Lagos, Nigeria, March, 03 2009 -
With more than half of the adult population unable to access retail banking services, the introduction of microfinance banking by the Central Bank of Nigeria (CBN) was welcomed by Nigeria’s development partners and the general populace. However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags.
With more than half of the adult population unable to access retail banking services, the introduction of microfinance banking by the Central Bank of Nigeria (CBN) was welcomed by Nigeria’s development partners and the general populace.
Microfinance is the provision of credit and other financial services to people in lower income groups, with one of its major characteristics being that it offers limited products with no formal collateral.
In 2001, the Central Bank of Nigeria revealed that 160 microfinance banks were already registered.
However, this laudable concept was soon caught in the thorns of an inefficient Nigerian economic system and hijacked by money bags.
An analyst, who works with one of the microfinance banks, said the bank’s location was the first sign that hopes for its transformation of Nigeria’s banking landscape are misplaced.
A significant percentage of all licenced microfinance banks are believed to reside in highbrow areas of Nigeria’s cities.
“What would a microfinance bank be doing at Adeola Odeku, Victoria Island or Ikoyi when the target market is at Okokomaiko, Mile 2, or all other places where you can find a plantain seller, recharge card seller, okada rider and so on?,” he said, on condition of anonymity.
“They are also competing for corporate accounts. They want to have salary accounts for government parastatals, or finance petroleum marketing industries; consequently you will find their staff in suits, chauffeur-driven in state of the art cars.”
Having failed to capture its target market -”the poor”- most microfinance banks in the country are now competing with wholly commercial banks.
The analyst said several operators of microfinance banks wanted a short cut to owning a commercial bank without having to undergo the rigours of procuring the necessary banking licence.
They are, he said, also grossly lacking in the most important aspect of their operations: raising funds from depositors and getting prospective clients to shed their phobia for bank loans for fear of exorbitant interest rates.
Vexed at what it considers the ostentatious lifestyle of operators of some microfinance banks, the Central Bank of Nigeria recently threatened to withdraw the licences of such banks.
The deputy governor of the Central Bank, Tunde Lemo, told participants at a recent conference on microfinance, organised by Tradewise Consulting and the Lagos State government that managers of some of the banks are yet to imbibe the necessary culture suited for their operation.
“Some of these microfinance banks are simply ostentatious, with some of them having their executive remuneration to include a two-week holiday abroad.
With a package like this, how do such banks hope to reach out to those not using any bank and alleviating poverty which are the main reasons for setting them up?,” Mr. Lemo said.
A manager at Olive Microfinance Bank, Ikeja, Sunday Olushola said his bank was still struggling to get people to open deposit accounts with them. “We tend to be competing with the commercial banks in terms of deposit facilities,” he said.
“We have to go a long way to convince customers to make deposits with us, and it is this same deposit that serves as capital we are to lend to borrowers when they come for loans.”
The Central Bank directs that every microfinance bank should have a minimum reserve of N20 million, while the National Deposit Insurance Corporation (NDIC) insures each depositor for a maximum N100,000, regardless of the amount of money invested.
“These requirements take the microfinance industry out of the reach of the poor it was intended to serve, while at the same time, it discourages prospective investors because their funds are not sufficiently secured,” Mr. Olushola said.
Some other challenges identified by operators of microfinance banks include shortage of skilled personnel in the sub-sector.
They also evidently lack the skill to properly market their services. David Ibe, chief Executive Officer of St. David’s Leather Works, Yaba, Lagos was just the kind of small scale industrialist the banks could target. He said he isn’t familiar with their operations.
“The services, packages and products offered by the different microfinance banks are not known to us,” he said. “We don’t know the number of clients served, amounts of loans and savings available, the criteria to get them and at what rates.”
A senior official of First Bank said the sector might collapse soon if the operators did not change their strategy.
“Close monitoring is one of the major challenges of microfinance banks,” he said. “It is one thing for them to lend money to people to start up or run businesses; it is another thing for them to pay back.”
He said microfinance banks have to employ a large number of staff to monitor their debtors, and this increases the overhead costs of running the banks.
Worse still are the fraudulent practices and mismanagement already noticed in the sector. Recently, the Economic and Financial Crimes Commission announced the arrest of the wife of a former governor of Oyo State, Tinu Ladoja, over an alleged N190 million fraud.
Her arrest reportedly followed complaints from depositors that their funds were trapped in a Microfinance bank owned by Mrs. Ladoja.