Chairman of the Enugu-based fast growing and popular microfinance bank in the country, Umuchinemere Pro-credit Micro Finance Bank Nigeria Limited (UPMfB), Rev. Prof. Obiora Francis Ike, a Monsignor of the Catholic Church who is intellectually equipped in economics and finance management and was a onetime Vicar General of the Roman Catholic Diocese of Enugu spoke in an interview on some recent developments in the country's money market.
Below is the excerpt of the interview he granted UP-MFB's newsletter's (The Listener) editor, ABUCHI ANUEYIAGU, KSj:
Abuchi Anueyiagu: What is your opinion about the new recapitalization policy of the CBN for microfinance banks in Nigeria? What do you think will be the impact of this new policy on microfinance banks?
Msgr. Ike: The Central Bank of Nigeria is the principal regulator of the economy. It is also the apex bank. The Central Bank oversees the entire financial programme of a country and tries to make sure that stability of both the market of the finances and also of the planning of the domestic product of the inflation rate that they are guaranteed.
If banks take public fund, they must have enough equity of the promoters of such a bank to take public fund. If banks take public funds and they don't have enough equity, then they will use depositors' fund to settle bank's business, which is wrong. It is not acceptable. And it leads therefore to the wrong things being done in the market economy.
Therefore, the CBN's guidelines, both for the microfinance banks and also for the universal banks seem reasonable, especially the one that concerns microfinance banks. They should have enough equity, so that when people ask for money they can give loans. And when people ask for their funds they can pay back their funds. And when there is crisis their shareholding portfolio is able to douse it.
If the CBN governor says microfinance banks your N20 million shareholding should increase to Nl00m, I think it's something reasonable, except that one must distinguish microfinance banks in the villages and microfinance banks in the city. Microfinance banks in the villages don't have that kind of money, and this is where the business actually is.
Therefore, there must be a method, and I think the CBN should be told this: to look at microfinance banks in the rural areas and ask them to stay on
N20 million or highest N40 million. But microfinance bank in the major cities can go on N100 million. Otherwise all the microfinance banks in many rural areas will close, and that will be a catastrophe for the access to funds of people in rural areas who do not have funds. The big monies are not fund in the villages.
There you find the yams, the goats, the potatoes, the rice. What we all have in the cities is the cash. So cash must go from the cities to the villages to transform the villages so that food will come from the villages to the townships. That's all microfinance bank is all about.
I am sure the CBN is already thinking along this line. I have information that they would do a varied rural equity and then city equity, which makes it a little beat more touchable. And then you have the economy, you have the market to grow.
The overall policy guideline is in order but one must do a differential to enable people live at various levels. Just like the universal banks are now being watered down. Not every big bank must be a universal bank. They can be regional. They can be Islamic. They can be Merchant banks and so on. So, one should think the same also of microfinance bank.
Abuchi Anueyiagu: What is your assessment of the microfinance banking system in Nigeria so far since its introduction in 2007?
Msgr. Ike: You may have a good policy, and the microfinance bank policy is a good one, but you also need the Germans the context. The contest is market stability, which does not exist: fluctuation, inflation, deflation, scarcity of goods, joblessness, the financial market crisis, the melt down, the global environment, the lack of energy. This is the environment where a microfinance policy is supposed to operate.
If a simple person takes a loan from the bank and wants to establish a business that needs electricity and there's no electricity, the business is already planned to fail even before it has started. What must march the policy is the environment, the action plan. You might say the critical things that make the economy balance up and work. The only good example of this I would give of the success of the microfinance bank policy is the Umuchinemere Microfinance Bank.
One looking at this bank sees a bank that was not capitalized enough but has become not only capitalized but has even gotten approval to be capitalized from the Corporate Affairs Commission to one billion naira, even though it was operating just as a unit microfinance bank with
N20 million: A bank that has grown its customer base to over 50,000 clients; a bank that has an asset base of over N1.6 billion; and about that intends to spread and is already doing customer relations offices in rural outlets.
This is a good success story of a microfinance bank in Nigeria, but I do know that some are not doing well. Plus minus, it was important for the microfinance policy to be put in place as it was important for the CBN to guide it, except that the distance between the CBN and microfinance banks is very large. One must be thinking seriously moving forward of an agency that will act on behalf of the CBN to monitor the microfinance banks. This is very critical.
Abuchi Anueyiagu: What is your opinion on the coming into place of Asset Management Corporation of Nigeria (AMCON) and its impact on banking?
Msgr. Ike: The promoters of the Bill did a lot of work to have got it through legislation process and to presidential assent. It went through a long process, from mutation of the idea to signing into land of the bill.
So one must look at the AMCON as a welcome development. It helps banks to set off their toxic loans for credit and they can continue their business and wipe it off; and they are not bound and they won't go under immediately.
Abuchi Anueyiagu (Interjection): So, it's a welcome development for microfinance banks?
Msgr. Ike: Of course, microfinance banks are financial institutions. They can go to the AMCON but they must do their homework well because to go to AMCON is for one to package one's goods properly. And this is again where microfinance banks don't have all the capacity.
Nonetheless, it is the right thing to do to ensure that failed assets within a bank's business is off set in an asset management company that buys it off, and recoups that bank with capital to continue to do its business. And it is the responsibility of government to make sure that those things happen. In the United States of America where President Barack Obama in the last week of July 2010 established very huge and mighty financial restructuring programme that will affect every aspect of the market of the banking industry in the United States of America, on the background of consumer protection.
Banks are about services. Banks are about financial distribution of the goods of a nation. They playa very critical role and must be guided and encouraged to make good profits, but to give back to the society. This is what AMCON is going to do. And this is what nations that are wise try to ensure that the regulator is not compromised.
Once the regulator is compromised then you have insider dealings, which don't help. The regulator must be completely out and then work from outside to encourage and build up the environment. But the regulator must be well paid so that they don't fall into the temptation of having to hanky panky. Nigeria has reached a stage whereby we cannot continue to allow business as usual. That era has gone. Right the Assets Management Company gives us an ambience where business is done business-like.
I think it is a very good law, and President Jonathan should have a lot of role to play to see that excesses are avoided, even the management staff that will be put in place that they are controllable and are people with a certain respect, track record and who can give the required result for the overall common good of Nigeria.
Abuchi Anueyiagu: Sometime ago you called for establishment of a separate clearing house for microfinance banks and the call was not heeded even till date. Are you now going to follow up the matter with an affirmative action?
Msgr. Ike: The thing about banking is that when the Community Banks started In 1994 1995, a national Board for Community Banks was set up to look after the interests of Community Banks, while the CBN looked after the interests of the conventional banks.
When in year 2005 the microfinance policy was brought out, the microfinance policy tried to put Community, microfinance and universal banks under the CBN. The difficulty is that Community Banks, now microfinance banks, do not go to clearing directly. They must go through correspondence banks, and correspondence banks do not treat them well. They become just avenues to get their deposits. They do the work at the grassroots the correspondence banks just come to collect the money from them.
I don't see why a government cannot decentralize, why a Central Bank of Nigeria cannot decentralize doing the big things and allowing competence at the subsidiary level of those who have competence and authority to manage it. It's hightime they made it clear that microfinance banks could and should be allowed to go through a Clearing House that is nearer to them. And that Clearing House is subject to the Central Bank.
But for the microfinance banks to go to the Central Bank through their correspondence banks is for them to have that long difficulty because many universal banks discriminate against microfinance banks. We have reached a stage where the Central Bank of Nigeria should think efficiency and some ground work and find out how effective it is from apex, whether it will not be better to have middle institutions that control the microfinance banks.
A Clearing House for the microfinance banks makes business faster, easier, gives the microfinance banks authority and helps them to sign their cheques, pay their cheques, do all their e-payments and convert to an e-environment in the world in which we find ourselves.
So, it is very important that the Central Bank of Nigeria as it continues to reform the entire banking sector put these areas we have touched into consideration. CBN is doing a very good job, but is can do better.
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