Keeping Micro-Finance Banks Afloat: The Challenge

Micro-finance banking was introduced into the country in 2007 in the wake of economic challenges of the time.

The initiative came from the then Governor of the Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo.

Prior to the banking scheme, community banking was adopted as part of the Federal Government’s measures to open up credit lines and other financial services to people at the grassroots and, thus, alleviate poverty.

The community banks, however, collapsed under the weight of the difficult economic climate of the 1990s.

Banking and finance experts explain that although the role of micro-finance banks is akin to that performed by the defunct community banks, their ownership structure and lending rules, however, differed.

They say that while community banks were owned by a community or group of communities, micro-finance banks, on the other hand, can be established by individuals or investors, who have a capital base of N20 million and above.

For a micro-finance bank owned by a state, however, a N1 billion-capital base is required.

Currently, about 920 micro-finance banks exist in the country and they operate under the aegis of the National Association of Microfinance Banks (NAMB).

It is noteworthy that some of the micro-finance banks metamorphosed from the defunct community banks.

After three years of existence, some concerned citizens wonder if the micro-finance banking scheme has been able to prove its relevance in charting a new path for the economic development of the people in spite of several challenges.

The global economic meltdown is one of such challenges which, according to observers, have caused some of the micro-finance banks that could not cope to close shop.

Aware of the problems and the daunting task to make micro-finance banks to stay afloat, the current CBN Governor, Malam Sanusi Lamido Sanusi, has initiated some measures to reposition the banks for effective service delivery.

Sanusi, during the Fourth International Conference on Micro-finance Banking, which held in Abuja between January 22 and 23, directed the chief executive officers of micro-finance banks to undergo a certification programme, as part of the repositioning efforts.

Furthermore, the CBN has developed a guide or model for micro-finance banks, which it insists operators must either meet or be ready to lose their operating licences.

By the CBN requirement, the banks’ chief executives are required to write and pass a prescribed examination under the certification programme.

“If the great potential of micro-finance banks as a tool for alleviating poverty in developing nations is to be harnessed in a sustainable manner, no stone must be left unturned,” Sanusi said.

All the same, the NAMB is not oblivious of the need to reposition micro-finance banks.

At its inaugural general meeting on April 8 in Abuja, its National Executive Council (NEC), headed by Mathias Umeh, was set up and charged to explore ways of mobilising member banks to achieve the target objectives.

Umeh was quick to call on the Federal Government to integrate the medium, small and micro sectors into national corporate governance, as part of measures to achieve its objectives for setting up the micro-finance banking scheme.

Analysts, nonetheless, stress that the concerns of banks’ executives nowadays are manifold. Some of the worries include the challenge posed by fraudsters, as well as the dearth of “financial windows” to patronise in the event of any financial distress.

Mrs Olubunmi Lawson, the Managing Director of Accion Microfinance Bank in Lagos, said that the challenges had been a source of concern to micro-finance banks because the issues were the dependent variables in moves to ensure the banks’ survival.

Alhaji Abdukadir Hassan, a lawyer, said that it was important to develop a security framework where fraudsters, who present themselves as customers, could be easily unmasked and dealt with.

An analyst, Prof. Anya O. Anya, stressed the need to strengthen the country’s micro economic sector through the development of the micro-finance banking infrastructure that would free Nigerians from the lingering economic problems.

He lamented that because the nation’s industries were “tootling’’; they contributed less than 50 per cent of the nation’s Gross Domestic Product (GDP).

Anya, the former chairman of the National Economic Summit Group, is worried that the contributions of indigenous industries to the national economy were insignificant, particularly in the second quarter of 2009.

His words: “In June 2009, about 857 factories closed shop because of the current economic crunch and more than 600,000 people lost their jobs.

“These industries were widely spread: 159 in Lagos, 140 in Kano, 119 in the South-West zone and 114 in the South-East.”

The Umeh-led leadership of the NAMB, however, gives the assurance that tangible efforts would be made to “mainstream micro-finance banking into the hub of the nation’s financial system”.

The CBN is seemingly taking cognizance of the micro-finance banks’ worries, as one of its directors, Mr Olufemi Fabanwo, who is in charge of the Other Financial Institutions Department (OFID), stressed that the CBN would ensure the survival of the banks.

“The CBN would build credibility for the industry. However, the certification programme to build critical mass of knowledge in micro-finance banking sector is the first stage,” Fabanwo said.

A banking researcher, Mr James Apendah, recalled that the woes of the defunct community banks largely stemmed from the menace of non-performing loans.

Apendah cautioned micro-finance banks to be wary of giving out non-performing loans in their operations if they were truly eager to survive.

There is a general consensus among economists that micro-finance banks could spur remarkable growth in the small and micro sectors of the nation’s economy where purposeful entrepreneurs require funds to fund viable projects.

The economists acknowledge the efforts and concerns of the CBN in efforts to avoid the pitfalls of the past.

They, nonetheless, urge micro-finance banks to strictly follow CBN’s guidelines so as to justify and sustain their relevance in the nation’s economy.

 Adetoye writes for the News Agency of Nigeria (NAN)

Bukola Adetoye