NEWS that almost half of the loans given
out by Nigeria’s licensed microfinance banks are non-performing is
ominous. It demonstrates that risk management at that level of financial
intermediation is very poor and raises fresh fears of possible systemic
distress. For a financial system that has witnessed cyclical distress
and an economy with a depressed small and medium scale
enterprises
sector, the spectre of trouble in the MFBs calls for fresh thinking to
rejuvenate micro lending in the system.
The Central Bank of Nigeria and its new
Governor, Godwin Emefiele, will need to take microfinance more seriously
and resolve to make it an important accelerator of industrialisation
and job creation. So far, the omens are not so good. According to the
Nigeria Deposit Insurance Corporation, Non-Performing Loans held by the
MFBs in 2013 were 45.7 per cent of the total loan portfolio. This figure
emerged from the on-site examination of 797 of the 821 registered MFBs
in the country conducted by the CBN and highlighted in its Financial
Stability Report.
Set side-by-side with the prescribed
Portfolio-at-Risk maximum of five per cent, the non-performing ratio
becomes worrisome. It also raises apprehension of systemic distress, a
phenomenon that the economy has suffered several times with severe
consequences for savers and for our tepid saving culture. The dread is
not allayed by the fact that the 45.7 per cent is actually a decline
from the 61.9 per cent NPLs position of the MFBs as of December 2012
following pressure on the microfinance institutions by the apex bank to
tighten their credit processes.
Besides, only 526, or 66 per cent of the
MFBs examined by the CBN, met the statutory capital adequacy ratio (the
ratio of capital to credit) of 10 per cent. And just 568, or 71.2 per
cent, satisfied the minimum liquidity ratio (the ratio of deposits to
credit) requirement of 20 per cent. This is not good enough, especially
when remembered that depositors in MFBs are typically the lower income
earning segment of the populace who have been squeezed out of the
mainstream financial system. That some 271 MFBs have issues with capital
adequacy ratios and with 229 meeting regulatory liquidity requirements
call for some concern.
Although most financial analysts,
including the CBN’s Other Financial Institutions Supervision Department,
believe there is no cause for alarm, the assertion by its Director,
Olufemi Fabamwo, that it would not shut down over 600 MFBs that failed
to meet the December 2013 deadline on new statutory minimum capital
thresholds suggests that the regulator is being lenient with operators,
perhaps for the very reason of avoiding distress and panic withdrawals.
In an economy where over 40 per cent of
the population, by some estimates, are excluded from the formal
financial services market and lending rates for small borrowers range
between 30 and 40 per cent, micro credit must be developed to enable the
mass of the people to escape poverty and joblessness.
Microfinance targets the low income
segment of the population and small and medium scale businesses.
Microfinance is a very old concept, but has received fresh impetus from
governments globally since the 1970s with the aim of channelling credit
to the lower rungs of the society. A summit of the G-8, the grouping of
the world’s eight most industrialised economies, in 2004 called for
robust aid and human capital support to boost microfinance institutions,
especially in developing economies.
Malaysia has since 1988, through its AIM
and YUM credit schemes and The Economic Fund for National Entrepreneurs
Group, developed a functional microfinance system that also draws in
commercial and development banks. The Grameen Bank micro credit scheme
that services over seven million poor Bangladeshi women and won its
founder, Muhammed Yunus, a Nobel prize, has been difficult to replicate
elsewhere. In the United States and Canada, MFIs target marginalised
populations that lack access to mainstream banks.
We need to harness successful models and
mould them into local conditions for success. The National Association
of Microfinance Banks acknowledges that lack of managerial skills; low
financial capacity and unfavourable macroeconomic environment hamper
MFBs in Nigeria. In making them crucial to the economy, there should be a
purposeful implementation of the National Microfinance Policy
inaugurated since 2006. The CBN should strictly enforce its regulatory
framework on liquidity, capital adequacy and risk management. It should
quickly implement its plan to create a collateral registry for movable
assets to eliminate the practice of multiple borrowing from several MFBs
by dubious customers and reduce NPLs.
The government’s N220bn MSME development
fund now being implemented may go the way of previous intervention funds
unless the government takes another look at the ownership of MFBs.
Grameen, a runaway success, is a non-governmental organisation; most of
the MFIs in the US and Canada are NGOs. CBN should make regulations to
exclude the corruption-prone state and local governments from owning
majority stakes in MFBs and leave MFIs in the hands of private
entrepreneurs.
Most importantly, CBN should strengthen
its supervisory capacity and enhance its ability to enforce its writ and
keep distress out of the system.
