Anxiety in Nigerian MFBs as investor apathy mars recapitalisation drive

By Tola Akinmutimi, in Abuja

• Operators’‭ ‬worries grow‭ ‬
• Investment drive in disarray
• May seek more time

Despite the Central Bank of Nigeria’s (CBN’s) revised policy stance that mandates microfinance banks (MFBs) to meet only 50 percent of its earlier minimum recapitalization directive, investigations have shown that most of the microfinance institutions are now facing serious investment challenges that may force many to close shop by the April 2020 deadline set by the apex bank for compliance with the first phase of the order.

The apex bank had in March 2019, through a circular signed by Kevin Amugo, the director, financial policy and regulation, extended the recapitalisation date for the MFBs and directed them to meet half of the initially set capital requirement by next year.

Under the new regime, the apex bank stated that unit microfinance banks shall comprise two tiers; namely tier 1 unit MFBs, which shall operate in the urban and high density banked areas of the society; and tier 2 unit microfinance bank, which shall operate only in the rural, unbanked or underbanked areas.”

Under the categorisation, tier 1, unit MFB is to be capitalised to the tune of N200 million, while tier 2 unit MFB would have a capital base of N50 million.. A state MFB’s capital base was raised to N1 billion, while a national MFB is to be capitalised to the tune of N5 billion.

It clarified: “To aid the process of recapitalisation, all microfinance banks shall be required to comply with the following: Tier 1 microfinance bank shall meet a N100 million capital threshold by April 2020 and N200 million by April 2021.

“Tier 2 Unit microfinance banks shall meet a N35 million capital threshold by April 2020 and N50 million by April 2021. A State microfinance bank shall increase its capitalisation to N500 million by 2020 and N1 billion by April 2021 and national microfinance bank shall hold a capital of N3.5 billion by April 2020 and N5 billion by April 2021,” the CBN added.

Investigations by business a.m on the current level of MFBs’ capitalization drive and the prospects of their meeting the CBN’s latest capital base requirements showed that many of them were not attracting investments that could make them fulfil the regulatory requirement.

A leading operator in the state MFB category whose bank had initially aimed to transform to a national MFB, who spoke on condition on anonymity at the weekend, told our correspondent that “we have droped the idea of getting a national licence and are now struggling to meet the minimum capital base requirement and this has been a big challenge.

“It is such a sad experience as efforts to get new investors into our board have not really yielded any tangible result. It is promise today and tomorrow you don’t see any action following such promise. I can tell you we are not alone in this predicament. My other colleagues are facing similar hurdles. How I wish the CBN would just shift the deadline to enable us meet the requirements”, he added.

In his remarks, Matthias Umeh, a former president of the National Association of Microfinance Banks (NAMB), said that as desirable as the policy directive remains for the economy, hurdles abound that may defeat the purpose in the medium and long terms.

Specifically, the industry top player pointed out that some of the problems that owners and operators were contending with that may not allow most of the MFBs meet the capital base requirement included the non-supportive economy, the huge jack up of the capital base for MFBs, investors’ apathy to stake funds in the MFBs without any assurance of tangible returns and poor loan repayment culture among micro-debtors.

He expatiated: “We can commend the apex bank for its good intention on the policy directive which, to all intents and purposes, is good for the economy.

But then, as operators we feel the categorization of the MFBs is not necessary or at best not reflective of the realities in the economy. For instance, an MFB with just about N5 million capital base in a rural village can successfully do microfinancing whereas a N100 million capital base may not be adequate for a MFB in the urban areas.

“In other words, we are saying that the quantum hike in the capital base requirement is a major problem. If the apex bank had put the capital base for a rural MFB at N30 million and fixed the urban MFB’s at N50 million it would have been realistic for the MFBs given the state of the economy.

“So, we are asking for the extension of the deadline to between two to three years to enable the MFBs meet these requirements and grow such that investors would get returns on their investments and position the microfinance institutions fulfil their mandate, in terms of financial inclusion and provision of micro credit to SMEs on a sustainable basis”, Umeh canvassed.

Commenting on MFBs’ efforts to meet the minimum capital base target, an investment analyst, Mr. Babajide Akeredolu-Ale, identified lack of investors’ confidence in MFBs on good returns on investment, past crisis that bedeviled the sub-sector and increasing poverty level in the economy as key constraints that may scuttle MFBs’ recapitalization drives.

He said: “The MFBs have a lot of challenges that may make this policy directive not achieve its objectives. I can tell you that one of these is lack of investors’ confidence in them to give them good returns on investment. Secondly, the sad experiences as characterized by the collapse of many MFBs some years ago is also another.

“Thirdly, government has not done enough to encourage micro, small and medium entrepreneurs to patronize the MFBs and by so doing improve their capital adequacy for improved operations and profitability.

“There is substantial money outside there in the informal sector that should be going into the vaults of these MFBs in form of deposits but that are today being used to play sporting games like ‘betnaija’ and others because the players get quick returns on such bettings”, Akeredolu added.

The chartered accountant and public finance analyst pointed out that “government can help the MFBs grow and meet the specificied capital base requirements if supportive monetary and fiscal policies are made to create a more enabling environment for the MFBs to grow.