2010: YEAR OF THE GREAT PURGE FOR MICROFINANCE BANKS

By Amaka Abayomi
The microfinance banking industry experienced the first official purging in 2010, four year after the introduction of the microfinance policy in Nigeria. The year saw the reduction in the number of MFBs by 103 courtesy of the regulatory hammer of the Central Bank of Nigeria.

Revocation and Restoration of licenses
The impact of the global financial crisis and the intervention of the Central Bank of Nigeria in the banking industry weighed heavily on many microfinance banks in 2009. This led to the sudden closure of many MFBs, including notable ones like the Integrated Microfinance Bank  while  some staff of MFBs  absconded with depositors funds.

As a result a lot of depositors had their money trapped in the closed MFBs while others lost their money with severe impact on their micro businesses. This led to avalanche of petition and complaints to the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation, with depositors calling for regulatory intervention. In response to this, the CBN and NDIC commenced examination of MFBs to ascertain how many of them are still in business and are good health.

The industry entered 2010 with much expectation about the outcome of the examination. The outcome of the examination confirmed belief about the state of many MFBs. Speaking on the outcome of the examination, Acting Managing Director/Chief Executive, NDIC, Alhaji Umaru Ibrahim said, 'The examination revealed that 224 of the MFBs were terminally distressed or technically insolvent, while many of them had closed shop for six months or more.'

Consequently, the CBN on September 24th announced the revocation of  the licenses of 224 MFBs

But the following week after the CBN Deputy Governor, Dr. Kingsley Moghalu, announced the revocation of the licences of  the MFBs, some of them publicly faulted the inclusion of their names in the list, claiming they were not insolvent as announced by the apex bank.  In fact, those affected in the South West zone of National Association of Microfinance Banks (NAMB)  instituted legal action against the CBN at the Federal High Court, Ikeja, Lagos, to challenge the revocation of their licences.

Realising its error, the apex bank  secretly restored the licenses of some of these MFBs and later, in an attempt to save face, it announced issuing provisional  licenses to 121 of the affected   MFBs, who it claimed had met the minimum capital base. Investigation however reveals that most of the MFBs have not been able to recover from the impact of the regulatory error, as they could not convince depositors to continue to do business with them.

Meanwhile the NDIC on December 6th commenced payment of the insured deposits of 80 of the remaining 103 closed MFBs.

Certification Examination
In addition to the examination, the CBN moved to enhance corporate governance in the industry the CBN to organize certification exams for the management of MFBs. The aim  with the aim of building capacity in the sector to have a critical mass of knowledgeable and skilled personnel that would drive the sector.

'This is as a result of the present situation we have in which operators in the sector are from different backgrounds and have various degrees. As a result, most of them not to understand the concept of microfinancing, which is responsible for their operating like commercial banks and this is not helping the sector,' the CBN said.

CBN Governor, Mallam Sanusi Lamido Sanusi, noted that the certification process will standardise MFBs' operations and raise their capital base and retool with corporate governance, which may be the most important solutions to improve their performance.

Operators Views
Commenting on the state of the industry in 2010, Managing Director of Self- Reliance Economic Advancement Programme, Mr. Oladokun Olatunle, noted that apart from proper funding, the year has been a remarkable one for the sector.

'The most important thing that will help the sector grow is for us to identify our strengths, weaknesses, opportunities and threats to the sector and improve on them. We can only make progress when we are able to identify why we fail, because as long as we continue to copy policies of other countries, our sector would not make any remarkable progress.'We need to conform to global standards which give room for international ratings for there to be a future for the sector.'

Godwin Ehigiamusoe, Managing Director of Lift Above Poverty Organisation (LAPO), the challenges of MFBs, which began in 2009, were probably heightened by the revocation of licenses of some MFBs. But dspite these challenges, most MFBs, during the year, focused on developing their capacity and re-tooling their operating approaches and strategies.

Thus, the reforms of the MFB sector by the CBN was lauded as a welcome development by stakeholders who are of the view that the CBN's action will strengthen the sector and give room for local and foreign investors to invest without fear.

According to Ehigiamusoe of LAPO, it is expected that performances of MFBs will be enhanced in 2011, though it is important to note that in spite of the challenges, credit for the recently reported enhanced level of access to financial services in the country could also go to MFBs.