MICROCAPITAL STORY: 18 Community Banks Have Converted to Microfinance Banks in the State of Kaduna Nigeria, Four Money Banks to Disburse USD 5.4 million in Agricultural Loans

In a report by AllAfrica.com, at the 2008 annual dinner of Bankers’ Clearing House Committee which was held at Hamdala Hotel Kaduna, Alhaji Mohammed Ibrahim Gusau, the Kaduna Branch Controller of the Central Bank of Nigeria (CBN) announced that 18 community banks in the state of Kaduna had already converted to microfinance banks and that as of January this year, 23 microfinance banks had been licensed or given approval-in-principle to operate.

Since 2006 Kaduna state has implemented a policy of promoting the conversion of community banks to microfinance banks. Despite the success of these conversions, the branch controller said, they are not enough to cover the entire state. He called upon wealthy individuals, community leaders, non governmental organizations and other interested parties to establish more microfinance banks in Kaduna state.

As recently reported on MicroCapital, the Nigerian Central Bank and state governments have been trying to increase the number of institutions offering microcredit, and to that end have introduced policies and legislation to promote the establishment of MFIs. Despite these efforts, a report on Microfinance Gateway contends that approximately 40 million Nigerian people are in need of microfinance services but currently less than 1 million people have access to these services. As highlighted by the MicroCapital report, a variety of issues have prevented the spread of microfinance services in Nigeria, including location of MFIs, competition, regulations, and religious beliefs. According to a separate newswire released on MicroCapital, interest rates of five to six percent per month (almost 80 percent annualized) are another challenge. Managing Director of Lifegate Microfinance Bank Ltd., Lanre Bamkole, attributed this mainly to a lack of funding, suggesting additional funds would both lower rates and extend loan tenures.

At the dinner, Mr. Gusau also announced that the state government of Kaduna has negotiated with four Money Deposit Banks which are expected to disburse USD 5.4 million in agricultural loans to farmers in the state. Of this amount, approximately USD 1.35 million will come from the state, an equal amount from the farmers, and the CBN will guarantee 75 percent of the remaining USD 2.7 million granted by the Money Deposit Banks, thereby limiting the banks exposure to only 12.5 percent of the total. The disbursement comes on the heels of an announcement, reported on MicroCapital, by the President of Nigeria, Umaru Musa Yar’Adua, approving a USD 1.35 billion agricultural fund to be disbursed to commercial farmers in Kano state at an interest rate of 9 percent. According to the Central Bank of Nigeria’s website, there are currently 794 Microfinance banks in Nigeria, and 24 Money Deposit Banks.

By Laura Anderson, Research Associate

Additional Resources:

Central Bank of Nigeria: Home, Lifegate Microfinance Bank Ltd.

AllAfrica.com: Nigeria: Kaduna Embraces Microfinance Policy

MicroCapital Story March 23, 2009: Nigerian President Umaru Musa Yar’Adua Declares Need for More Microfinance in Kano to Support a Newly-approved USD 1.35 billion Agricultural Fund

MicroCapital Story March 26, 2009: Royal Exchange PLC Gets Approval from Central Bank of Nigeria for Microfinance Bank

Microfinance Gateway: Home

Microfinance Gateway: “Microfinance in Nigeria and the Prospects of Introducing Its Islamic Version There in the Light of Selected Muslim Countries’ Experience” by A. Mohammed & Z. Hasan

MicroCapital Newswire, March 25, 2009: Nigeria: Cost of Funds and Interest Rates Affect Microfinance Institutions