Source: Next (Nigeria).
Original article available online.
ABUJA, Nigeria, September 30 – The banking industry may face another liquidity strain if microfinance banks are to implement the Central Bank’s proposal to shore up their capital Base.
“That would be very difficult, especially for now because of what is happening in the financial industry,” said Francis Akpudi, managing director, Solace Microfinance Bank, Warri, Delta State.
“Already, we are finding it difficult to even get deposits. Maybe when the whole present financial situation is more relaxed, maybe, but for now, it would be very difficult to achieve that,” he added.
Mr. Akpudi explained that though the idea is a good one, it will be very challenging meeting it in view of the financial situation in the country.
The Other Financial Institutions Department (OFID) of the Central Bank of Nigeria (CBN) on Monday, admonished that microfinance banks (MFBs) should increase their capital base above the current N20 million.
Mr. Olufemi Fabanwo, the acting director in charge of OFID, told journalists in Lagos on Monday as reported by the News Agency of Nigeria (NAN) that the development became necessary due to the present challenges facing the micro-finance banks in the country.
Not a total solution package
While commending the CBN’s decision, experts are however of the view that there is still more to be done to improve the services of the microfinance banks.
Bismark Rewane, Managing Director of Financial Derivative Company, an economic research and asset management company, explained that low capital base is not the only challenge facing the micro-finance banks.
“The Central Bank’s suggestion makes a lot of sense,” Mr. Rewane said. “What we do not know, however, is if there’s a direct relationship between capital base and efficiency in performance. Some of the micro-finance banks with challenges have high capital resources.
“While increasing the capital base of these banks is a welcome idea, the Central Bank should also reinforce and sharpen the management of the banks. The Central Bank would definitely give them some time to meet up, if it decides to enforce this development, maybe a couple of years.
“Another effect this may have is that it may lead to consolidation. The problem with this is that the banks may not be able to achieve their primary aim when this happens. By then, you may have about 100 banks to satisfy a whole number of small-scale businesses and the general public,” he said.
A necessity
The NAN report quoted Mr. Fabanwo as saying that “The ever expanding outreach challenges necessitate the micro-finance banks to accumulate capital beyond the current levels. A capital base of N100 million to N200 million will be ideal to operate micro-finance bank effectively.” The acting director, the report stated, explained that micro-finance banks need to shore up their capital base because the larger percentage of the active poor are now relying on micro-finance banks for loans to start business, as the present N20 million is too small to make a meaningful impact, especially in the lives of the poor.
Mr. Fabanwo, encouraged the banks to support strategies aimed at making their institutions sustainable.
Mohammed Abdullahi, the CBN’s Head of Corporate Communications, was not available to answer questions on whether the banking regulatory institution will enforce this suggestion in future.
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