Fact emerged last week that the Central Bank of Nigeria (CBN) will soon close down inactive microfinance banks in the country, while also emphatic on its December deadline given to Unit-based MFBs to shut down their branches. ZAKA KHALIQ reports.
The birth of microfinance banking in Nigeria in 2005 was necessary, as commercial banks continue to neglect the lower cadre of the economy. And to mop up money in this sector, microfinance banks emerged. They are expected to mobilise deposits in the grassroots, while extending financial assistance to the active poor Nigerians.
With this establishment, artisans, rural women, entrepreneurs, among others, were able to, not only save in them, they also got loans to invest in their existing businesses. Like a million star, they besieged MFBs for various form of banking services. The deposit base of MFBs swelled up, and still yet, more businesses are coming in.
With so much liquidity, and not knowing what to do with it, some MFBs began to gamble with depositors’ fund. Some, it was gathered, invested in shares of the quoted companies on the floor of Nigerian Stock Exchange (NSE), several invested in property and real estate, while others were busy setting up gigantic buildings and acquiring assets with depositors’ money.
Of course, initially, it turned out to be a good investment, but at the later stage, when the price of shares listed on the floor of NSE crashed, most of them were unable to recoup their money, thus, leaving a wide gap to fill in the depositors’ fund. Also, the cost of running those gigantic buildings and exotic cars they purchased, eat deep into their profit, and they were left with little or nothing.
It is at this time that MFBs begin to feel they must have made a wrong investment. As if this is not enough, mis--management of depositors fund by managers of the affected banks became the hallmark. Customers besieged them in their large numbers, wanting to claim their deposits. As a result, most banks were undercapitalised, several were forced to close shops, and even the surviving ones were illiquid to carry out meaningful business activities.
With these writings on the wall, the apex bank descended on the microfinance market in 2010, closing down 103 microfinance banks. Though it was meant to rescue the sub sector, the move further threatened the credibility of MFIs nationwide, as they continue to witness low turn-out from Nigerians. The consequence of the apex bank’s move led to massive withdrawals in the existing banks, with deposit mobilisation hitting a stumbling block. And coupled with low loan repayments, it is obvious that some banks would be unable to survive this trying time.
BusinessWorld findings shows that there are micro banks who just open shops, but are inactive, while some have temporarily closed shops, but have yet to inform the CBN. Customers were withdrawing their savings in these institutions; deposit mobilisation was unimpressive, while loan repayments were also low. Fact however emerged over the weekend that CBN is ready to close down inactive microfinance banks in a move to regulate the industry. This clampdown is expected to commence before the end of the year, which will also coincided with the recapitalisation deadline given to all unit MFBs.
CBN’s Promise to Close More MFBs With the spate of illiquid banks in the microfinance industry, the central bank has recently decided to withdraw their licences. At the recently held meeting of the Committee of Microfinance Banks in Nigeria (Comfbin), South West Chapter, in Ogba, Lagos , recently, Mr. Olufemi Fabamwo, director, Other Financial Institutions Supervision Department, CBN said the apex bank have identified inactive MFBs and will soon close them down. Some of the banks, he said had closed shops, but failed to inform the apex bank, while others are undercapitalised. According to the CBN official, “We have identified some banks that are not operating, but still holding the licence. CBN would soon close them down. They need to shut them down to allow healthy microfinance banks to survive. We want to witness positive change in the industry and we are doing everything possible to ensure that we achieve this target.”
The affected banks, he added, have failed to render their statutory monthly returns to the regulatory body for more than six months, which in itself, is a ground for revocation of licence.
Speaking on the monthly return rendition of MFBs, he said there is 70 per cent compliance, thus, calling on other erring banks to comply with the directive to record 100 per cent compliance.
“In term of rendition of returns, there is a slight improvement. We now have 70 per cent compliance, but we still need to do more to get to 100 per cent. Failure to submit return for six consecutive months is a ground for revocation of licence and we will not hesitate to implement it to the latter.”
Of the banks marked for revocation, findings show that Lagos State houses the majority.
Reaction of Operators Mr. Godwin Ehigimusoe, managing director, Lapo Microfinance Bank while speaking with BusinessWorld over the weekend said CBN has the right to close down any bank that is not performing up to expectation. He said the move of the apex bank to close those institutions was because most of them are not operating, but withholding the licence, stating that closure of inactive MFBs will lead to growth in the sub sector. “The CBN is the regulator and to address the challenges in the industry, some steps need to be taken to resuscitate the industry.
So, this is one of them.” Closure of Branches and Cash Centres of Unit MFBs Meanwhile, massive withdrawal looms in microfinance banks nationwide, as some microfinance houses begin to shut down their branches and cash centres nationwide, amidst the Central Bank of Nigeria (CBN)’s directive mandating them to do so. Credible sources in the industry disclosed that at least 60 per cent of the 898 microfinance houses are ready to forfeit their branches and operate from one source (Head Office).
The most affected by this development are about 400 converted community banks, although some of the newly licensed microfinance banks have also decided to shut down their cash centres.
While few MFBs have already commenced the sale of their outlets, others are making serious plans to sell-off their branches before year end. This closure, it was gathered is expected to send wrong signals to customers of microfinance institutions who will think MFBs nationwide are all ready to close shops.
Operators who spoke to BusinessWorld over the weekend said, public confidence is gradually returning to the market, but, a development like this will only rub-off the market of confidence, thereby leading to the collapse of many banks. Speaking to BusinessWorld over the weekend, Mr. Moses Ajao, managing director, Glory Microfinance Bank said closure of these branches and cash centres will send a wrong signal to customers of MFBs, thereby leading to massive withdrawals.
Reacting to this development, Fabamwo said microfinance banks can avoid the expected massive withdrawal through proper communication and persuasion with their customers. “If you approach them in the right manner, through sending message to them on their phones informing them that you are relocating, then, I don’t see this thing happening. You can also send email to them, among other communication channels. If you have good relationship with your customers, they will reason with you,” he said.
Extension of Recapitalisation Deadline Speaking on the mandate given to all unit MFBs to close all branches and cash centres, Fabamwo said there is no going back on December deadline, advising them to comply or risk sanction.
Listing the option left for MFBs to explore to recapitalise before the deadline, he said MFBs can raise new capital, raise money from both the existing and new shareholders or merge. “There are number of options available to you (MFBs).
You can raise new capital, you can raise money from existing or new shareholders, and you can merge. But I will rather prescribe acquisition. We have finished with the banking sector, we are now focusing on microfinance banking.
After this it will be mortgage institutions and later, finance houses. This will allow us to have a sound financial system,” he said.
While clarifying on the idea of Customers’ Meeting Points or Business Units, he said the set up of either, should be the responsibility of customers of MFBs, especially in group lending.
Of recent, he said MFBs are now setting up branches with three to four million naira all in the name of customers’ meeting points, stating that, henceforth, the regulatory body will no longer condone this.
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