Expectations that micro-finance banks (MFBs) will play a key role in helping the Central Bank of Nigeria (CBN) achieve its target of reducing the proportion of Nigerians that are financially excluded to 20 per cent by 2020 may be misplaced as the micro lenders continue to grapple with a harsh business environment, writes Tony Chukwunyem
If official data is anything to go by, there is a steady increase in the number of MFBs in the country. Specifically, a fortnight ago, the apex bank published its latest list of the number of licensed MFBs in the country, which showed that the number of these companies currently stands at 999. An earlier list published by the banking watchdog last April had put the figure at 991, an indication that eight MFBs were licensed by the regulator in the last four months.
Similarly, the 2015 Annual Report for National Financial Inclusion Strategy showed that the number of MFBs rose to 958 at the end of December 2015 compared with 913 in 2014. The report also showed that total assets within the microfinance industry rose to N343.9 billion in 2015 from N300.7 billion recorded in December 2014, representing a growth of 14.4 per cent above the level attained in the previous year. In addition, it stated that deposit liabilities within the sector increased by 9.3 per cent from N145.8 billion in 2014 to N159.5 billion as at December 2015. Loans and advances also rose from N162.9 billion in 2014 to N173.7 billion at end of December 2015, indicating an increase of 6.6 per cent, while investments grew by 12.4 per cent from N15.8 billion in 2014 to N17.7 billion in 2015.
Significantly, however, the CBN’s Financial Stability Report released last April stated that the total loans provided by MFBs across the country to Micro, Small and Medium Enterprises (MSMEs) in the second half of last year dropped to N183.96 billion, declining by N48.7 billion (about 20.96 per cent) from the N232.73billion they advanced in June 2016 to N183.96billion at the end of December 2016. The report further showed that total assets of microfinance banks decreased to N341.68billion at the end of December 2016, from N455.96billion as of the end-June 2016, reflecting a decrease of 25.06 per cent.
In the same vein, the report said shareholders’ funds for the microfinance banking sector decreased by 42.91 per cent from N135.09billion to N77.12billion as of the end of last December. It attributed the decrease in shareholders’ funds largely to losses by the MFBs resulting from increase in non-performing loans. The study further stated that MFBs’ total deposit liabilities dropped from N191.25billion as of June 2016 to N166.29billion as at December 31, 2016.
According to the report: “The total assets of microfinance banks decreased to N341.68billion at end-December 2016, from N455.96billion as of end-June 2016, reflecting a decrease of 25.06 per cent. The shareholders’ funds also fell by 42.91 per cent from N135.09billion to N77.12 billion as of December 31, 2016. The decrease in shareholders’ funds was largely attributed to losses by the microfinance banks resulting from increased provisioning for non- performing loans. Reserves also decreased by 24.39 per cent to N16.80billion at end-December 2016, from N22.22billion at end-June 2016. The decrease in reserves was as a result of operational losses.”
Interestingly, commenting on these figures at an event organised by MFBs last June, the Director of Other Financial Institutions Supervision Department (OFISD) at the CBN, Mrs. Tokunbo Martins, said they were grossly inadequate given the country’s population of 170 million, the bulk of which consists of the unbanked.
She said: “The industry is highly concentrated and unevenly distributed with the top 10 of the 991 Microfinance banks accounting for 37 per cent to 40 per cent of the total loans, deposits and assets as at March 31, 2017. The sub-sector is also under capitalised with high Non-Performing Loans and characterized by a high spate of distress and failures with many institutions particularly unit Microfinance banks technically insolvent or inactive.”
Analysts noted that the 999 licensed MFBs in the country are still a long way off from meeting the target proposed for microfinance bank branches in the National Financial Inclusion Strategy, which is that there should be five branches per 100,000 adults by 2020.
Indeed, according to a report by Enhancing Financial Innovation & Access (EFInA) – a financial sector development organization that promotes financial inclusion in Nigeria, its “Access to Financial Services in Nigeria 2012/2014 survey” shows that 88.6million adults in the country have never had a microfinance bank account.
The report also stated that number of microfinance bank users dropped from 4.6 million in 2012 to 2.6 million in 2014, adding that the top three reasons that users gave for shunning MFBs were irregularity of income, lack of trust and microfinance institutions closing down.
Also, a another survey carried out by EFInA last year showed that although the proportion of Nigeria’s adult population with access to financial services grew by an average of 6.4per cent between 2008 and 2012, this growth slowed down to 0.2per cent and 2.1 per cent in 2014 and 2016 respectively.
“This decline was driven by a reduction in the proportion of adults accessing financial services through other formal providers-other than Deposit money banks (DMBs) and informal financial providers. DMBs have been better able to withstand the economic crisis and maintain their customer acquisition drive at the expense of formal other channels like MFBs most of which have struggled under the economic strain,” EFInA stated.
In fact, industry stakeholders generally agree that the tough economic conditions in the country-triggered by the slump in oil prices in mid-2014- which has put DMBs under a lot of pressure, has also negatively impacted the micro finance subsector.
For instance, at a sensitization workshop themed: “Deepening the practice of microfinance banking through effective enterprise risk management”, organised by the Nigeria Deposit Insurance Corporation, (NDIC) for operators of microfinance banks in Lagos in late 2015, the then Director, Other Financial Institution Supervision Department, OFISD, CBN, Mr. Ahmed Abdullahi, identified undercapitalisation as the greatest impediment to the growth of microfinance banks in the country.
He said: “Microfinance banks are facing a lot of challenges. They are generally undercapitalised and this hampers effective risk management. At the moment, their non-performing loans are growing beyond regulatory requirements. This has implications on their capital assets and liquidity as banks. The industry in general is making losses and no business can survive without being profitable.”
Besides, he stated that one of the greatest challenges of MFBs was the issue of overheads, pointing out that most MFBs were facing this problem because they were copying the business model of commercial banks.
He advised MFBs to re-examine their business models, pointing out they (MFBs) do not have the kind of opportunities that commercial banks have.
However, as industry watchers point out, the MFBs’ sub-sector has had a somewhat troubled history in these parts. In 2010, for instance, the CBN revoked the operating licences of 224 MFBs, citing the report on the target examination on 820 MFBs across the country jointly conducted by the regulator and NDIC, which showed that 224, or 27 per cent, of them, were found to be “terminally distressed” and “technically insolvent” and/or had closed shop for, at least, six months.
In fact, New Telegraph findings show that stakeholders largely attribute the challenges that the MFB sub sector is currently facing to the CBN’s 2010 action.
As an official of a Lagos-based MFB, who did not want to be named, stated: “The mass revocation of MFBs’ licences in 2010 did serious damage to the public’s perception of the sub-sector. Most people still believe that the sector is not healthy and this is scaring away investors as well as depositors.”
But, commenting on the issue, the Managing Director of LAPO Microfinance Bank, one of the country’s biggest MFBs, Mr. Godwin Ehigiamusoe, stated that while the downturn in the economy has clearly impacted most MFBs, an assessment of the industry has to be carried out to find out exactly the nature of the challenges that the industry is currently facing and what can be done to address them.
He said: “Generally, the tough economic situation is affecting everyone so it also affects MFBs. However, there has to be an assessment of the problem to ascertain if it has to do with liquidity or loan portfolio issues.”
Mr. Ehigiamusoe, whose bank has over two million clients, said the fact that some MFBs are under a lot more pressure than others has to do with how operators seize opportunities.
He defended the achievements of the sub-sector in an interview, arguing that although there was still room for improvement, MFBs in the last decade had granted over N151billion as loan assets and made it possible for more than four million Nigerians, mainly persons from low-income households and owners of micro and small enterprises to access a range of financial services.
He argued that MFBs’
liquidity would be significantly boosted if tiers of government were supporting the sector with certain proportions of their budgets as was originally suggested during the formulation of the microfinance policy.
Also, a financial analyst, Mr. Ben Odidika, predicted that the MFBs sub-sector would continue to struggle until there is significant improvement in the country’s current low banking culture. He advised MFB operators to continuously look for ways of lowering the cost of landing profitable customers.
The consensus among industry watchers at the weekend, however, was that although MFBs are currently facing tough times, the huge number of financially excluded Nigerians means that hard working operators in the financial sector will continue to identify good business opportunities.