Why more Nigerian micro-finance banks may collapse

Why more Nigerian micro-finance banks may collapse

Thursday, January 29, 2015 5:05 pm

Godwin Emefiele: CBN governor

Godwin Emefiele: CBN governor

The Managing Director of Asha Microfinance Bank, in Nigeria’s western city of Lagos, Mr Aminul Bhuiya, on Thursday raised fears about the possible collapse of more microfinance banks in the country saying this was due to high cost of operation.

His complaint tallies with earlier complaints by stakeholders in the sector.

The News Agency of Nigeria, NAN, quoted Bhuiya as saying that over 860 out of over 890 microfinance banks in the country were struggling to survive because they were competing with commercial banks.

He said most of them collapsed because they operated on a mini commercial bank model, adding that no microfinance bank would succeed under such model.

According to the expert, microfinance banks need not to rent a gigantic or exotic building to offer their services.

“Some of us operators even amass vehicles, this is not supposed to be so,” he said.

According to Bhuiya, the Central Bank of Nigeria, CBN, has designed a model and rules for microfinance banks in Nigeria but most operators have deviated from the rules.

He said: “for example, if we follow real microfinance practice as laid down by Asa microfinance banking model in Bangdalesh, the sector will thrive.

“So I therefore urged my colleagues to make efforts at reducing unnecessary cost to prevent more collapse.

“Our business should be for the active poor; I mean for people into small businesses of selling pepper, tomatoes and other petty traders.”

He also urged the operators to always adhere strictly to the laid rules by the CBN.

“According to the CBN rules, loans to an individual should not go beyond N500,000 and that those who borrow money should always be monitored.

“We must ensure that the loan is used strictly for the purpose for which it is borrowed and attempt to divert such loan requires the lender’s advice,” he said.

He urged operators to stop giving huge loans to individuals because such loans could affect their shareholders’ funds and lead to bad debt.

Bhuiya, who is from Bangladesh, said that such bank was bound to fail in the long run.

He said that it might also be difficult for many microfinance banks to access the N220 billion intervention funds for the sector by the Federal Government because of their mode of operations.

He said it was wrong to blame the government for their inability to access the fund.

“The rules are not stringent only that most of them will prefer not to access the loan than exposing their weaknesses,” he said.

To access the fund, a microfinance bank must submit its latest CBN/NDIC examination report and audited and management reports for two years.

It must also have an acceptable risk management framework, sound corporate governance culture, adherence to ethical value, degree of separation of ownership from control.

The bank must also have evidence of a membership of an association; up-to-date payment of annual subscriptions and timely rendition of monthly returns to the CBN, among others.

So far, only six microfinance banks have accessed the intervention fund.

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