The Central Bank of Nigeria, CBN, has revoked the operating licences of 224 Microfinance Banks, MFBs that were found to be ‘Terminally Distressed’ and ‘Technically Insolvent’.
Also the regulatory body recommended that bank directors and management of the closed banks who abused their positions be handed over to the Law Enforcement Agencies for investigation and prosecution, and those found guilty are blacklisted accordingly.
However, the apex bank assured the investing public that as insured institutions, the National Deposit Insurance Corporation, NDIC in line with its statutory responsibility shall pay up to the maximum insurance coverage of N100,000 ($665) per depositor.
In his words, “The microfinance industry in Nigeria had been confronted with numerous challenges since the launch of the Microfinance Policy Framework in December, 2005. A significant number of the microfinance banks (MFBs), were deficient in their understanding of the microfinance concept and the methodology for delivery of microfinance services to the target groups. Many of them lost focus and began to compete with deposit money banks for customers and deposits, leaving their target market unattended, in spite of efforts of the regulatory authorities to put them back on track.”
In addition, Moghalu noted that the impact of the global financial crisis has been severe on the sector as credit lines dried up, competition became more intense and credit risk increased as many customers of MFBs were unable to pay back their credit facilities owing to the hostile economic environment.
The CBN deputy governor said it was the combination of these factors that had significantly weakened the microfinance sub-sector and its ability to achieve the policy objective of economic empowerment at the lower end of the market.
He explained that this state of affairs and market reports about the failure of some MFBs to meet their matured obligations as well as numerous petitions from aggrieved depositors, informed the joint decision of the regulatory body and the NDIC to commence a Target Examination of all MFBs in Nigeria, to identify the problem and ascertain the scope as well as the extent of damage done to the affected institutions.
The exercise began in February 2010 and was concluded in June 2010.
Based on the outcome of this exercise, Moghalu listed the factors that contributed to the failure of these banks to include,” High level of non-performing loans, resulting in high portfolio at risk
(PAR), which had impaired their capital; Gross undercapitalization in relation to the level of operations; Poor corporate governance and incompetent boards; High level of non-performing insider-related credits, and other forms of insider abuse; Heavy investments in the capital market, with the resultant diminution in the value of the investment after the meltdown; Poor asset-liability management owing to portfolio mismatch; Heavy investments in fixed assets beyond the maximum limit prescribed; Operating losses sustained as a result of high expenditure on staff and other overheads, Weak management evidenced by poor asset quality, poor credit administration, inadequate controls, high rate of fraud and labour turnover and Failure to meet matured obligations to customers.
The CBN has therefore, assured the public that it will not allow the activities of few individuals that ran their institutions aground to derail the noble objectives of the microfinance policy.
According to it, “All necessary steps have been taken to protect depositors of the affected banks.”
The list of the revoked 224 MFBs is published on the official website of the CBN.