CBN’s Microfinance Bank: Right Reasoning, Wrong Decision
The recent decision of the Central Bank of Nigeria (CBN) and the Bankers’ Committee to transform the comatose Nigerian Postal Service (NIPOST) into a National Microfinance Bank calls for an urgent rethink.
The Governor of the Central Bank and Chairman of the Bankers’ Committee, Mr. Godwin Emefiele, gave three reasons for the decision:
- Non-disbursement of intervention funds to Micro, Small and Medium Enterprises (MSMEs).
- High and “outrageous” interest rates charged by existing microfinance banks.
- Need to revamp the nation’s moribund postal services system.
Under the proposal; the Bankers’ Committee will invest N5 billion in equity from its N60billion Agricultural Small and Medium Enterprises Investment Scheme (AGSMEIS) Fund while NIPOST would contribute its offices in the 774 local governments across Nigeria.
While the three problems pinpointed by the apex bank and the Bankers’ Committee are real and deserve to be addressed; the proposed solution raises some concerns.
Microfinance institutions aim to bring financial services to people who otherwise wouldn’t have them. Their purpose, therefore, is to extend financial tools to those who otherwise would not have access to them.
A for-profit microfinance bank operates about the same way as deposit money banks; although with differing criteria for opening accounts and securing loans.
On the other hand, the functions of a post office are:
- Sale of stamps and envelopes.
- Sending and receiving of telegraphic messages.
- Sending and receiving of money orders.
- Receiving and delivery of mails and related packages.
In some parts of the world, beyond their core service; post offices also offer such services as providing and accepting government forms (like driving licence and passport applications); processing government services and fees (like road taxes); and banking services (like savings accounts and credit transactions).
Where is the chemistry between the post office and the bank; in this search by the CBN and the Bankers’ Committee, to cure the ills of the microfinance banks?
The National Association of Microfinance Banks (NAMB) accuses the CBN of blaming the victim.It makes the point, albeit correctly, that the microfinance banks charge high interest rates and don’t disburse cheap funds. However, the Association reminds the CBN of its obligation under the Revised National Microfinance Policy which provides as follows:
“In order to promote the development of the sub-sector and provide for the wholesale funding requirements of microfinance banks and MFIs; a Microfinance Development Fund (MDF), shall be set up by the CBN. The fund shall be professionally managed to guarantee its sustainability. Also, it will provide necessary support for the development of the sub-sector in terms of refinancing/guarantee facility; capacity building; financial education; and other promotional activities.”
The Association says the CBN has failed to establish this fund that is expected to ameliorate their liquidity problems, and assure the sustainability of microfinance banks.
The Association also says that, in neglect of the provisions of the policy under reference, the CBN is yet to create modalities for fostering linkages between deposit money banks (DMBs), deposit financial institutions (DFIs), specialised finance institutions, donor agencies and microfinance institution (MFIs) in general and microfinance banks in particular. Microfinance banks and MFIs are expected to leverage these linkages to source wholesale funds and refinancing facilities for on-lending to their clients.
In furtherance of the foregoing, it is reasonable to request the CBN to implement the above-mentioned policy initiatives, which will create the enabling environment for microfinance banks to deliver on their mandate. Furthermore, the N5 billion equity earmarked for the NIPOST-inspired National Microfinance Bank should be applied to the Microfinance Development Fund, as provided in the Revised National Microfinance Policy.
After or concurrent with that, if the CBN still wishes to revamp NIPOST and the nation’s postal system, and promote financial inclusion, it can consider other options. For example, as obtainable in post offices in other jurisdictions, the CBN could grant an Agent Banking Licence to NIPOST, for delivery of quasi-financial services in the 774 Local government Areas of the country.
In summary, I identify with the reasoning of the Central Bank Governor and the Bankers’ Committee, regarding the non-disbursement of intervention funds to Micro, Small and Medium Enterprises (MSMEs), high and “outrageous” interest rates charged by existing microfinance banks, and the need to revamp the nation’s moribund postal services system, as obstacles in the way of economic development. I, however, do not agree that these problems will be solved by the establishment of a government-backed, NIPOST-based National Microfinance Bank.
This proposed solution does not fit the problems it seeks to solve. It is not likely to work, for the following reasons:
- The creation of a national Microfinance Bank will not revamp the nation’s moribund and comatose postal system. Already, these have been effectively crippled by a more practical private enterprise-driven courier service.
- The proposed government-run microfinance bank does not contain ingredients needed to reverse the non-disbursement of intervention funds to Micro, Small and Medium Enterprises (MSMEs).
- Arrival of the over-arching microfinance bank will not necessarily guarantee the delivery of single-digit credit; and thereby end the regime of high interest rates being charged by existing microfinance banks.
- Disbursement of intervention funds to MSMEs and delivery of credit by single-digit credit by microfinance banks can only be achieved if the CBN provides the enabling and regulatory environments to make these happen.
- The proposal by the Central Bank and the Bankers’ Committee to engage the Nigeria Postal Service (NIPOST), a wholly-government institution; in a profit-driven venture, runs counter to the idea of getting government to focus on governance; and leaving business to the private sector.
The idea of a National Microfinance Bank defies logic and should be dropped.
Read more at www.smefinance.org