CBN Decries Lack of Proper Understanding of Concept, Best Practice by MFBs

The Central Bank of Nigeria (CBN) has cited a complete lack of understanding of the ideal and methods for operating micro-finance banks, in the process of reviewing the licenses of some micro-finance banks in the country.
Dr. Kingsley Muoghalu, deputy governor, Financial Sector Stability stated this at the maiden Micro-finance Certification Training Programme of Operators of Micro-finance banks, organised by the CBN in conjunction with the Nigeria Deposit Insurance Corporation (NDIC) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), in Abuja.
Muoghalu said the collapse of some micro-finance institutions in the country was attributable to poor corporate governance, non-adherence to best practice and ownership problems.
He explained that, “In the course of on-site and off-site supervision of the micro-finance banks, so many issues bordering on corporate governance, adherence to best practice and ownership problems were identified.
He added that the banks had performed poorly due to lack of proper understanding of the micro-finance concept, method and best practice, and lack of proper orientation on how to deliver micro-finance services.
Other challenges faced by micro-finance bank operators, he added, include poor understanding of the provisions of the guidelines of the micro-finance policy and regulatory framework, and high rate of non-performing director-related facilities.
“Some of the directors, our investigations have shown, have over-bearing influence on management staff, who themselves lack relevant skills and knowledge in various micro-finance lending models and operational service delivery models.”
Muoghalu further revealed that the micro-finance banks lost focus and became too ambitious, which led them to attempt to operate as universal banks. He also linked absence of appropriate internal capacity building strategy, poor risk management procedures and internal control measures as some reasons behind the failure of the banks.
He stated that the CBN had successfully organised an interim capacity building workshop for key management staff of the MFBs in September, 2008, and for non-executive directors in November of the same year.
“We had stated then that the interim workshop was a fore-runner of this comprehensive certification programme, which was initiated to create a pool of skilled manpower for the sub-sector,” he noted.
Meanwhile, Muhammad Nadada Umar, director general of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), has stressed that the country would not be able to achieve the Millennium Development Goals (MDGs) and Vision 202020, unless the micro-finance sub-sector is strengthened and restructured.
According to him, “It goes without saying that micro-finance is the last hope of the low-income entrepreneurs and the economically active poor who cannot meet the lending conditions of the commercial institutions.”
He added that, “Micro-finance services are also an essential tool required by us if we achieve the MDGs and Vision 202020. Nigeria needs to make a success of our MFB system like other developing countries like India, Bangladesh and Latin American countries.”
Umar further noted that microfinance was very critical in achieving the mandate of SMEDAN because it is the lifeline of micro, small and medium enterprises (MSME) financing.