Permissible Business for Microfinance Banks (Part 2)

By Adolphus Abraham

This episode is the concluding part of the issue on permissible business that microfinance banks can engage in. A sound knowledge of the limits of the microfinance business for prospective investors is very important as any illusion is capable of eroding the proposed investment. The following are the additional permissible.

On-Lending Fund: It is a usual occurrence for the CBN, Development Finance Institutions, NGOs and other sources which may be private or public to release impact funds to institutions who are accountable for on lending to target beneficiaries, on terms mutually acceptable to both the provider of the funds and the recipient MFBs. MfBs are allowed access to these fund to improve their profitability and size.

Guarantees: Guarantees are issued by banks to enable Creditors and Principals advance resources to their clients for benefit not yet received. MfBs can provide microfinance related guarantees for its customers to enable them have better access to credit and other resources.

Trade in Agricultural Materials: Buying, selling and supplying industrial and agricultural inputs, livestock, machinery and industrial raw materials to low-income persons on credit and to act as agent for any association for the sale of such goods or livestock.

Investment: MfBs are allowed to own interest in body corporates, cottage industries or income generating projects subject to the regulated limit. These investment can be in shares or equity with the sole objective of providing microfinance services to low-income persons.

Risk Hedging and Mitigation: The provision of services and facilities to customers to hedge various risks relating to microfinance activities are allowable for MfBs. They are however expected to analyze the risk in detail and provide the appropriate mitigants.

Advisory Services: Provision of professional advice to low-income persons regarding investments in small businesses; rendering managerial, marketing, technical and administrative advice to customers and assisting them in obtaining services in their respective fields is one that most MfBs have overlooked. The provision of advisory services can be a source of unencumbered income to the bank.

Other Assistance: With the right knowledge and skill set, MfBs can mobilize and provide financial and technical assistance and training to microenterprises including the provision of loans to microfinance clients for home improvement, housing microfinance and consumer credits.

Non-Bank Functions: Performance of non-banking functions that relate to microfinance, business development services such as co-operatives and group formation activities, rural industrialization and other support services needed by micro enterprises are another veritable source of income for MfBs as allowed by the CBN.

Next week we shall look at another issue that will be of value to a prospective investor who wishes to play in the microfinance space.

See you next week.