CBN grassroots fund disbursement: How secure are Microfinance Banks?
By Matthew Denis, Abuja
The President Muhammadu Buhari-led government in a bid to reduce the unemployment rate and to improve the standard of living has taken cognizance of the people at the base of the pyramid or grassroots through various employment/empowerment programmes running into billions of Naira in the last five years.
Some of these initiatives and programmes include the N-Power Scheme, N-Agro, Tradermoni, Farmers Moni, Market Moni, N75 Billion Nigerian Youths Investment Funds (NYiF), Youths Entrepreneurship Support Programme (Yes-P),Public Works Scheme, Fashion and Beauty Sector funds, Anchor Borrowers Scheme, Covid 19 Support Grant, among others.
Most of these government interventions are being coordinated by the Central Bank of Nigeria, Small and Medium Development Agency of Nigeria (SMEDAN), Federal Ministry of Youths and Sports among other MDAs.
The feedbacks from the beneficiaries these programmes have become a bone of contention, as data has indicated that most of the empowerment doesn’t reach the people at the grassroots level. And this submission has led into a lot of contemplation by the CBN and other stakeholders who are suggesting for platforms to use in the disbursement of these funds to the grassroots, for which the Microfinance Banks have an advantage considering their wide coverage nationwide.
A critical focus on the laws establishing microfinance banks by the Apex bank speaks volumes on the primary needs of touching the grassroots people through deposits, loans support to carry out their petty businesses. Let us unveil the strength and categories of Microfinance Banks in accordance with CBN directive below:
Obtaining a Microfinance Bank (MFB) license in Nigeria depends on the category of microfinance bank one seeks to operate. Regulated by the Central Bank of Nigeria (CBN), the setting up of a microfinance bank must be in absolute compliance with the principles provided for by the CBN as all financial institutions seeking operations in Nigeria must be licensed by the CBN.
Essentially, there are three major categories of microfinance bank licenses in Nigeria. The categories of MFB in Nigeria and financial requirements for set up are as follows:
UNIT MICROFINANCE BANK
This is a type of microfinance bank having authorization in one location. It is restricted from having any other branch. The minimum capital requirement for this category of MFB is N200,000,000 (Two Hundred Million Naira).
STATE MICROFINANCE BANKS
A State microfinance bank is one having a single state authorization or that of the Federal Capital Territory (FCT). The CBN via its written approval allows for the opening of various branches within that particular state, or within the Federal Capital Territory (FCT).
However, a State Microfinance Bank is not allowed to open more than two branches within the same Local Government Area (LGA) unless it has established at least one branch or cash centre in every LGA of the State.
The minimum capital requirement for this category of MFB is N1,000,000,000 (One Billion Naira).
NATIONAL MICROFINANCE BANK
This is one having more than one state authorization inclusive of the Federal Capital Territory (FCT). The CBN restricts their operation to not more than (10) branches.
The minimum capital requirement for this category of MFB is N5,000,000,000 (Five Billion Naira).
It is important to note that the minimum capital requirements of the three categories are subject to timely review by the Central Bank of Nigeria.
The procedure for obtaining an MFB license are as follows:
- A formal application is made to the Governor of the Central Bank of Nigeria indicating the exact category of Microfinance Bank to be established.
The application must be accompanied by the following documents:
Non-refundable application fee of N50,000, N100,000 and N250,000 for Unit, State and National MFBs respectively in bank drafts or e-payment, in favour of the Central Bank of Nigeria;
The deposit of the minimum capital requirement for the relevant category of MFB, which shall be made through e-payment into the MFB Share Capital Deposit Escrow Account with the CBN. The capital deposited together with the accrued interest shall be released to the promoters after the grant of a license
Satisfactory, verifiable and acceptable evidence of payment by the proposed shareholders of the minimum capital requirement for the category of the license being applied for; including a personal statement that capital does not originate from bank credit, any form of credit, questionable sources and any activity that relates to money laundering or any illicit activity;
Certificate of capital importation issued by an authorized dealer [banks] in the case of foreign capital;
A copy of a detailed feasibility report;
A copy of the draft Memorandum and Articles of Association;
A letter of intent to subscribe and pay for the shares of the proposed microfinance bank, which is to be signed by each subscriber;
List of promoters or proposed shareholders in a tabular form, showing their business and residential addresses, as well as the names and addresses of their bankers;
Particulars of the proposed board of directors;
The CBN before granting a license considers the following:
The promoters and the proposed management team are approved persons to invest in and manage the financial services industry in Nigeria by regulatory standards;
Whether the promoters have submitted the names, curriculum vitae and credentials of the top management team of the proposed MFB.
The minimum paid-up capital of the shareholders’ funds of the relevant category being applied for is acceptable and the source is verifiable and found satisfactory to the CBN;
The quality of the management of the proposed MFB is sound.
The earnings prospect of the company is realizable.
The objects of the company as disclosed in its Memorandum and Articles of Association agree with the permissible activities listed.
- The CBN reviews the application and the accompanying documents within three months to determine if an Approval in Principle (AIP) would be granted. Where satisfied, an AIP is granted. However, an AIP does not translate to a license as it is merely required for the incorporation of the MFB at the Corporate Affairs Commission (CAC).
- After the incorporation process is satisfactorily completed, a final operating license is granted.
- Following the grant of a final operating license, the CBN conducts a physical inspection of the premises before the MFB can begin operations.
- Upon a satisfactory physical inspection of the premises, the CBN shall in writing inform the MFB when it may commence business and the MFB must also inform the CBN in writing of the date the business is commenced.
It is noteworthy that where the CBN declines in granting a license, the decision would be communicated to the promoter(s) in writing followed by a refund of capital deposit.
In conclusion, anyone interested in setting up a microfinance bank in Nigeria must tread carefully, be competent and professional, as the CBN reserves the right to supervise, regulate or even withdraw the license of a registered MFB in line with the power confers on it by the Banks and Financial Institutions Act 2020.
The just concluded Chartered Institute of Bankers of Nigeria (CIBN) 24th Conference in Abuja had captured several intellectuals and stakeholders from the banking and financial sectors with one of their objectives of ensuring how financial services can penetrate to grassroots people and the platform to use.
Specifically, one of the participant from the money deposit Banks accused the CBN of neglecting the microfinance banks in terms of depositing money with them to empower people at grassroots considering their wide range operations across the states and local councils in the federation. A Director of CBN (Name withheld) at the function addressed the accusation by arguing that most of the people at grassroots don’t have a microfinance banks close to them and questioned how Secure and Safe are these banks which birthed the topic of our discussion here.
Centralizing the argument of discussion ‘ How Secure and Safe are microfinance banks’ to me the answer still lies with the apex bank saddled with the sole responsibility of issuing operational licence to this category of banking. The CBN conducts a strict supervision and monitors the physical structures of microfinance banks and internally operations before approving their activities. Therefore, it cannot make a U-turn to question their capacity and reliabilty to handle such tasks disbursing funds to grassrooters.
When Nigerian NewsDirect contacted the President of National Association of Microfinance Banks (NAMB), Alhaji Yusuf Ahmed Gyallesu on how prepared, secured and safe, if CBN should start using their banks for disbursement of funds to people at grassroots, He said, “ First of all, for the government to achieve their target, CBN must channel the funds through Microfinance Banks.
“We are closest to the grassroots. They are already our customers and so we are the best channels to be used to reach out to them. Of course, it is only selected solid Microfinance Banks that should be used. We are scattered all over the country and are readily available to partner with CBN to do the disbursements. CBN licensed us to deal and support the grassroots.”
Data from the CBN recently pointed out that there are over 900 microfinance banks in the country with state, regional, and national licenses which is a clear indication that this Sector of the economy is the best platform to use as regards cash disbursement to the community people.
The Microfinance Banks in Nigeria recorded an 82% boost in lending rising from N300.2 billion in 2019 to N546.6 billion in 2020. This is according to the latest data from the National Bureau of Statistics. As of 2018, total microfinance loans to the private sector was just N250 billion. This has now doubled in two years due to improved technology, easier processing of loans, better loan recovery methods, increased competition, and a growing class of employees with an appetite for short-term credit.
This is the clearest confirmation yet that this is the fastest-growing credit segment in the financial lending space. Microfinance banks have led the charge on consumer loans in the last three years extending credit to the risky retail end of the market which has for years being ignored by commercial banks.
These sectors in the banking industry like the Commercial and merchant banks on the other hand recorded a 12.4% increase in credit to the private sector while Primary Mortgage Banks recorded a 35.1% increase. Non-interest banks such as Islamic banking recorded a 57.9% spike in lending.
At this juncture, it is pertinent to note that the issue of safety of and Security of Microfinance in terms of inflow of cash will be determine by the CBN through its beamlight on their operations with a coordinated level of partnership considering the fact that some MFBs are stronger than others.
Ultimately, the Federal Government through the CBN and other MDAs can boost the economy through disbursement of funds into the Microfinance Banks Sector as the only option to ensure that funds reach the grassroots people in terms of empowerment than using individuals who are dubious and don’t have records to show after the exercises.
