Over 80% of Nigeria’s microfinance banks are in dire straits as insider abuse, low capital hobble operations

Nigeria’s microfinance institutions are hobbled by low capital base, insider abuse, poor management, illiquidity, lack of skill sets and policy summersaults that have made over 80 percent of them unprofitable, according to Peter Owunna, CEO XsInce Micro Finance Bank and Xslince Investment and Trust Limited.

Onwunna, who was the guest speaker at the August edition of the monthly financial and investment dialogue powered by business a.m. and GTI Capital, noted that of the over one thousand microfinance institutions (MFIs) licensed by the Central Bank of Nigeria (CBN) less than twenty percent of them are functioning optimally.

Speaking on the topic ”Integrating microfinance institutions into the Nigerian capital market”, he said microfinance institutions should be encouraged to list on the Nigerian capital market so as to access the huge capital available in the market.

Highlighting other benefits of listing, the finance expert said, “Listing of MFIs can provide much-needed funding from pension fund administrators, mutual funds and a host of other private equity investors.”

He said private equity investors who often have a timeline for certain funds find it difficult to invest in microfinance institutions today because there are no exit opportunities, adding that if the shares of the MFIs are listed, it will be much easier for investors to offload their investment at the end of the life of a particular fund.

With the current primary and secondary categorization in the nation’s capital market, Owunna further explained that it would give room for the microfinance banks to come into the market through the second tier, which is a subdivision of the primary market.

The second tier market was created for SME’s to access capital in the market and has less stringent listing requirements to be met.

Lamenting that only three out of the 1000 licensed microfinance institutions are currently listed on the NSE, the Xslnce CEO wondered if the sector could bring the desired financial inclusion growth being championed by the financial regulators.

Other benefits of MFIs listing on the NSE include enhanced transparency and integrity, access to growth enabling capital as well as broaden ideas and skill sets among operators.

Indeed, MFIs play a significant role in financial inclusion since they deal directly with the informal sector and grass root businesses, which are in most cases financially excluded.

CBN data indicate that the number of citizens with Bank Verification Number (BVN) is barely 22 million as against the country’s current population estimated to be well over 200 million.

With little or no access to finance, a rapid development of the rural sector pose a major challenge for overall economic development, hence a dire need for innovative ideas through collaborations among MFIs and Fintechs as well as rapid deployment of information technology is necessary.