- Over 50% may lose operating licenses
- Experts blame crisis on bad loans, insider dealings
Following the liquidity crisis that rocked the Microfinance Bank sub-sector of the Nigerian economy in 2009, leading to the closure of many of the banks, the sector may yet be thrown into fresh crisis owing to liquidity issues.
According to investigations by our correspondent, a reasonable percentage of the over 980 MFBs currently operating in the country are in bad shape due to a combination of factors.
Prime among the factors are high exposure to non-performing loans and lack of corporate governance, which had heavily impaired their capital base.
Others included insider dealings, incompetent boards, poor asset-liability management owing to portfolio mismatch, and failure to meet matured obligations to customers.
According to figures obtained from an impeccable source at the Central Bank of Nigeria, specifically, the MFBs have collectively lost about N168 billion over the last six months in 2016 due to their exposure to nonperforming loans.
The figures, which the source said were extracted from a CBN report on MFBs, also showed that from a total asset of N455.96 billion recorded by the end of June 2016, the worth of the assets of the 980 MFBs collectively dropped to N341.68 billion, as at close of business in December 2016.
In addition to this, their shareholders’ funds decreased by about 60 per cent, falling from N135.09 billion to N67.12 billion within the period under review, just as the total deposit liabilities dropped from N191.25bn as of June 2016 to N156.29bn as of December 31, 2016.
The discoveries come in spite of the CBN directive that shareholders’ fund should not be depleted beyond 40 per cent and that the financial institutions must ensure they lay less emphasis on collaterals in granting credits as against the application of stringent maintenance of capital funds.
Checks by our correspondent, however, revealed that the apex bank’s directive and threat to sanction or withdraw the licenses of erring institutions have had little or no impact in discouraging some members of management of the MFBs from flouting corporate governance principles over the years.
This, according to our source, is because the management of some of the MFBs have continued to beat the CBN and in some cases, offered gifts to officials of the apex bank, especially the ones that are in charge of auditing their accounts, to cover up their nefarious acts.
Findings by our correspondent also revealed that within the six-month period, which ended in December 2016, the reserves of the microfinance banks decreased from N22.2 billion to N16.80billion.
The development was attributed to operational losses and the unsustainable lifestyles of some of the banks’ directors.
Expectedly, total loans provided by MFBs across the country to Micro, Small and Medium Enterprises, which are supposed to be their core targets, also declined by N48.7 billion in the second half of 2016, as it fell from N232.73 billion to N183.9 billion.
Responding to questions bothering on what step the CBN was planning to take with respect to the observed infractions in the sector, the source said, “The management of most of the banks are corrupt and lack corporate governance. They have been smart over time but the apex bank will soon clamp down on them without mercy in few weeks. We have conducted compliance examinations and audit exercise on all of them and it is unfortunate that more than half of them could not cross the hurdle.
“However, CBN also needs to manage the situation with extra caution. We don’t want a recurrence of the 2010 MFB crisis because a lot of people might lose their lives in the process. The effect of the economic recession is biting really hard as a lot of Nigerians at the grassroots have their life savings trapped in the banks. Shutting them down hurriedly might cause greater damage than a gradual intervention.”
HANDWRITING ON THE WALL
Some of the depositors of the financial institutions, who spoke with The Point in separate interviews, are already worried as they are beginning to observe the liquidity crisis, which according to them, might lead to another crisis in the sub-sector.
Most of them attributed the liquidity crisis to fraudulent activities in the management of some banks rather than exposure to bad loans.
According to them, most of the banks only grant loans to depositors based on stringent conditions in order to avoid bad loans. So, it is shocking that the organisations claimed they have high Non-Performing Loans.
A Lagos-based businessman, Mr. Kunle Williams, who narrated his experience to The Point, said he was shocked when he approached ACCION MFB, Ojodu, Lagos State, for a loan worth N1 million and the customer care agent of the bank told him he had to pay N250,000 and submit blank cheque leaflets of his guarantor to cover the credit.
He said, “I was asked to pay an installment fee of N250, 000 in my account before I could get the loan. I was also asked to get a guarantor that would submit four signed blank leaflets of his cheque, in addition to the fact that the money must be refunded within eight months.
“That is the standard of the bank, which most of us complied with, and none of the cheques bounced. I am now shocked that the bank has been going back and forth on my request to withdraw all my fund in their vault because I got information that they might soon close shop. This is in spite of the fact that I had refunded the loan before the deadline given.”
Another trader, Mrs. Tina Uche, was also perturbed when she requested to close her account with ACAB MFB, Anambra State in January 2017 and was confronted with what she described as excuses that are not genuine.
According to her, she wanted to use the fund to buy wares and also supply consumables to some companies but the move was truncated when the bank told her to come back in two months as it had to follow some processes before the account could be closed.
Uche said, “I see it as fraud because how would I approach you for my money and not loan, and you tell me to hold on for months before you disburse it to me. This is not the first time I am experiencing this. It happened to me in 2009 when I was in Lagos and deposited money with a national licensed Integrated Microfinance Bank and they couldn’t pay back as at when due before it crashed.
“The CBN should come to our aid and ensure that the banks do not increase our burden or crash with our funds as all my family members bank with the institution. If they shut down with our fund, it will be disastrous because that is everything we have as savings in the family.”
The experiences of the customers highlighted above further lent credence to suggestions that the crisis of the MFBs may be unconnected with high NPL exposures, as investigations revealed that they have stringent conditions, which loan seekers must meet before being granted credit.
For instance, Olive Microfinance Limited and Accion MFB, both in Ikeja, Lagos, require a prospective loan seeker to present two guarantors that would provide a statement of their networth and also collateral like a car or household machinery.
Our correspondent’s findings revealed that, in the case of Asha MFB, also in Lagos, to obtain a loan of N500, 000, the loan seeker must deposit 10 per cent of the loan as cash security (N50, 000). The loan seeker is also expected to pay a processing fee of N12, 500, among others, before the facility could be disbursed. Like others, the bank also requires that the guarantor submit a signed cheque on behalf of the guarantee, to the bank
MFBs RECKLESS – EXPERTS
Many economic analysts blamed the CBN and MFBs for the situation, arguing that most of the MFBs passed their bounds in operations while the apex bank, which should be the regulator, looks the other way.
An economist, Prof. Richard Ekpo, asserted that most of the MFB managements were living large on their shareholders and depositors, a situation which he stressed could degenerate and lead to panic withdrawal from banks that are stable.
He said, “It is understandable that there is stiff competition among the operators, which generally pushes them to be so hard in the choices they make. However, that should not be at the expense of shareholders or depositors’ fund.
“This might create crisis and loss of confidence of investors and Nigerians in the sub-sector. It might not survive two major crises in one decade and that will affect the Small and Medium Enterprise greatly. One of the greatest challenges is the overheads because they are mimicking commercial banks.”
He said MFBs should, therefore, re-examine their business models because they do not have the kind of opportunities that commercial banks have. Emphasising the imperative of adopting effective risk management by MFB operators to drive growth in the sector, he added that they must sustain profitability and boost access to finance, especially to Micro, Small, Medium Enterprises, MSMEs.
A lecturer of economics, Dr. Sola Owoeye, said, “MFBs must be aware that risk management is a continuous process, which should have its own champions within the organisation. The Board of Directors and Management must play active part in the process. The advantages of an effective risk management framework are contained in the eligibility factor to access the MSMEs Fund of N220 billion, promote profitability and support corporate governance and objective decision-making”.
For renowned economist, Prof. Pat Utomi, one of the easy ways the challenges can be addressed, is for the CBN to set up public/government-supported finance for the poorest borrowers.
Utomi said, “Unfortunately, we find out that, in this country, people see everything that comes from the government as national cake. Nonetheless, it takes clever people with clever thinking to deeply work out things that can ameliorate this phenomenon, which is government-provided funding.
“Many of them should stop seeing themselves as a smaller version of commercial banks where they go and build headquarters, just a bit smaller than those of the commercial banks and also with the same vision of the commercial banks, which is not what they are.”
WE LACK ACCESS TO FUND – OPERATORS
The Managing Director, Fortis Microfinance Bank, Mr. Tiko Okoye, however, explained that while MFBs were taking the risk to lend to lowend small businesses, the lending rate remained too high at 25 per cent for their survival.
He said that the reason for this was that the source of most MFBs’ funding is commercial banks, adding that only few MFBs were currently able to access funding from the CBN and the Bank of Industry.
Okoye said that a lower interest rate would give businesses the opportunity to make capital improvement, and acquire equipment or supplies to grow.
“The CBN had initially set up the N220bn MSME development funds, which was supposed to have been channeled through the microfinance institutions for onward lending to target customers, but was not accessed that much by microfinance banks because of the conditions attached to accessing the funds.
“Like the N220bn MSME fund, if the Development Bank of Nigeria asks us to bring bank guarantees, many MFBs may not be able to access it. You expect me to lend to the grassroots firms that have virtually no collateral, then why ask me for collateral? Where am I going to get collateral from?
“To bring a bank guarantee, I have to go to a commercial bank and if I don’t meet their requirements, you’ll have to sign an agreement that the money remains with them,” he lamented.
Chairman, National Association of Microfinance Banks, Osun State chapter, Mr. Yemi Adeoye, agreed that loan default and high operational cost are responsible for the challenges facing the sub-sector.
“Expectedly, we have our own share of challenges, ranging from loan defaulters, emerging competitors, high operational cost, irregular power supply, and security. We have continued to improve service deliveries with integrity to ensure customers’ satisfaction,” he stressed.
