Microfinance banks can ease pressures of naira redesign policy

At the inception of the naira redesign policy, I wrote that there were opportunities open to microfinance banks. I also mentioned that the Central Bank of Nigeria (CBN) was missing an opportunity they would have capitalised on by consciously involving the microfinance banks in their plans to make the policy succeed. Though the balance sheet size of MfBs are small and may not compare to the commercial banks, their dispersed nature and largely informal orientation is something that can ease any pressure. I wrote:

“There is, however, an observation that the CBN omitted microfinance banks in the strategy to deliver on the policy. With over 900 licensed microfinance banks spread across the country, there is no better time to put them to use than now. In 2020, when the CBN extended palliatives to the public under the Target Credit Facility (TCF), it missed the opportunity to leverage the network, closeness to the unbanked and operational flexibility. As a core agent of financial inclusion, which currently stands at 45% (World Bank) and 65% (CBN) against a target of 95% (CBN target) by 2024, the CBN, could prove critics wrong with regards to the ability of the banking system to handle the expected upsurge by engaging the microfinance banks.”

Following the recent capitalization and regulatory oversight by the CBN, NDIC and FRCN, the microfinance banks are well-equipped to play a significant role in implementing this policy. Moreover, through a comprehensive and inclusive guideline that recognizes the functions required of microfinance banks to play, the CBN may have doused one of the critics’ concerns. 

The microfinance banks’ involvement could help push the message to the grassroots, thereby reducing the attendant cost of publicity that the CBN may incur. Moreover, it is capable of quenching the tension and panic that will characterise the implementation as poor and illiterate citizens may be more comfortable dealing with financial institutions they are close to and trust.

The use of microfinance banks can eliminate possible brokers or intermediaries that may arise from the need for a few individuals to make quick money at the expense of unsuspecting citizens. Apart from the contributions above, microfinance banks can increase liquidity, financial inclusion rate, confidence in the banking system, trust in the government and a vote of confidence for the apex bank.

The argument that citizens will suffer untold hardship, stay in endless queues in banks, have access to a limited new currency, and families going hungry, amongst others, can readily be addressed by the introduction of electronic banking, which was not available in 1984. Unlike the last exercise, multiple channels for a transaction now exist for seamless banking. Moreover, the presence of the e-naira introduced by the CBN and other approved payment platforms will guarantee access to funds. Coincidentally, with the continuous expansion of agency banking and the fact that most microfinance banks have digitalised their operations to facilitate transactions and bring banking close to the people, there may be no need to insist on cash after this exercise.

Active participation in the naira redesign policy by microfinance banks can improve their liquidity, deepen penetration and account opening. Improved quality service, expanded revenue lines, increased revenue, and enhanced visibility form part of the possible incentives. There is also a possibility of improved confidence from customers. In addition, it can eliminate potential regulatory distrust and promote greater reliance and dependence.

Months later, after implementation and at the heat of the scarcity of cash, the CBN in an attempt to reach out more decisively, engaged the services of over 100 microfinance banks to reach the people. This is commendable as the apex bank has shown itself as a responsive and flexible institution.

So, I conclude that the Naira redesign policy is welcome and should be allowed to thrive despite initial signals that may make it look impracticable and impoverishing. But as they say in “Naija” parlance and the lyrics of a Grammy award-winning Nigerian musician, “las, las everybody go chop breakfast”.

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