Nigeria: Mergers, Acquisition Imminent in Mfb Sector

Mar 2010
Washington, United States, March, 09 2010 - The recent focus of the Central bank of Nigeria (CBN) to the Microfinance Banking sector (MFBs) to enhance regulation and supervision may lead to massive mergers and acquisitions to limit possible cases of close down as the apex bank plans to jerk up minimum capital base in the sub-sector any moment from now.

Governor of the apex bank, Mallam Sanusi Lamido Sanusi who hinted in a recent interview that though a certification process was going on to standardise the operations of MFBs, there are indications that raising the capital base of the micro finance banks and retooling with corporate governance may be the most important solutions to improve their performance

Sanusi however made it clear that "we are internally looking at our structures and trying to see how we can optimally utilise and supervise these institutions because frankly, the model that we use gives us stretched resources".

"It is very difficult to supervise 900 different institutions in different parts of the country," he said, disclosing however, that the bank was articulating a new supervisory regime for the micro finance institutions so as to reposition them for what they were originally created to do for the economy.

But impeccable sources from the regulatory department of the CBN confided in Daily Champion that indications have shown that the proposed increment in the capital base of MFBs by the CBN may lead to mergers and acquisition in the industry.

The source also revealed that apex bank is planning to increase the minimum capital base of microfinance institutions from N20 million to N100 million, saying the increment could consequently compel mergers and acquisition amongst microfinance operators, hence suppressing the number of MFBs from 898 to a considerable and size even though more than 1000 MFBs are expected to serve an economy like Nigeria.

Analysts say this would translate to the big MFBs consuming the smaller ones that may be unable to raise their capital base, just as witnessed in the banking consolidation under the former CBN boss, Prof. Chukwuma Soludo.

According to the prevailing regulatory conditions and policy stipulate that a unit MFB should capitalise to the tune of N20 million before it can operate in the MF market.

But facts emerged recently that the prescribed capital base is not enough for a microfinance outfit to operate effectively, considering that most of them incur much cost in the form of fixed assets and paying salaries and so on.

Investigations show that the move was to make MFIs in the country strong and viable to withstand the challenges of the operating environment as well as survive competition.

According to a CBN source, "In 2005, N20 million was a lot of money, but today, barely can it set up the building of a microfinance bank. To operate successfully, a minimum of N100 million capital base is needed."

But as the microfinance institutions continue to face liquidity challenges just as some collapse trapping depositors' fund, the CBN believes that increase in capital base is the only solution to boost liquidity in microfinance institutions. The apex bank source however advised microfinance institutions especially those in Lagos to operate above N100 million as competition in Lagos state is getting stiffer. But for other institutions outside the state, N100 million could make them survive, stated.

The source made it clear that the proposed increment was to allow MFBs impact on the lives of more people in order to reduce the poverty level in the country, as stated in the policy. But with the review of the microfinance policy underway, there are indications that the new capital base would be included in the reviewed policy.

However, apart form the problem of capital base, an MFB expert and managing director and chief executive officer of Lift above Poverty Organisation (Lapo), Mr. Godwin Ehigiamusoe argued that "in order to survive the test of time, there is the need for microfinance institutions to put qualified people to man strategic positions in their respective banks.

The expert made the statement at a recent national workshop on commercial microfinance and savings mobilisation organised by the World Bank/Nigeria-MSME in collaboration with the Central Bank of Nigeria (CBN) in Lagos.

He stressed that microfinance institutions should be able to institute a management that is ready to come out with very good strategy, saying "there should be a very high level of integrity, trust and emphasis on strategic thinking and corporate governance by the management in place.

Ehigiamusoe said "lack of credibility, creates anxiety on the part of the customers and may lead to trust erosion which could impede the bilateral relationship between its customers and the bank.

"The whole management of MFBs must be able to define the direction and being able to be responsible for what is happening in such institution either good or bad. It is necessary so that they are able to grow in a very sustainable manner and they will not have any problem.

He maintained that most of the institutions metamorphosed from poor performing community banks, adding that, "the fact that these institutions changed their names from community banks to microfinance banks does not means their attitude have changed".

According to him, "lack of skilled personnel in the MFBs nationwide contributed to illiquidity in most of these institutions, as most of them do not posses good microfinance banking training."

"In a situation whereby somebody is running MFBs like commercial banks is detriment to the system and that is what we are witnessing today.

Continuing, Ehigiamusoe said as microfinance organisation grows from introduction stage to maturity, "emphasis will increasingly be on management development, strategic planning, process and product development, human resources planning and development, financial planning among others'.

Source : AllAfrica

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