The Nigeria Deposit Insurance Corporation (NDIC) has blamed incessant failure of Microfinance banks in Nigeria on over-burden cost, insider abuse and fraud among others. It would be recalled that licenses of 154 Microfinance banks were revoked last year for insider abuse and failure in regulation exercise of the Central Bank of Nigeria (CBN).
According to the CBN, 62 of the Microfinance banks had already closed shops, 74 became insolvent, 12 were terminally distressed while six voluntarily liquidated.
However, at a recent Editors Forum, the Deputy Director (BED) Mrs O.O.Adeyinka lamented that the management and board of Microfinance bank spend above the means of Microfinance banks. For instance, she lamented that Microfinance banks are supposed to keep cost of operation very low since the size of shareholding capital and deposit from customers are very low. “The practice of these Microfinance banks is however contrary because most of them acquired properties that their banks will not be able to pay back the loan due to the size of their shareholdings capital and size of capital bigger and costlier than the corporate head office of the NDIC in Abuja,”
She added: “They rent office more than the size of NDIC HQ. The Managing director uses Prado jeep whereas they are supposed to acquire small properties and cars.”
Mrs Adeyinka added that some of the directors of Microfinance banks move around like managing director of commercial banks while the performance of these micro finance banks continue to nose dive.
“Most of these banks operate with no limit on size of loan to give their friends even though these loans are used to marry new wives and buy new clothes for social events at the expense of the bank without proper due diligence,” she said.
According to the Director, the CBN has appropriately laid down rules for the sector, but most operators deviated from the rules.
The rules of the CBN state that the clients of Microfinance should be an ordinary people on the streets who need little money to do business.
“The loan should be for the active poor. I mean for people into small business of selling pepper, tomatoes and other petty trades.”
“According to the CBN rules, loans to an individual should not go beyond N500,000 and Asha model ensures that those who borrow money are monitored. We must ensure that the loan is used strictly for the purpose for which it is borrowed and attempt to divert such loan requires the lender’s advice,” she said.
She urged operators to stop giving huge loans to individuals, because such loans could affect their shareholders’ funds and lead to bad debt.
However, investigation reveals that 860 out of about 890 microfinance banks in the country are struggling to survive because majority of them operate on a high scale.
The Director urges editors and customers to send petitions to the NDIC and CBN to check excesses of Microfinance bank operators and genuine customers willing to take advantage of Microfinance to grow their businesses. This, she said will also help to avoid failure and boost confidence of small and medium enterprises (SMEs)