MICROCAPITAL STORY: Central Bank of Nigeria Warns of Mission Drifting by Microfinance Institutions

At a seminar for Finance Correspondents and Business Editors, the Central Bank of Nigeria (CBN) said it was worried about microfinance banks (MFBs) drifting from their core functions. The CBN also expressed concern about the distribution of MFBs in the country and the lack of functional support institutions.

The Head of the CBN’s Microfinance Division, Mr. Joes Alegieuno stated “Some of the microfinance banks, due to ignorance of the operating guidelines and lack of skilled manpower, are already derailing from their functions. Consequently, copious mission drifts have been observed in the service delivery models being adopted by most licensed and converted MFBs, as they are currently running their shops as if they were mini conventional/universal banks.”

Regarding the distribution of MFBs, there is greater penetration in the south, leading to concerns about the outreach in the north. For instance, out of the 716 Nigerian MFBs, 282 are located in the South West zone, 169 in the South East zone, and 106 in the South South zone. Whereas in the North, there are 78 in the North Central zone, 48 in the North West zone, and only 33 in the North East zone.

The dearth of skilled personnel with the appropriate experience in the sector is a trend mentioned often across the microfinance industry. The CBN’s policy stipulates that bank management and board of directors have the prescribed educational qualifications as well as relevant banking or related experience. However, many of the top MFB management do not have practical microfinance banking experience. The CBN believes this hampers their supervisory functions in the management of the banks.

Another challenge to the CBN’s microfinance policy is ignorance on the part of both MFBs and the CBN. On the MFB side, there is an ignorance of operating guidelines, such that 9 out of the 36 MFIs in a recent CBN survey had the minimum capital requirement of N 20 million (roughly USD 169,671) for MFB licensing but had not applied for licensing due to ignorance of the procedures and incentives. On the other side, the CBN lacks general information about microfinance institutions (MFIs) such as the type of services offered, the number of clients, as well as the amount of loans and savings.

Recently, the Lagos State Government in Nigeria also announced a new microfinance bill, which requires all local governments in the state to contribute at least 1 percent of their allocations to MFB operations. Further details of this government regulation can be found in the following MicroCapital article. Also, as noted by MicroCapital earlier this year, the Nigerian Government also launched a USD 426 million microcredit development fund, administered by the CBN.

by Jennifer Lee

Additional Resources:

AllAfrica.com: “Nigeria: Microfinance Banks are Derailing From Core Functions”, by Babajide Komolafe, April 30, 2008.

Central Bank of Nigeria: Home

MicroCapital Story: “The Lagos State Government (LSG) in Nigeria Announces New Microfinance Legislation”, by Anthony Busch, April, 29, 2008.

MicroCapital Story: “Nigerian Government Creates a $426m Microcredit Development Fund”, by Jake Keller, February 22, 2008.