MICROCAPITAL STORY: PS Microfinance Bank in Nigeria Exposed as Unlicensed and Fake, Bank Closes Operations Abruptly, Several Depositors Lose Huge Amounts of Money

Nigeria based PS Microfinance Bank Limited has closed operations abruptly, leading to heavy financial loses for several of its depositors, as per a press release on The Guardian – Nigeria. According to the release, the bank collected money from ‘almost every trader’ in the Akute area in Nigeria with the promise of providing attractive loans. Following the collection of money, the bank officials are said to have closed down not only their rental office in the Akute region but also their head office in the Ogba region of Nigeria. Officials of the bank have reportedly ‘gone into hiding’ and have been unreachable to both their clients and the press. As stated, the victims of the bank’s fraudulent activities are mostly traders including several women and the total loss for the depositors is estimated to be in the range of millions of Naira; an exact figure of the total amount defrauded by the bank is not currently available. Presently, PS Microfinance Bank does not maintain a web presence nor does it appear to report to MIX, the microfinance information clearinghouse; it is however unclear if a website was in fact existent for the bank prior to its closure.

The Other Financial Institutions Department (OFID) of the Central Bank of Nigeria (CBN) in Lagos, which handles the supervision of community banks (CBs), primary mortgage institutions (PMIs) finance companies (FCs) and development finance institutions (DFIs), has revealed that PS Microfinance ‘neither applied for a microfinance bank license nor was listed as one of such’. The Bank also does not figure in the directory of microfinance banks in the Nigerian region – as of now, totaling 796 – released by the CBN. Commenting on the issue of the fraudulent MFI, an unidentified senior official of the OFID, stated that CBN would ‘do the needful by addressing the issue’. In response to a query on why the CBN failed to come up with adequate preventive measures and avert the issue, the unidentified official declared that it was the ‘expectation of the department that customers would do due diligence before entering into a contract with any microfinance bank’. Elaborating further, he said that prior to transacting with a bank, customers had to necessarily request for the bank’s license (which is statutorily required to be hung in the banking hall of every CBN approved microfinance institution). It is revealed that the official declined comments on the possibility of such documents being forged by fraudulent organizations.

No information is available on the founders, the date of establishment, the financials or past performance of the bank. The limited information that is available indicates that there had been some disagreement between the Managing Director of the Bank and its Chairman over the case of embezzlement of funds collected from contributors. Although not much is known about its management, it is indicated that operations in the head office were run by two managers, a man and a woman, with a ‘lot of staff working with them’. Unidentified sources in the release reveal that officials of the bank were last seen nearly a month ago; however depositors of the bank are reportedly still queuing outside the empty offices of the MFI in efforts to get back their money. The release quotes once such victim as follows: ‘…and because everybody knew their [PS Microfinance Ltd.] office, people were contributing daily…. At a point they [officials of PS Microfinance Ltd.] were coming everyday, but suddenly they stopped coming for a week. When I tried the mobile number they gave me, they were not picking up the calls’. The release cites most marketers of the bank also to be unreachable. However, one of the two marketers who were reachable was quoted as saying that if they had had prior information on PS Microfinance’s dealings, then they would ‘have let [their] customers know about the development before it went out of hand’.

The Sub-Saharan region of Africa, which also houses Nigeria, has had quite a few struggles with fraudulent MFIs in the recent past. Rwanda, Benin and Uganda are some of the other countries in the region forced to tackle fraudulent activities in their microfinance sector. MicroCapital has extensively covered the issues tackled by these countries; please look up these links for more information on each region: Rwanda, Benin and Uganda. In the case of Nigeria, aside of issues due to corruption on the part of the lenders/ MFIs, the country has also had to face issues from loan borrowers. In March 2009, the Government of the Anambra State in Nigeria had initiated moves to prosecute several farmers who had defaulted in the repayment of microcredit loans given to them by the government. The Anambra State Government had given NGN 150 million (USD 1 million) worth of loans to some 2,339 farmers in the form of revolving loans, which several farmers reportedly refused to re-pay. For more information on this story, please look up this MicroCapital feature.

Overall, Nigeria is currently ranked among the 25 poorest developing countries of the world in terms of standard of living, life expectancy and literacy, according to the 2008 Human Development survey of the United Nations. Despite efforts by the Nigerian government, NGOs, and microfinance institutions to increase the country’s number of institutions offering microcredit, nearly 79 percent of the adult population is unbanked which includes 85 percent of unbanked adult females. 53 percent of the adult population in Nigeria is still financially excluded with no access to either formal or informal financial services. MicroCapital has extensively covered the Nigerian region; please look up here for an exhaustive list of all our features on Nigeria.

By Bharathi Ram, Research Assistant

Additional Resources:

The Guardian – Nigeria: Lagos Traders Lose Millions of Naira to Fake Microfinance Bank

MicroCapital Story: Nigerian Government to Prosecute Microcredit Loan Defaulters in Anambra

MicroCapital Story: Only 12 of 36 States Contribute to Microfinance Activities in Nigeria

United Nations Development Program (UNDP): Human Development Survey

Central Bank of Nigeria (CBN): Home, List of Microfinance Institutions