Microfinance banks operating in
Nigeria have until April 1, 2020 to recapitalise either by raising fresh
capital or merger with other willing operators in the industry to be
able to continue to do
business according to a directive issued by the
Central Bank of Nigeria. One of the banks, Fina Trust Microfinance Bank,
has blazed the trail with its partnership with Sri Lanka’s LOLC, one of
Asia’s best, to raise the required capital, reports Bamidele Famoofo
Sometime in 2019, the CBN through a
circular, announced a new capital structure for microfinance banks,
which cuts across all categories. The increase ranged from 150 and 900
per cent. According to the CBN, the unit banks will need not less than
N200million to continue to operate, while State MFBs will now require
N1billion instead of the N100million current capital base. Also for any
of the two categories to upgrade to a national player, it will need to
raise its capital base to N5billion. At the moment it requires only
N2billion to run a national MFB in Nigeria.
In a circular to all MfBs signed by
Director, Financial Policy and Regulation department, CBN, Mr. Kevin
Amugo, the apex bank stated that the capital requirement of the MfBs was
raised in order to curb the challenges of capital inadequacy facing the
sector, while repositioning it to meet critical targets in the
microfinance policy. The apex bank said it has reviewed the state of
health of the sub-sector and is of the view that the MfBs, 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 subsector and reposition the institutions towards improved
performance. The new minimum capital requirement takes immediate effect
for new applications while existing MfBs shall be required fully to
comply with effect from April 1, 2020.
It would be recalled that the state of
health of micro finance banks has been a major worry for the CBN and the
Nigeria Deposit Insurance Corporation (NDIC). Specifically in September
2018, the CBN said it would revoke 154 microfinance banks’ license over
insolvency issues.
The apex bank claimed that 62 of the
microfinance banks had already closed shop; 74 insolvent; and 12
terminally distressed; while six voluntarily liquidated.
The NDIC said it has previously paid
billions of naira to depositors in failed micro finance banks. For
instance, in 2016, the NDIC said it had paid N2.9 billion to 81,328
insured depositors of failed MfBs across the country as at December
2015. It said a total of 187 MfBs, whose licences were withdrawn by CBN
were closed within the same financial year.
Also, at the end of September 2017, the
corporation claimed to have paid a cumulative sum of N2.88 billion to
525, 009 depositors of closed MfBs.
Fina Trust Blazes the Trail
Fina Trust Microfinance Bank Limited
last week signed a deal with Sri Lanka’s most vibrant Microfinance Bank
(LOLC), ahead of the April 2020 deadline issued by the Central Bank of
Nigeria for Microfinance Banks to raise enough cash to boost their
capital base for them to remain in business.
Fina Trust told THISDAY that the LOLC
Group from Sri Lanka injected about N2billion in equity into the bank,
which operates statewide in Lagos. The MfB is one of the leading state
microfinance banks in Nigeria with head office on Toyin Street, Ikeja
and branches in Agege and Ikorodu, serving the needs of micro and SME
clients in its market.
“By this investment, Fina Trust
Microfinance Bank is adequately capitalised to meet the new capital
requirement regulation of the Central Bank of Nigeria (CBN), ahead of
the April 2020 deadline and arguably the most capitalised of the MfBs,” a
source revealed.
The Country Director of LOLC Group, a
foremost Asian micro finance and leasing trailblazer, Mr. Ashan
Nissanka, said the group was excited to invest in Nigeria as the
investment was an access into sub-Saharan Africa through the largest
market in the region.
LOLC Group has presence in more than 15
countries across Asia, MENA region. As part of the investment, LOLC
Group is supporting the bank with strong micro finance skills and
expertise that have been tested in the Asian market.
Managing Director/CEO of Fina Trust
Microfinance Bank, Mr. Deji Popoola, noted the investment came with a
competitive edge for the bank through a funding cost efficiency,
competitive process, system and technology, as well as innovative
microfinance product offering. Popoola was particularly appreciative of
the LOLC family and the advisers who birthed the transaction.
The advisers to the transaction include
Nolton Bravos/Sthenic Finance, Suits & Advisors, Banwo &
Ighodalo and G. Elias & Co.
Chairman of Fina Trust, Pastor Ituah
Ighodalo, explained LOLC came into the equation as partners when the
bank, which had been in business for 10 years, reached the limit of the
capital invested because of Nigeria’s huge market.
According to him, the bank needed a
partner in LOLC to achieve three things. “First is to bring in a bit
more money to grow and expand the business to national level which was
our target from the beginning. The second thing is that we need a bit
more of technology and expertise and the third thing is for them to
share with us the experiences they have had on other continents. Those
were very critical points for us looking for a partner. We were not
just looking for the money but we wanted people who would bring in
technology, expertise and experience that will help us grow the business
together across Africa.”
Ighodalo confirmed LOLC ticked all of
the three boxes. “They brought in some capital, a little of which we
will use to buy off some existing shareholders of the bank but most of
it would be used to grow the business. It will help establish our foot
prints across Africa after rising to a status national microfinance bank
in Nigeria.”
Nothing that, “LOLC has done this
successfully in some other countries of the world, the chairman said,
“We don’t need to reinvent the wheels since they already have the
technology, processes and expertise that made them successful in
countries like Sri Lanka, Cambodia, India, Myanmar and the other places
where they are operating.”
“What is very important to us is that
like us, they are willing to grow and develop institutions, making sure
we transit small players hopefully into big players. Our principle here
is to grow small businesses that will in turn grow the economy,” he
added.
Operational Structure
From inception, the plan of the CBN is
to encourage the private sector to establish microfinance banks that are
well-capitalised, technically sound, and oriented towards lending,
based on the cash flow and character of clients. The banks were in two
broad categories namely, unit and state microfinance banks.
MFBs licensed to operate as a unit bank
(a.k.a. community banks) MFBs licensed to operate as unit banks are
allowed to operate as community- based banks. The unit banks operate
branches and/or cash centres subject to meeting the prescribed
prudential requirements and availability of free funds for opening
branches/cash centres. The minimum paid-up capital for this category of
banks was N20.0 million for each branch. On the other hand, MFBs
licensed to operate in a state is authorised to operate in all parts of
the state with a minimum paid-up capital of N1.0billion.
“The recognition of these two categories
of banks does not preclude them from aspiring to having a national
coverage, subject to their meeting the prudential requirements. This is
to ensure an orderly spread and coverage of the market and to avoid, in
particular, concentration in areas already having large numbers of
financial institutions”, the CBN disclosed.
Also an existing NGO, which intends to
operate an MfB can either incorporate a subsidiary MfB, while still
carrying out its NGO operations, or fully convert into an MfB.
As at September 30, 2018, there are 882
licensed microfinance banks operating in Nigeria, according to
information made available by the CBN.
Analysts Speak
Given the developing worrisome trend in
the microfinance industry in Nigeria, experts are of the opinion that
micro finance banks needs to be strengthened to be able to contribute
their quota in the economy as small depositors who are mostly customers
to micro finance banks are losing money. Experts also said the corporate
governance architecture of the micro finance banks must be strengthened
in addition to the minimum capital raise.
“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
sanitise the microfinance sector and further stabilise the financial
system,” an expert said.
He noted that “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.”
Managing Partner at Trispeed Consulting,
Mr. Rislanudeen Muhammad, acknowledged that a good number of the micro
finance banks had weak capital due to years of high non- performing
loans, adding that a strong capital base was important to enable them
remain on sound health and also have capacity to perform their financial
intermediary services.
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