CBN sets N1bn capital base for micro-finance banks
Category: Investors NewsBeat
December 18, 2005/BusinessDay
The Central Bank of Nigeria (CBN) has set the minimum paid up capital for microfinance banks at the state level at N1 billion as it rolls out policy framework for the subsector.
Badejo Ademuyiwa, Abuja
The policy launched by President Olusegun Obasanjo also sets the minimum paid-up capital for this category of banks that will operate at local government level at N20 million a branch.
Equally, the policy has mandated the state and local governments to dedicate one percent of their yearly budgets to support lending activities of microfinance banks in favour of their residents.
With this new policy, all community banks operating in the country now have two years to raise their capital to either operate as a unit bank or at the state level.
Charles Soludo, CBN governor, at the public presentation of the policy, noted that it was prompted by the dissatisfaction of the government with the present situation in the country.
He expressed regrets over the low level of microcredit in the country and stated that microcredit as a proportion of Gross Domestic Product was only 0.2 per cent and as a proportion of total credit was only 0.9 percent.
\"Our vision is to be the hub for Africa and one of the leaders in the world. But our aggregate share of universal bank is still only 30 percent of the GDP,\" he said.
He acknowledged that the policy had the capacity to generate two million jobs yearly, adding that microfinance was the engine for poverty reduction.
\"The emphasis of the new policy is on coverage and serving the unserved. Sixty per cent of the micro credit must go to the unserved and the poor. You can start a microfinance bank with just N20million at the local government level,\" he said.
President Obasanjo while launching the new policy said it would ensure the coverage of more than 40 million economically active Nigerians that were not currently served by the existing formal financial system.
\"Let me restate governmentÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢s commitment to providing the enabling environment and support for effective and sustainable micro finance development in Nigeria.
\"The renewed emphasis on ensuring a stable macroeconomic environment is essential in order for all stakeholders of the Nigerian economy to have confidence and operate in a predictable environment,\" he said.
Obasanjo said credit or finance was the lubricant of every economy and asserted that any economy without a stable macroeconomic environment and a sound financial system couldnÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢t meet the needs of the nation in the contemporary global system.
While assuring that the government would continue to provide the enabling legal, macroeconomic and regulatory environment, he emphasized that much of the micro-level interventions should be at the state and local government levels.
\"It is important to stress that the new policy does not necessarily require states and local governments to set up their own micro finance bank. They should encourage their residents to set them up and run them as private banks.
\"One lesson we have learnt from past experience is that government is not an efficient provider of retail financial services. Politics often inevitably interferes with the operations of such institutions thereby leading to inefficiencies,\" he said.
For commercial banks, he said the policy was for governments to divest from them by the end of 2007.
He praised the CBN for its creative and innovative efforts in articulating the policy in order to assist governmentÃƒÆ’Ã†â€™Ãƒâ€ Ã¢â‚¬â„¢ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¡ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¬ÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â¢ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¦Ã‚Â¾ÃƒÆ’Ã¢â‚¬Å¡Ãƒâ€šÃ‚Â¢s employment generation and poverty reduction objectives.
The national coordinator of the National Poverty Eradication Programme, Magnus Kpakol, identified three principal challenges confronting the poor such as lack of access to capital, lack of information and lack of access to stable markets.
Microfinance, he said, would help the poor to become more involved in economic activity, thereby raising their level of well-being and prominence in society.
The microfinance policy seeks to create microfinance banks that will provide capital to the 65 percent unserved populace.
The launch was witnessed by dignitaries including the speaker of House of Representatives, Aminu Masari, governor of Katsina State, Umar Yar-Adua; Bayelsa State governor, Jonathan Goodluck and the Ebonyi State governor, Sam Egwu.