Mr. Rogers Nwoke, the immediate past president of National Association of Microfinance Bank (NAMB) recently bowed out of office after concluding an eventful 3-tenure at the helm of affairs of the body.
In his valedictory interaction with select journalists, Nwoke reflected on a number of issues affecting Nigeria’s micro finance sub -sector, highlighting the critical roles played by MFBs in the nation’s economic development financing matrix including how their exclusion from various Central Bank of Nigeria (CBN) sponsored interventions programmes has dragged the nation’s financial inclusion policy particularly at the grassroots.
He also points the way forward to deepening its financial inclusion space in the years ahead.
My experience as President of NAMB
It is an experience I will best describe as challenging but yet rewarding considering the many leadership lessons that came with it. This is because our association is made up of more than 900 Microfinance banks with each of them represented by a Board chairman and a managing director. So, as president of NAMB, you are typically leading and managing a group of almost 2,000 people of diverse ethnic, religious, social and professional backgrounds. These banks are made up of 10 National Banks, 134 State Banks and more than 700 Unit banks. Consequently, their structure, interests and business strategies pose diverse challenges to a manager. So, whatever issues are at stake, diverse interests that emerge and your ability to achieve some level of congruence helps in resolving those issues which is a very difficult challenge to overcome. You also have the challenge of dealing with the battered reputation of the microfinance subsector which has severe impact in your ability to break through negotiations, fighting for recognition and managing expectations of all stakeholders.
So, for me leading a complex association like NAMB is very interesting and you learn with each new experience.
Why millions of Nigerians remain financially excluded amidst the National Financial Inclusion Strategy.
Nigeria has made good progress in the area of increasing the financial inclusion rates.
Unfortunately, we have not been able to hit the 2020 target of a 20 percent exclusion rate. Before we start telling who did or did not do what, it is very important that we clearly redefine and understand what we mean when we say a Nigerian is financially included. Is it when he has access to financial services? And if so What financial services? If you open an account for a low-income Nigerian so you can attract more savings to your bank, is that financial inclusion? I don’t think so. A financial system that will go to any length to attract savings from the poor but will not give the poor access to credit is skewed in favour of the banks and government who lend these funds to large corporates. Several reasons may be adduced for the country’s inability to meet the target of 20 percent set for the year 2020, but the most significant is the inability of microfinance banks to cover the rural areas effectively.
And this is due to the failure of the government to involve microfinance banks in the various intervention programmes targeted at the MSMEs. Microfinance banks remains the strongest and most effective tool to achieve financial inclusion and unless we equip them to deliver on this promise, achieving full scale inclusion will be difficult to come by. Look at all the Federal Government interventions in the MSMEs’ sector and show me how many MFBs have been given opportunities of participation, but yet, they are the closest to the grassroots. There is also this inability of the country to properly coordinate and align the activities of all the agencies and institutions in the financial inclusion space. Different people are doing different things and going in different directions all in the pursuit of financial inclusion. But we believe their needs to be synergy and coordination among these agencies is must achieve the desired results.
How Microfinance Development Bank Limited can support MFBs improve liquidity for global competitiveness of the informal sector funding
The Microfinance Development Company Limited has been set up as a Special Purpose Vehicle to embark on initiatives that will impact positively on the development of the microfinance subsector. One of its core areas of activity is to enhance the liquidity of the microfinance banks.
From available CBN data, the MFBs cumulative have a liquidity ratio of more than 90 percent but this is unevenly distributed.
For instance whereas a few MFBs constituting about 15per cent contribute more than 80 per cent of the liquidity of the sector, majority of the MFBs lack adequate working capital to support their operations. There is currently no platform for liquidity training for the MFBs while any free cashflow is dumped on commercial banks, which have no sectoral allocation of credit to the MFB sector. It is also a problem for most MFBs to attract long term funding in their own capacity. The size disparity among unit, state and national banks makes it easier for the bigger banks to attract funding while the others struggle. The MDCL will work to support the smaller banks with wholesale funds which can then be available as on-lending facilities.
So far, the MDCL has secured a N7 billion Global Facility from Stanbic IBTC and some MFBs are at different levels of processing their individual facilities according to their capacity.
Another area where the development of microfinance banks is urgently exigent is in the digitalisation of their services. MDCL is currently in discussion with NIBSS to bring all MFBs on the NIP platform as a first step towards the digitising of their operations.
It was therefore in our motivation to develop the subsector that the Microfinance Development Company Limited was set up. It is currently owned by about 41 MFBs while sale of shares is still going on.
NAMB online trading platform project with NSE to boost working capital
The MDCL is at the concluding stages of floating a liquidity trading platform for microfinance banks in collaboration with the Nigerian Stock Exchange, the CSCS, and Infoware Ltd. When operational, MFBs can access short term funding of between 0-180 days. The MDCL will provide collateral support for smaller MFBs who may not have enough T-Bills and other short-term securities to support their trading. When the set-up is complete, the operating guidelines, including the risk management framework, will be released and a formal launch will be done including a nationwide sensitisation among all microfinance banks.
Rationale behind NAMB’s proposal for establishment of a Stabilisation Account for members.
Before now, the association and indeed the subsector have no long-term funding structure to support strategic long-term initiatives and sector bailout support. Although the microfinance supervisory guidelines provide for a 10 percent investment in Treasury Bills from a bank’s deposit base, this cannot be said to act as stabilisation fund because MFBs are allowed to pledge the bills to borrow funds. The association practically spends all its revenue on operations.
The NAMB Stabilisation Fund was approved at the 10th Annual General Meeting to take effect in January 2021. It is a scheme that authorises the association to set aside specified portion of its annual revenue in a long-term Fund to meet Long Term Investment Projects. The Fund is expected to grow to become a source of bailout fund for microfinance banks in the future. The sustainability of the Fund will be strengthened with regulatory support in the form of legislative backing for MFBs to invest a percentage of the total deposits into the Fund which will be managed by a first-class Fund Manager and a Tier 1 Commercial Bank as Custodian.
Why we’re seeking additional N250bn CBN bailout to fund MSMEs
One of the failings of the National Microfinance Policy is the inability of the CBN to establish the Microfinance Development Fund. Microfinance Banks thereafter have continued to struggle to remain liquid in a market for deposits that is highly skewed in favour of commercial banks. Even the various intervention schemes of the CBN have significantly left out microfinance banks. The N220 billion MSMEDF was supposed to support MFBs with access to working capital to finance the MSME sector.
Unfortunately, MFBs received less than 10 percent of the funds while state governments and commercial banks took the chunk out of it with more favourable conditionalities.
Post COVID-19 lockdown, the CBN announced a N50 billion intervention through NIRSAL MFB exclusively. We consider that the amount is too small to meet the funding gap in the MSME sector and have requested the CBN to extend this same hand to the MFBs.
Therefore a N250 billion intervention fund to the MSME sector to be disbursed through microfinance banks will deepen the market and cushion the negative effects of the lockdown. No matter the conditionalities, our banks are geared to compete for these intervention funds.
Policies that impacted NAMBs during my tenure and implications for sustainable growth
For me, strengthening the organs of administration will keep NAMB strong. However, the most impactful initiative for me is the establishment of the Microfinance Development Company Limited. When properly harnessed the project will grow the sector exponentially. Again the establishment of the NAMB Stabilisation Fund will make for the sustainability of the association.