Nigerian Compass –Several microfinace banks are anxiously awaiting the findings of the audit of their books by Nigeria Deposit Insurance Corporation (NDIC).
When micro finance banks made their debut in 2005, managers in the institutions went into churches, mosques and other worship centres, canvassing for customers. In the process, Nigerians were ensnared by promises of quick loans, high interest payment and winning exorbitant prizes in promos among others.
Five years down the line, about 85 per cent of the banks have not only gone under, but lack the capability to fulfill these promises. They have closed down their branches, sacked their workers and are unable to pay depositors.
Few of the banks still in business visited by our correspondent revealed that business was not going on as usually as most of the staff were seen either sleeping or gossiping.
Timothy Okoro, a bread hawker and customer of one of the banks visited , said he had N80,000 in the bank but for almost two months, the bank had refuse to give him his money and this he said had affected his business.
“I have lost many of my customers because I don’t have what they want. What I have lost is my entire life savings and the bank has neither written to me nor given me any hope that my money will be paid,” he said.
Speaking with one of the managers of the bank who spoke on the ground of anonymity, on the turbulence in the bank, he said we are waiting for NDIC to come out with its audit, then we will know if we will be out or in business.
He said the audit result will go a long way to determine our performance in the next few years and no bank will want to give out fund to customers now, he said
According to him: “How soon this auditing is completed will determine the way forward for grassroots banking and the fate of investors in the troubled banks.”
Mallam Sanusi Lamido, CBN governor recently said in a public function, that microfinance banks in the country had performed at less than optimal and that CBN was carrying out a systematic review of the current microfinance policy with a view to making it add more value to the economy.
He said chief executive officers of microfinance banks in the country would be made to undergo examination in order to determine their level of professional competence, adding that those found wanting would be relieved of the positions.
Nigeria Deposit Insurance Corporation (NDIC) also expressed concern about the poor performance of the sector. Umaru Ibrahim, acting managing director and chief executive of NDIC said at a risk based supervision training for NDIC examiners held in Ijebu-Ode, that the poor corporate governance culture among operators were responsible for the dismal performance of companies in the sector.
He explained that the corporation had completed a special audit of microfinance banks in the country, adding that operators found wanting will face appropriate sanctions.
He said that the corporation had put machinery in place to resolve the crisis in the ten bailed out banks as well as the microfinance banks and Primary Mortgage Institutions (PMIs), adding that it will step up its debt recovery efforts by engaging more debt recovery agents, intensify an aggressive pursuit of court cases as well as devise better and more efficient system of reaching out to depositors and the payment of both insured and uninsured deposits.
He also called on bank examiners in the country to be more proactive in their responsibilities to ensure a safe and sound banking sector.
According to him, the risk-based approach to banking supervision training was imperative in the light of the recent developments in the industry, stating that the training would equip them with the knowledge and skills to evaluate banks’ risk profiles and risk management practices for effective assessment of banks’ safety and soundness.
He attributed the current crisis in the banking sector to jettisoning of corporate governance and paying little attention to risk management by banks, stressing that there was no way the industry could move forward if priority was not paid to risk profiles in banks.
The NDIC boss further explained that the corporation had always given priority to the training and retraining of its employees toward skill enhancement, adding that the corporation under the present dispensation had accorded priority to consolidated supervision, communication and report writing and risk management, among others.
Also speaking at the event, the Special Adviser to the CBN Governor on Banking Supervision, Mr. Kim Norris, said the risk based supervision was imperative for the sector in the light of the global financial crisis and recent developments in the industry.
He expressed satisfaction over the seriousness being extended to the consolidated risk based supervision by both regulators and banks, stating with the readiness of the examiners to learn, the industry will be better for it.
Mr Akin Odunlami an expert called on CBN to do a thorough due diligence test on the claims of all micro finance banks, adding that since a clearing-house bank and lender of last resort to Nigeria’s micro-finance banks, it should ensure sanity.
Mr Moses Obioma, a financial expert said, the CBN was yet to declare any of the microfinance banks failed, adding that the failure of the micro finance institutions in Nigeria had only been acknowledged in the financial market through personal and shared experiences. To him, the CBN was experiencing capacity problems with regard to the performance of statutory supervisory functions on the numerous licensed micro-finance banks.
“We have recommended before now that the CBN should give adequate attention to the supervision and policy guideline. Besides, there is a need for an independent statutory body other than the CBN but which may report to the apex bank,” he said.
According to him, the recommendation was necessary to change the wrong culture of microfinance banks, most of which tend to imitate commercial banks in all ramifications.
“Most times, our challenge in Nigeria is never in policy formation and promulgation but in implementation. In the light of the above, we expect the CBN to list out the affected microfinance banks for public awareness,” he suggested.
Another operator who spoke on the condition of anonymity noted that the CBN was not overlooking the CEOs of failed MFBs, but only taking its time to carry out investigations on them before taking appropriate action.
He called on CBN to allow the law to run its course as regards the managing directors of the failed microfinance banks.
“Nevertheless, it could be essential if the CBN engages the services of consultants to help build the capacity of the CBN,” he said.
On audit embarked by NDIC, he said: “Most customers have stopped depositing money in the banks because they are waiting for the result of the auditors”, adding that on their part they had stopped borrowing to customers since this audit started.
Ngozi Nweke, a customer who borrowed from one of the MFBs said excessive charges was the greatest problem she had with the bank.
She was totally dissatisfied with services when it had to do with borrowing. “I obtained a loan from one of the banks and an offer letter was given to me detailing all the necessary charges. However, when I checked through my statement of account, I began to see different charges like repayment fees which was not contained in the original offer letter,” she said.
She called on NDIC to ensure that banks that did not meet the requirements of the corporation are closed down, adding that most of these banks that gone under had continued to make life unbearable for business men.
She noted that the initiative of the CBN and the NDIC to checkmate their activities was a welcomed development and would help to stop the loss of depositors fund in microfinance banks.
She argued that most of the MFBs that failed did not do so due to inadequate capital, but poor corporate governance and sharp practices and that what the banks needed most were quality service and good governance.
She suggested that N20 million should be adequate if MFBs practice the business the way it should, adding that those saying N20 million was not enough were not doing micro-finance, but conventional banking.
Mr Mike Okoye, a stock broker said that in Nigeria, Microfinance industry appeared to be stumbling from one crisis to another, ranging from accusations of fraud to embezzlement of depositors funds.
He said many of them were facing financial difficulty and potential liquidation and that the large proportion of the current problems being faced by the sector was as a result of lack of corporate governance in the system.
His words: “The current crisis suggests that not enough audit was undertaken except ensuring they met the minimum capital requirement. The regulations and guidelines in existence are not stringent enough to ensure the services provided were purely for those that the licenses were granted,” he said.
He said that some of the MFBs added to their problem when they took up residence in expensive business districts and paid their senior managers high salaries and attractive benefits.
While others where competing with commercial banks, others saw it as an opportunity to embezzle from the poor.
He commended the NDIC for taking on the challenge of cleaning up microfinance with some vigour, adding that fixing the problem should be viewed as a long term goal and that simply putting quick fixes will not achieve any lasting success.
He also called for adequate training of all members of staff irrespective of their position.
He said: “Requirement for CEOs of Microfinance banks to take CBN certification exams is a positive step forward, but does not go far enough. Other senior personnel in Microfinance banks should also undergo training. This will enable them know whether the role of Microfinance is well understood at every level of all MFBs.
Under the micro-finance bank policy introduced in 2006, there are two categories of MFBs -State MFBs and Unit MFBs.
The CBN recently said it had concluded plans to increase the minimum paid-up capital of Unit Micro-Finance Banks (MFBs) by 500 per cent to N100 million. It also increased that of State MFBs by 100 per cent to N2 billion.
According to the policy, Unit MFBs ( licensed to operate as Unit banks) shall be community- based banks. Such banks can operate branches and/or cash centres subject to meeting the prescribed prudential requirements and availability of free funds for opening branches/cash centres.
On the other hand, a State MFB (licensed to operate in a state) shall be authorised to operate in all parts of the state (or the Federal Capital Territory) in which they are registered, subject to meeting the prescribed prudential requirements and availability of free funds for opening branches.
Presently, the minimum paid-up capital for state MFBs is N1 billion, while for Unit MFBs, it is N20 million. Consequently, the new minimum paid-up capital represents 100 per cent increase for State MFBs and 500 per cent for Unit MFBs.
The CBN has also set the deadline for meeting the new minimum paid-up capital at December 31, 2011. The increase in minimum paid-up capital is one of the highlights of the reform package for the MFBs sub-sector soon to be announced by the CBN.
According to CBN the new dispensation, N20 million minimum paid-up capital would be retained for Unit MFBs in the rural areas. Such areas, the source said, must not be close to an urban centre.
The new N100 million minimum capital base would, however, apply to all Unit MFBs in urban centres, including all state capitals. He said the implication is that Unit MFBs located in Lagos State, Abuja, Kano, Port Harcourt and other major cities would have N100 million minimum paid-up capital.
The regulatory body for bank operations in the country also met with chief executives of MFBs three weeks ago to intimate them of the coming reforms, urging them to study the document and send their comments and observations back to the apex bank
Micro-finance banking came into being in 2005 with the launching of the micro-finance policy by the former CBN governor Professor Chukwuma Soludo.
The policy was influenced by the globally acclaimed impact of micro-finance in helping the economically active poor to exit the poverty threshold and thus leading to significant poverty reduction. Hence micro-finance banking was introduced with the expectation that over time, it would help in reducing poverty in the country.
Hence, as stated in section 4:2:1 of the micro-finance policy, the policy target includes “covering the majority of the poor but economically active population by 2020 thereby creating millions of jobs and reducing poverty.
To achieve this, the CBN introduced and licensed Micro-finance banks, which replaced community banks. According to the policy, micro-finance banks are to:
*Provide diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner, that would enable them to undertake and develop long-term, sustainable entrepreneurial activities; Mobilise savings for intermediation; Create employment opportunities and increase the productivity of the active poor in the country, thereby increasing their individual household income and uplifting their standard of living; Enhance organised, systematic and focussed participation of the poor in the socio-economic development and resource allocation process;
*Provide veritable avenues for the administration of the micro credit programmes of government and high net worth individuals on a non-recourse case basis. In particular, this policy ensures that state governments shall dedicate an amount of not less than one per cent of their annual budgets for the on-lending activities of micro-finance banks in favour of their residents; and Render payment services, such as salaries, gratuities, and pensions for various tiers of government.
Thus, micro-finance banks were established to help the poor and micro businesses by extending financial services to them and in the process help them grow, generate income and employment.
The policy took off smoothly and overtime especially after the expiration of the December 31, 2006 deadline given to community banks to translate to micro-finance banks (MFBs), the number of licensed micro-finance banks rose to more than 1500 by the end of 2008.