December 1, 2011
As part of efforts to enhance the operations of microfinance banks (MFBs), the Nigeria Deposit Insurance Corporation (NDIC) Tuesday suggested mergers and acquisitions (M &As) option for operators in the sub-sector.
The corporation also advised operators to diligently work towards the implementation of the Revised Microfinance Policy and other reform initiatives that had been put in place by the regulators.
Director, Special Insured Institutions Department, NDIC, Mr. B. D Umar, made this call in a paper presented at a conference for journalists, organised by the corporation in Dutse, Jigawa.
Umar, whose speech was titled: “The Impact of Microfinance Sub-sector in Promoting Financial Inclusion in Nigeria,” also advised that the introduction of Differential Premium Assessment System (DPAS) in the sub-sector should be given priority attention.
He explained: “Mergers and acquisitions as opposed to outright liquidation should be encouraged in the sub-sector as obtains in other jurisdictions like Germany where no Cooperative Bank (equivalent of an MFB) has failed in the past 50 years). We were able to establish that so far, MFBs in Nigeria have generally performed sub optimally even if they are assailed by some operational challenges. We noted that the reform of the sub sector is currently receiving the priority attention of stakeholders particularly the Central Bank of Nigeria (CBN) and the NDIC so as to reposition it for enhanced service delivery.
“One of the reform initiatives is the recent revocation of the operating licences of some MFBs. The recent comprehensive review of the Microfinance Policy, which led to approval of the apex bank of a Revised Microfinance Policy is yet another major reform initiative.”
He pointed out that the skewed distribution of MFBs in Nigeria was capable of limiting access of a vast majority of the economically active poor to credit, even as he argued that in some part of the country where sizable numbers of MFBs were present, most of the institutions were located in urban places to the neglect of the rural areas because of pure profit making considerations
“Another challenge of the subsector is lack of relevant skills.
Microfinance banking is different from conventional banking. Microfinance banking involves the provision of financial services to the lower segment of the market. Microfinance banking, therefore, requires specialized skills which are presently lacking in the country.
“Many operators with community banking background still run their businesses as if they were community banks while quite a number of them also see themselves as competitors to Deposit Money Banks,” he added.