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Repositioning Microfinance banks to grow economy

CSL Stockbrokers by CSL Stockbrokers
March 6, 2020
in Market Views, Op-Eds, Research Analysis
diaspora remittances, Total credit to the economy rose to N19.54trillion – CBN Governor, CRR debits, P-AADS, #EndSARS: CBN says funds in frozen accounts may be linked to terrorist activities, Covid-19: Court closures impacted revenue generation for courts - Emefiele, P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking, AGSMEIS: CBN expand beneficiaries to 14,638., CBN expands access to mortgage financing

CBN Governor, Godwin Emefiele

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The Central Bank of Nigeria (CBN) on Wednesday released an exposure draft guideline for the regulation and supervision of microfinance banks (MFBs) in Nigeria following a review of the 2012 guidelines.

According to the apex bank, the need to reposition microfinance banks towards improved performance following a recent review of the sector informed the decision to review the guidelines.

Recall that the CBN had in 2019 revised the categories of microfinance banks and increased the minimum capital base of each category. According to CBN, there are 902 registered microfinance banks in Nigeria. Despite the high number, the eight largest national MFBs control c.45% of the market share.

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In a bid to increase financial inclusion and improve access to financial services for the economically active poor, the CBN issued the Microfinance Policy, Regulatory and Supervisory Framework in December 2005. This was later revised in 2011. Microfinance banks were expected to provide access to financial services such as micro-savings, micro-credits, and other financial products to the economically active poor.

[READ MORE: Coronavirus: FG to review budget as oil price plunges)

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Microfinance banks typically give small loans, do not have asset-based collateral and have a simpler operation when compared to commercial banks. Despite the rapid increase in the number of microfinance banks since the launch of the policy framework in 2005, available statistics do not suggest that they have significantly aided financial inclusion.

A recent survey conducted by EFInA (Enhancing Financial Innovation and Access) indicates that the proportion of those financially-included serviced by MFBs is only 3.8%. We think the major factor mitigating against the proper functioning of MFBs stem from their roots- most of the MFBs that were licensed after the launch of the CBN’s Microfinance Policy in 2005 were Community Banks. Before the repeal of their licences, Community Banks were seen as government-funded institutions who provided loans with little thought out plans towards recovery. This mindset led to the collapse of many MFBs.

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That said, the concept of microfinance banks in Nigeria has not adequately achieved desired aims for several reasons such as inadequate supervision by CBN based on the large number of these banks, an attempt by operators to adopt spending and lifestyles similar to commercial banks, lack of focus on the target market and increasing cases of default especially in the face of the declining real income level occasioned by frail macro conditions.

In our view, fostering sustainable economic development in any nation requires rural transformation and the empowerment of rural dwellers, hence, we believe there is a need to reposition microfinance banks to take on their task of alleviating poverty and aiding financial inclusion among the economically active poor. Accordingly, we believe the recapitalisation exercise which is aimed at strengthening the existing MFBs coupled with improved supervisory oversight will aid rapid and sustainable growth of the microfinance industry.

______________________________________________________________________

CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,

NIGERIA.

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Tags: Central Bank of NigeriaEFInAMicrofinance BanksNigerian Banking IndustryNigerian banking sector

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