The Central Bank of Nigeria’s (CBN) financial inclusion strategy targets a reduction of adult population financially excluded from 46 percent to 20 percent by the year 2020.
This objective cannot be achieved completely without active involvement of microfinance banks (MFBs) operating in the country.
If over 630 MFBs out of about 900 are insolvent, according to BusinessDay’s investigation, then the financial inclusion initiative of the regulator is at risk, analysts have said.
There are strong indications that about 70 percent out of the 900 MFBs may not have met the recapitalisation requirements of the CBN, which is likely going to lead to another crisis in the sub-sector, BusinessDay gathers.
Investigation shows that majority of the unit licensed MFBs are affected, as there are over 800 unit MFBs, about 20 state licensed MFBs, and about three national licensed MFBs.
The CBN had given all existing MFBs till last December 31, 2013, to shore-up their balance sheet.
The affected MFBs are currently awaiting the apex bank’s hammer for their inability to meet up with the capital requirement.
The CBN categorised MFBs into three – unit licence MFB with minimum capital requirement of N20 million, state licence MFB requires a minimum of N100 million to operate, and national licence MFB requires N2 billion as capital requirement.
Analysts are of the view that except there is alternative way of bailing out these failing micro institutions, it would lead to another crisis in the sub-sector.
An interaction with some MFBs across the country shows that two out of three did not meet up with their capital requirements.
These banks paid salaries, bought cars and gave out loans out of the capital they invested in the bank. The loans given out were not paid in bulk or were not paid at all, leading to capital erosion.
Majority of the unit licence MFBs would be affected because they are not making profit, one of the microfinance operators who now runs a consulting firm told BusinessDay, saying “as they are not making profits, they are not injecting money in their banks.” The reason the big MFBs are not accepting acquisition proposal from weak ones is because the capital base of the weak ones are negative, the source said.
Another operator, who chose to be anonymous, said he had not met his recapitalisation requirements because he could not raise the required amount to shore-up his balance sheet.
However, he said some customers who took loans from his bank were not able to repay, saying he was prepared to face whatever action the regulator will take against his bank. The operator lamented that one of the big MFBs that was making effort to acquire his bank had problem along the line, leading to failure in the acquisition process.
“They need to encourage us, give us money to on-lend to the low-income earners and at the end of three years they will collect their money back. We try to raise money but people are complaining that there is no money in the economy,” he said.
In his response, Jethro Akun, president, National Association of Microfinance Banks (NAMB), said recapitalisation was a continuous exercise, saying what the CBN had done was to allow unit MFBs to operate one branch within their local government of operations.
However, efforts to reach Olufemi Fabanwo, director, Other Financial Institutions Department (OFID), CBN, proved abortive as he did not respond to the series of calls put across to him.
The examination of 792 of the MFBs in operation by the CBN in the second half of 2012, showed that 68.3 percent of the institutions met the capital adequacy ratio (CAR) of 10 percent, while 82.4 percent complied with the minimum liquidity ratio (LR) of 20 percent.
The average LR of the institutions was 62.3 percent, which exceeded the prescribed minimum LR of 20 percent.
According to the CBN, poor asset quality remained the bane of MFBs, as their non-performing loans (NPLs) represented 61.9 percent of the total loan portfolio, as against the regulatory benchmark of 5 percent. This was attributed to the fact that most of the institutions were yet to articulate their risk management frameworks.
The Nigeria Deposit Insurance Corporation’s (NDIC) 2012 annual report and statement of account show that capital adequacy ratio of 576 out of about 878 of MFBs were below 10 percent benchmark of the regulator.
From the report, as of December 2012, 310 out of the 323 MFBs that rendered returns, had met the minimum paid-up capital of N20 million.
A total of 302 MFBs had capital adequacy ratio of more than 10 percent. The remaining 555 did not render returns and that situation continued to be a source of concern to the NDIC, as it was impossible to assess their financial condition and performance on a continuous basis during the year under review.
By: HOPE MOSES-ASHIKE
