By Tony Obiechina, ABUJA A financial expert and university lecturer, Professor Uche Uwaleke has thrown his weight behind the new CBN policy, directing Microfinance banks to recapitalise or have their operational licences withdrawn.
The Central Bank of Nigeria (CBN) recently announced the jacking up of the minimum capital base of microfinance banks (MFBs) in the country to N5 billion, giving them up to April 2020 to recapitalise.
According to a circular by the CBN Director of Financial Policy and Regulation Department, Kevin Amugo in Abuja, while the minimum capital base of National MFBs was increased to N5 billion, that of state was increased to N1 billion and Unit MFBs, N200 million.
Professor Uwaleke who is the Head of Department of Banking & Finance, Nasarawa State University, Keffi, told our correspondent in Abuja on Friday that many of the unit Microfinance banks in particular with a minimum capital base of N20 million are financially sick with very high non performing loans.
The first professor of capital market in Nigeria argued that the weak capital base of the banks hinders their ability to engage professionals in their operations as well as put proper risk management framework in place.
Presently, the minimum capital base for national MFBs is N2 billion while state MFBs stands at N100 million. The minimum capital requirement of Unit MFBs is N20 million.
Justifying it’s action, the CBN said the directive become inevitable because it was discovered that the sector had been contending with challenges such as inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift.
The Microfinance Policy, Regulatory and Supervisory Framework was introduced by the CBN on 15 December 2005 and later revised in 2011 “given the roles of microfinance banks play in the economic growth and development of the couny”.
According to the Apex bank, the key focus of the policy was among others, to increase financial inclusion rate in the country: improve access to financial services for the active rural poor; and pursue poverty eradication”.
But the CBN contended that after reviewing the state of health of the sub-sector, it found out that microfinance banks as presently constituted, “would be unable to meet the critical targets set out in the microfinance policy, hence the need for specific reforms to strengthen the sub-sector and reposition it for improved performance”.
It has therefore advised existing microfinance banks which are unable to meet up or cope with the new policy, to explore the possibility of mergers and acquisitions and/or direct injection of funds.
“Institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations would be allowed to open account at the CBN office within their state of operation. Such institutions would also be channels for micro funding activities at the CBN and the Development Bank of Nigeria,” the Apex bank further directed.
In the words of Professor Uwaleke, “The whole idea behind Microfinance banks is to have institutions that are in a position to grant micro credit to micro and small enterprises. That does not mean that such institutions should be small in size.
“As a matter of fact, they should be large and strong enough to perform their financial intermediation roles. In this regard, the directive to Microfinance banks to have their capital shored up by the year 2020 is welcome.
“The reality is that many of the unit Microfinance banks in particular with a minimum capital base of N20 million are financially sick with very high non performing loans. The weak capital base hinders their ability to engage professionals in their operations as well as put proper risk management framework in place.
“Little wonder many of them are closing shop and their licenses being withdrawn by the CBN. With sufficient capital, these Microfinance banks will be in a stronger position to engage competent staff and invest in the right technology.
“The development will also enhance their corporate governance. This CBN directive will no doubt sanitize the Microfinance sector and further stabilize the financial system”.