The Central Bank of Nigeria (CBN) recently rolled out a new set of rules for the operations of micro-finance banks (MFBs) in the country.According to the apex bank, the essence of the revised regulatory and supervisory guidelines is to address the inherent features and risks of micro-finance banks to enable them perform their statutory role in poverty reduction and economic development of the country.
Part of the new policy measures says that institutions that attain a total assets of N200 million or a total membership of 2000 would be encouraged to transform into micro-finance firms. Also, under the new framework, micro-finance houses will be allowed to engage in the provision of the following services to their clients: acceptance of various types of services, including savings.
They have also been mandated to demand deposits from individuals, groups and associations, except public sector deposits; collection of money or proceeds of banking instruments on behalf of customers, including clearance of cheques.
Henceforth, MFBs are permitted to provide payments of salaries, gratuities, pension for employees of the various tiers of government, promotion and monitoring of loan usage, including that of formal and informal self-help groups, individuals and associations; buying, selling and supplying of industrial and agricultural inputs, livestock, machinery and industrial raw materials to low-income persons on credit. In addition, the new policy empowers MFBs to act as agents for any association for the sale of their goods or services.
We welcome the new guidelines and hope that they will address the systemic management problems that bedevil that sub-sector of the banking industry.
We also endorse the provision in sub-section 2.1 of the new guideline that spells out “no-go-areas” for the sub-sector’s operators. For instance, MFBs under the new regime are not allowed to engage in foreign exchange transactions, international commercial papers, international corporate finance and electronic funds transfer, among other transactions .
We want to believe that the new responsibilities as well as the red-lines that the MFBs are not permitted to cross, might have been informed by the past experience of large-scale fraud and sundry allegations of mismanagement of depositors’ fund in many MFBs across the country. The present realities call for clarity of purpose. We advise that , if the new rules will achieve the much desired innovations, rapid and balanced growth of the sub-sector, leveraging on global best practice, transparency of their operation is key.
The MFBs must work within their brief. Regular monitoring and supervision of their books should not be ignored. Over the years, lack of strict regulatory measures led to the flagrant abuse of the Code of Corporate Governance that is meant to guide the smooth operations of MFBs.
The result was poor judgment by their management and their eventual insolvency and revocation of the licences of no fewer than 224 MFBs in September, 2010 by CBN. The auditing of the financial accounts of the affected MFBs showed a total of N18.2 bn depositors’ funds, with high level of Non-Performing Loans (NPLs).The reform process must be followed through to actualize the intended objectives.
Therefore, to restore public confidence in MFBs, their internal credit control units need to be tightened. A strict enforcement of the new guidelines should not be compromised. We urge the operators of MFBs to show good faith by ensuring that the revised policy guidelines work.