective of creating jobs and enhance skills of our people in our rural communities, improve and grow the economy so we can achieve the development we so badly need in Nigeria today.” The development is a vote of no confidence on the 882 Microfinance Banks, MFBs, licensed by the Central Bank of Nigeria. CBN Governor, Godwin Emefiele, in a report, noted that “those microfinance banks that we have today are not doing what they are supposed to be doing. They have made it nigh impossible for many SMEs to access the Federal Government loans aimed at stimulating local production and non-oil exports”. In 2015, the apex bank threatened the revocation of 154 MFB licences and noted that 62 of the4 MFBs closed shop, 74 insolvent and 12 terminally distressed, while six voluntarily liquidated. Microfinance banks were created to fight poverty, but, among other things, it has been alleged that they charge ‘outrageous’ interest rates which
But alas CBN had had to review the health of the sub-sector and concluded that microfinance banks as presently constituted would be unable to meet the critical targets set out in the Microfinance Policy. Hence, the need for specific reforms to strengthen the sub-sector and reposition microfinance banks towards improved performance. It reviewed the minimum capital requirement of MFBs to mitigate the challenge of capital inadequacy of the banks. Unit Microfinance Banks formerly with N20 million would need N200million to continue operation. State Microfinance Banks formerly with N100million would need N1billion, while National Microfinance Banks would need N5billion instead of N1billion. The new capital base takes immediate effect for new applications, while existing ones have up to April 2020. According to CBN: “Institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations would be allowed to open the account at the CBN office within their state of operation. Such institutions would also be channels for micro-funding activities of the CBN and the Development Bank of Nigeria.” The importance of microfinance banking and small and medium scale enterprises in driving economic growth and poverty reduction cannot be overemphasized. The concept was established in 2005 after Community Banks were phased out. It is the latest of such measures established in the past for poverty reduction, but of which virtually all failed. They include the Small Scale Industries Scheme (1971), the Agricultural Credit Scheme (1973), the Nigerian Agriculture and Cooperative Bank (1973) and the Nigerian Bank for Commerce and Industry (1973). Others are People’s Bank (1982), Small and Medium Scale Enterprises Loan Scheme (1992), Community Bank (1992), Family Economic Advancement Programme (1997) and Small and Medium Industries Equity – an intervention strategy by the Bankers’ Committee (1997). Experts identified corruption, inadequate project monitoring, poor loan processing and credit administration and predetermined criterion for feasibility appraisal as some of the major factors for their failures. Small and Medium Scale Enterprises have been noted to hold the key to job creation and poverty reduction in Africa, but their huge potential remain untapped. Some of their major challenges include poor infrastructural development, unfavourable macroeconomic environment and inadequate finance. Banks are noted to be averse to lending to SMEs but prefer to lend to companies with financial muscle and track records. With the repackaging of MFBs, it is expected that they will create the desired impact in the economy by galvanising financial inclusion which in turn engenders the development of a stable financial system with non-volatile savings which if effectively channeled would help unleash the huge potential of SMEs.