CBN works out models to strengthen microfinance banks

The Central Bank of Nigeria (CBN) has said that it is working out modalities to address current challenges of microfinance banks in the country.

Acknowledging that the sector is currently facing some challenges, Mohammed Abdullahi, head, corporate communications of the CBN, explained that the regulatory institution is working out modalities to address the challenges.

“The sector is obviously having some problems and we are trying to see that those problems are solved,” Mr. Abdullahi said.

He also explained that the CBN’s recent directive that microfinance banks should shore up their capital base was not a final decision. “It is not as if there is a final decision on that. It’s just like when companies write proposals on how to improve a sector in their industry.

“Many proposals are being drafted towards strengthening the sector. All the problems that are rearing their heads are to be addressed soon,” he assured.

Pending proposals

Officials of the CBN have recently been proposing policies they believe will improve the efficiency of microfinance banks and tackle the challenges faced by the banks at present.

One of them, Mr. Olufemi Fabanwo, the acting director in charge of the Other Financial Institutions Department of the CBN, last month admonished microfinance banks to increase their capital base above the present N20 million to about N100 or N200 million, explaining that the development is necessary due to the challenges facing the banks in the country.

Experts have identified the problems of microfinance banks in Nigeria to be similar to those of the commercial banks. Such include severe undercapitalisation, extremely high levels of non-performing loans, insider lending, lack of transparency, inexperience and supervision.

Femi Adeoya, a finance analyst and head of the finance department of a brand marketing firm in Lagos, said that the Central Bank will have to look beyond the present situation if it really wants to provide realistic solutions to the current challenges of the banks.

“One of the basic problems facing the microfinance industry is regaining public confidence,” Mr. Adeoya said. “Most microfinance banks have lost the confidence of their customers. The fear is that if commercial banks are having problems, how much more microfinance banks, with their meagre capital base and inexperience?

“As the Central Bank felt it needed to address commercial banks to restore lost public confidence, it has to do likewise for microfinance banks. Many customers have gone to their microfinance banks demanding for their deposits only to be told that the bank had no sufficient liquidity to grant their orders,” said Mr. Adeoya.

“Whatever measures the Central Bank knows it can implement to regain the lost confidence in our microfinance banks should be implemented,” he added.