Lack of funds has been a major challenge confronting Other Financial Institutions (OFIs) operating in the country. OFI consists of Microfinance Banks (MFBs), Finance Companies (CPs), Primary Mortgage Banks (PMBs), and Development Banks (DBs).
To address the issue of paucity of funding, some of the OFIs last week, for the first time, took a pragmatic step to explore alternative source of funding by issuing bonds in the Nigerian financial markets.
The institutions are, LAPO Microfinance Bank limited, which offered N3.15 billion bond on the FMDQ OTC platform, and Crownrise Finance Company plc, seeking to raise N1 billion through a private placement.
The development is in line with the regulatory and supervisory guidelines of the Central Bank of Nigeria (CBN), which allows MFBs to engage in issuance of redeemable debentures to interested parties to raise funds from members of the public with the prior approval of the CBN.
The bond, the first ever by a microfinance bank to raise money in Nigeria’s debt capital market, was priced at 17.75 percent and has a tenor of 5 years. The Issue was rated A- by Agusto& Co and BBB+ by GCR, which are investment grade ratings.
LAPO Microfinance Bank stated that the proceeds will be used to deepen its business in the country, strengthen its capital base, expand its branchless banking solutions and enter new market segments, including the launch of its agency banking model and the deployment of e-business solutions, among others.
Godwin Ehigiamusoe, managing director/CEO of LAPO MFB, said, ‘’the gap between the demand by micro, small and medium businesses and the little supply is still huge. LAPO Microfinance Bank was only able to deliver loans valued at N135.7 billion in 2017. The capital market remains one of the most viable and affordable options for medium and long term financing for on-lending. We have therefore made a very sound decision. With excellent corporate governance, experienced management, committed staff and extensive footprints across Nigeria, LAPO Microfinance Bank is poised to deliver its core mandate of enhancing financial inclusion. We will continue to enable the under-banked and economically active poor to become active participants in the national economy.’’
One of the major policy thrust of the FC subsector is the establishment of finance institutions to operate within the middle-tier of the financial system with a focus on the Small and Medium Enterprises (SMEs) segment. The subsector is expected to play complementary roles to the Deposit Money Banks and Other Financial institutions by bridging financial gaps and meeting the financial needs of its target customers. But most of the financial companies have not demonstrated the capacity to deliver on this mandate due to paucity of funds, among others.
This necessitated the CBN reform programme of the subsector in 2013. with emphasis on building a strong capital base, development of appropriate products and capacity building. Based on the reform, each FC was required to have a minimum capital of NlOO million. Appropriate products that would attract investors to the market were identified and categorized as permissible activities for operators.
At the stakeholders luncheon and introduction of N1 billion investment note (crownrise bond) to prospective investors, last week, Tokunbo Martins, director, Other Financial Institutions Department (OFID) enjoined prospective investors to invest in Corporate Bonds which some have been described as the last safe investment as the yields of many variable-income securities declined after the financial crisis, the interest rates paid by Corporate Bonds made them more appealing.
“It is expected that the proceeds from the proposed Crownrise Bond issue by Crownrise Finance Plc would be judiciously applied by the management of the company to boost the SMEs subsector and the Nigerian economy in generally, while at the same time meeting the needs and expectations of all”, Martins said.
Commenting, Babatunde Rufai-Lariba, managing director/CEO, Crownrise Finance, sees huge opportunities in the Nigerian economy which require the critical services of finance houses for activation and realisation.
“As a firm believer in the mission and importance of the subsector, we have decided to rise to the occasion, by mobilising the required resources that will enable us support economic players committed to tapping the opportunities in the Nigerian economy for business growth, employment generation and prosperity for individuals and families”, he said.
HOPE MOSES-ASHIKE
