The Central Bank of Nigeria has berated the lending institutions for not being cooperative enough in the Federal Government’s efforts to make cheap loans accessible to those who actually need them.
The apex bank decried the Federal Government had on several occasions made funds available to the lending institutions to be disbursed to small and medium scale enterprises at single-digit interest rates but the banks would either not lend out the funds or make such available at double-digit interest rates.
The Central Bank Governor, Godwin Emefiele, worried that there were many funds targeted at smallholder farmers as well as those who were into Small and Medium Enterprises in Nigeria because the funds were not accessible.
He said, “In the Central Bank, we have under the Commercial Agricultural Credit Loans Scheme N200bn set aside for SMEs. Under the central bank and the bankers’ committee, we currently have close to N60bn available to fund agriculture and small businesses and yet these monies are lying there and not being disbursed.”
He added that more people needed to access the funds and create jobs in the economy.
Emefiele said that the outrageous interest rates microfinance banks in the country were charging would not support the Federal Government’s loans aimed at stimulating local production and boosting non-oil export.
To address some of these challenges, he said the bank decided to establish the National Microfinance Bank to create better access to credit.
During the recent Bankers Committee meeting in Lagos, Emefiele disclosed CBN’s plan to start the National Microfinance Bank.
He explained that it would collaborate with the Bankers’ Committee and the Nigerian Postal Service under the initiative.
Emefiele said the national MFB would leverage on the existing NIPOST presence in about 774 areas in the country to commence the project.
While buttressing the essence of the national MFB, he said, “That was why we voted at bankers’ dinner, that a National Microfinance Bank would kick off by January 2019. In order to collectively address the concerned challenges militating against the achievement of the objective of the initiative, the CBN is considering the proposal for the establishment of the national microfinance bank which would leverage the Nigerian postal service presence in 774 local government areas across the country.”
“We have called on NIPOST and they have agreed to join us in this. They would provide their facilities in 774 local governments and this would be their own contribution by way of equity into the establishment of the national MFB. We would provide the infrastructure and this MFB would be available in 774 local government across the nation.”
Emefiele said the proposed MFB would be expected to engage in strategic partnership with NIPOST because of its many locations, while the NIRSAL, which is owned by the CBN, would be expected to bring its experience in financing low-income entrepreneurs and de-risking credit originated by the national MFB by providing guarantee in line with its mandate.
While explaining the duties of the microfinance banks, the Managing Director/Chief Executive Officer, Accion Microfinance Bank, Taiwo Joda, said that they were driven by the mission to eradicate poverty or minimise vulnerabilities to those communities or people that were less endowed.
He said, “They do this by providing financial services in form of loans, savings and money transfer services. These are enablers to the poorer communities to expand their businesses and also enable them to take advantage of livelihood enhancing opportunities as a result of having access to capital or being able to manage their money more wisely.”
While speaking on how to access loans, he said it was not as difficult as getting loans from the Deposit Money Banks.
He said, “Before now, to get a loan from a bank, one required to be able to prepare a Harvard University-like business proposal. This required presentation of certified audited accounts, opening an account and running it for a period of not less than six months.
“The type of client targeted by microfinance institutions usually doesn’t have that type of cash flow. Their income is irregular and at times unpredictable. Lastly, they don’t have the kind of securities that are required by the mainstream banks.
“What microfinance has done to ease access is to demystify the loan origination transaction burden for their clients. The loan appraisal methodologies employed are largely based on character and peer pressure that reduce the transaction and psychological costs for a microfinance borrower.”
According to him, there is a minimum documentation used by prospective clients to access the loans.
He said that microfinance institutions mostly use peer pressure or guarantors as alternatives to collateral requirements for loan security such as buildings and land.
The most important aspect here is to provide an opportunity for the entrepreneurial spirit at the bottom of the pyramid to flourish by a boost of a given amount of capital, he noted.
The managing director observed that there was a low or lack of awareness of microfinance banks and financial education among the potential customers who were mostly the active poor living in rural areas.