A workshop that was recently organized by the Nigeria Deposit Insurance Corporation (NDIC) for operators in the microfinance banking sub-sector could not have come at a better time. The capacity building programme was part of the efforts by regulatory and supervisory authorities to transform the microfinance banks (MFBs) sub-sector to address the daunting challenges facing the sub-sector.
The workshop with the theme: “Microfinance Banking and Financial Inclusion in Nigeria: Issues and Challenges” was targeted at the 880 MFBs currently operating in the country. It held in five locations of Abuja for MFBs in the Federal Capital Territory (FCT) and the North Central Geo-Political Zone, Kano for MFBs in the North West and North East Zones and Enugu for those in the South East Zone. Another run held in Port Harcourt was organized for MFBs in the South South Zone while two runs were held in Lagos for the MFBs in the South West due to the preponderance of the banks in the zone.
The impressive turnout of 615 operators at their senior management levels and representatives of regulatory and supervisory authorities together with other stakeholders combined to provide the needed atmosphere for constructive engagements that brightened the horizon on the on-going reforms in the sub-sector being jointly championed by the CBN and NDIC.
While welcoming participants to the first run in Abuja, NDIC Managing Director and Chief Executive Officer, Alh. Umaru Ibrahim disclosed that the workshop was one in the series of capacity building programmes being unfolded by the Corporation as platform for continuous interactions with the operators in line with its mandate of providing technical and financial assistance to insured financial institutions. Alh. Ibrahim further said that it was in a bid to address some of the serious challenges facing the sub sector, including poor risk management, high cost of funds, limited penetration into rural areas and inadequate manpower that the CBN rolled out the revised framework for MFBs stating that the three different capitalization requirements were designed to enable the MFBs operate within their individual capacities and scopes.
He pointed out that MFBs had been identified as the most veritable tools in the fight against poverty because of the financial services which they provided to the vast majority of the active poor, 70 per cent of whom engaged in informal sector and lived in rural areas. According to him, the high concentration of funds in the informal sector meant that such huge financial resources were not being captured into the deposit money banks (DMBs), submitting that the MFBs had wonderful opportunity to bring such funds to deepen the financial inclusion drive. He however noted that this would be a mirage without a strong and virile MFB sub-sector. He further identified other tools that had already been put in place by the regulatory and supervisory authorities, including agent banking, mobile money and e-banking to promote financial inclusion.
On the role of the NDIC in strengthening the MFBs, the NDIC CEO emphasized the importance of deposit insurance coverage in promoting public confidence in the MFBs and urged the operators to ensure prompt payment of premiums to the Corporation. “NDIC has been grappling with the problem of premium collection. From 2005 till date, we have collected a total sum of N1.6 billion which is abysmally poor compared with the total insured deposit liabilities of the MFBs.” he said.
In addition, Alh. Ibrahim said that the NDIC had paid a total insured sum of N2.5 billion out of the N4.5 billion insured deposit liabilities of the 103 MFBs that were closed in 2010. He therefore urged the operators to support the tripartite agreement that was initiated by the Corporation and instructed their correspondent banks to deduct their premiums and remit same to the Corporation as and when due.
The NDIC helmsman used the occasion to announce the setting aside of a whopping sum of N16 billion to provide financial assistance to eligible MFBs that had serious liquidity problems, pointing out that the framework for the assistance was being worked out and welcomed their inputs. He however, disclosed that stringent conditions would be attached to the fund and warned that operators who mismanaged their banks or failed to capitalize or render their returns would not be eligible.
Alh. Ibrahim also harped on financial literacy, consumer protection and illegal fund managers as well as other critical issues that required the attention of the operators. He noted that without the deposit insurance mechanism to protect depositors and empower them to understand financial services and products being offered by MFBs, it would be difficult to achieve effective microfinance banking and promote financial inclusion.
Nine papers were presented at the two-day workshop in each of the five centres. Highlights of some of the papers presented are summarized as follows:
Regulatory and Supervisory Framework of MFBs in Nigeria
Delivering his paper titled: “Supervisory Framework of MFBs in Nigeria, CBN’s Director, Other Financial Institutions and Supervision Department, Mr. A. O. Fabanwo emphasized the thrust of the revised policy framework which required existing MFBs who wished to upgrade their status from Unit to State MFB to surrender their existing operating licences after satisfying all the operational and financial requirements while State MFBs desiring to expand to National MFBs must have had at least five branches in any of the local government areas within a state to leverage on their experience.
Mr. Fabanwo announced an amendment to the revised framework, which created three types of government involvement in the sub-sector. According to him, the amendment provided for state or local government wholly-owned MFB where the government could hold 100 per cent shareholding, public/private partnership (PPP) which provided for the state or local government to own 60 per cent equity and 40 per cent by private operators while the last category involved the state government and cooperative societies partnership with 75 per cent and 25 per cent ownership by state or local government and private operators, respectively. He however emphasized that in all the categories, management of the MFB would be in the hands of the private entrepreneurs and government would be required to divest its interest after a maximum period of five years.
He disclosed that the N220 billion Small and Medium Enterprise Development Fund of the apex bank would be launched in August 2013. He however hinted that the fund would not be a bail-out fund, saying it would only be accessible to sound MFBs and those that had utilized 60 per cent of their funds on women- related projects. He emphasized the importance of the CBN mandatory microfinance certificate programme to operators, pointing out that those who were not certified by 2014 might be excluded from certain benefits by the CBN.
Imperatives of wholesale funds for deepening microfinance sub-sector
NDIC’s Director, Research, Policy and International Relations of the NDIC, Dr. Jacob Ade Afolabi in a paper titled: “The imperative of wholesale funds for deepening microfinance sub-sector” contended that though retail funding was the core source of funds to MFBs, it had been eroded by competition from deposit money banks (DMBs) which appeared to have the confidence of the public more than the MFBs. He submitted that the development had given rise to the need for alternative sources of funds in the form of wholesale funding for MFBs to enable them fulfill their goal of poverty reduction.
While calling for collaboration among stakeholders on the issue, Dr. Afolabi reiterated the readiness of the NDIC to commence the disbursement of its N16 billion intervention fund at the disposal of the NDIC for eligible MFBs once the framework for its application was ready.
ASHA and LAPO MFB Models
In his presentation, the Managing Director, ASHA MFB, Mr. Aminul Hague Bhuiya described ASHA MFB methodology as one that ran on quick response to clients’ needs, decentralization of tasks, standardization of operations, simple record keeping and cost minimization. He said the cost control strategies employed by ASHA revolved around staffing, operational policies, organizational culture and core philosophy.
His words: “ASHA’s model is low fixed cost microfinance with a group based methodology. We run a two-tier structure (Central Office and Field Offices). Each branch office has one branch manager and five loan officers with one support staff. There is no non-revenue generating staff like cashier, accountant, MIS officer, etc. Loan officers fulfill these roles on a rotational basis and cost ceiling is established for every single expenditure”.
He submitted further that: “All branch offices are rented, property is never bought. A single room is used as an office room with two long tables arranged in a ‘T’ formation, where the loan officers and branch manager sit and work. Only one car is for operational activities jointly used by senior management staff. There is no air conditioner or fancy furniture. ASHA’s clients visit the branch only to collect loan and special savings withdrawal. All transactions are carried out through correspondent banks while a maximum cash holding of N20,000 is kept in our vault as daily closing balance, thereby, incurring no cost on extra insurance and security. The need to be cost conscious permeates the organization at all levels and becomes a company culture”.
He disclosed that the MFB which was established in Nigeria in 2009 currently had over N600 million credit facilities and 30,000 depositors, the best in the sub-sector. Its international network however spanned eighteen countries.
The LAPO MFB Model also followed closely and it was presented by its MD/CEO, Mr. Godwin E. Ehigiamusoe. In line with its strong governance and management policy, LAPO periodically reconstituted its boards since 1995 to meet emerging challenges with emphasis placed on people with right expertise, attitude and temperament. Another strength of LAPO lies in its periodic external review. Since 2002, LAPO had always engaged external review and rating agencies to conduct rating exercises on its operations in addition to regulatory inspection exercises. The presentations elicited reactions among participants who acknowledged the potency of ASHA and LAPO Models to redefine micro financing.
The Role of MFBs in Rural Transformation and Development
In a paper titled: “The Role of MFBs in Rural Transformation and Development”, the Managing Partner, Alegna Global Partnership Limited, Ms. Angela Adeboye argued that the challenges of inadequate infrastructures, lack of access to acceptable collateral, irregular cash flows, limited basic education and exposure confronting rural and low income families underscored the need for financial intermediation that considered their peculiar situation.
Adeboye called on MFBs to create financial products that met the basic requirements of the people and that such MFBs should provide basic training on the benefits of using the products and services. While suggesting that rural and low income families should be provided opportunity to invest in MFBs, she called on MFBs to intensify their efforts at linking their customers to external markets, providing business advisory services as well as increasing gender awareness and women empowerment initiatives towards collective action by the people.
Enthroning Sound Risks Management and Good Corporate Governance in the Microfinance Banking Sub-sector
In her presentation, the Chief Operating Officer, CR Services (Credit Bureau) Plc, Mrs. Edna Ishaya defined risk management as “a set of principles and processes that help minimize the negative impacts of risks and maximize the positive impacts”. She also described corporate governance as “the system by which corporations are directed and controlled” through structure that specified the distribution of rights and responsibilities among different participants in the corporation.
Mrs Ishaya submitted that effective collaboration between the board of directors and management was a sine qua non for the enthronement of sound risks management and corporate governance in MFBs. She said it was the duty of the board to uncompromisingly provide guidance to management in strategic issues and effectively oversee the implementation of strategic plans, goals and initiatives. She also stressed that management must be positioned to assume operational authority and ensure that the institution’s programmes respond to the direction jointly agreed upon by the board.
On effective risk management, Mrs. Ishaya said a key success factor to MFBs’ operation was the ability to identify and manage future risks as the best predictor of long term success rather than focusing on current and historical financial performance. The risk specialist emphasized the importance of self supervision and counseled MFBs to adopt CAMELS (Capital Adequacy, Assets Quality, Management, Earnings, Liquidity Management and sensitivity) being used as risk measurement tools by regulators in helping to monitor and manage risks in their respective organization.
Promoting Financial Literacy and Consumer Protection in the microfinance Banking Sub-sector
Editor of Businessday newspaper, Mr. Philip Isakpa who presented the paper titled: “Promoting Financial Literacy and Consumer Protection in the microfinance Banking Sub-sector” stated that MFB operators, government and other stakeholders had the collective responsibility to create space for the financially excluded people in the economy by promoting financial literacy and consumer protection. While this should be a developmental task to government, he charged MFBs to adopt it as a business and corporate social responsibility strategy. He noted that without mechanism to educate and protect MFBs depositors, irrespective of their status, it would be difficult for operators to maximize the potentials of micro financing business and achieve financial inclusion.
With the new insight and knowledge gained by operators at the workshop, together with the reforms by the regulatory and supervisory authorities, there is no doubt that microfinance banks in the country are at the threshold of a new dawn that will make them a force to reckon with in the financial inclusion drive of government.
There was a general consensus among the participants that the workshop was successful, given the quality of the presentations. The participants also said that the content of the papers had enriched their knowledge and skills. The knowledge and experience sharing by ASHA and LAPO MFBs had enhanced their understanding of the dynamics of microfinance banking that would facilitate the realization of the objectives of financial literacy and consumer protection for promoting financial inclusion.
One unassailable feature that rulled the heart of majority of participants, especially operators at the end of the workshop, was the need for a paradigm shift in the way microfinance banking was being run by most MFBs in the country.