Microfinance is on the political agenda of most developing countries, with several success stories. In Nigeria, the concept of micro-finance is not an entirely new phenomenon, as evidenced by cultural and economic activities such as the “Esusu”, “Adashi”, and “Otataje”, which were practiced to provide funds for local producers in rural and urban communities several decades ago. These concepts have however been modernized over the years and evolved into a complete micro-finance structure in rural and urban communities across Nigeria. The Nigerian government is actively encouraging the development of MFB’s to improve the productive capacity of the poor but economically active in the country, and enhance their economic standing. This in turn raises the levels of poverty, and enhances economic growth and development in the national economy.
To complement the Nigerian government’s efforts, over the years, several NGOs have been permitted to obtain licenses to operate as micro finance institutions, and universal banks have also been encouraged to engage in microfinance services. MFBs are firmly within the supervisory purview of the Central Bank of Nigeria (“the CBN”), and in exercise of the powers conferred on the CBN by the provisions of section 33 (1)(b) of the CBN Act 2007 and sections 61-63 of the Banks and Other Financial Institutions Act of 1991 (as amended), the CBN issued the Microfinance Policy, Regulatory and Supervisory Framework for Nigeria in 2005 which was revised in December 2012 (“the Regulations”).
A brief overview of the Regulations
The Regulations provide a robust regulatory framework for MFB’s and addresses current realities and developments in the sector. It provides the basis for the establishment, operations, regulation and supervision of MFB’s, and other microfinance institutions. It is said to focus on ‘promoting innovative, rapid and balanced growth of the industry, leveraging on global best practice in microfinance banking’. The provisions of the Regulations cover the distinctiveness of micro clients, the ownership structure of the institutions, their credit methodology, and the central position of savings and deposits in the intermediation process. The Regulations also adopts measures to ensure the soundness and safety of the institutions, the protection of depositors (especially low-income clients) and defines institution types, loan documentation, portfolio classification, loan loss provision and write-offs, amongst others.
While section 3 of the Regulations provides details of the establishment of an MFB and how to obtain an MFB licence, anyone with an interest in establishing a micro finance bank should also be aware of section 19 of the Regulations titled ‘Conditions for Revocation of Licence’ which gives robust powers to the CBN for the revocation of an MFB licence. Section 19 has been criticized as being too wide in its application, particularly section 19 (e) which effect is that an MFB can have its licence revoked for any act which is contrary to the provisions of the Regulations, any act which does not comply with any directive issued by the CBN or for any act which the CBN (in its opinion) considers to be a violation or a serious default.
Furthermore, Section 19(l) makes MFB’s subject to all the grounds of revocation applicable to commercial banks under the BOFIA, in addition to those specifically set out in the Regulations. This gives wide discretionary powers to the CBN, which many have argued may lead to an over regulated micro finance banking sector.
The Nigerian government’s improved regulatory environment in the microfinance sub-sector enhances the prospects for the development and success of MFB’s. Whilst the Regulations are not without its criticisms, it is generally agreed that it has created a structure for the development of MFB’s. One further indication of this is the provision of regular training programmes for regulators, promoters and practitioners in the microfinance industry by the CBN in conjunction with the Nigerian Deposit and Insurance Corporation (NDIC). Participants have the option to complete a certification examination at the end of the programme and become accredited by the Chartered Institute of Bankers of Nigeria (CIBN). The CBN subsidizes the training programme to reduce the burden on the MFB’s and to ensure active participation by as many stakeholders as possible. Today the CBN is said to contribute to as much as sixty (60) percent of the cost of training of management staff of MFB’s in order to increase the capacity of this burgeoning industry.