…lauds CBN on interventions

The Board of Trustees of the National Association of Microfinance Banks (NAMB) has called on the monetary authorities to extend the time for Microfinance Banks (MFBs) in the country to meet the revised minimum capital requirements for MFBs in the country. The Board hinged its appeal on sundry micro and macroeconomic factors, particularly the disruptions caused by the ravaging COVID-19 pandemic globally, noting that it is obvious that the near total lock down of various economies and its impact on several fund-raising activities of the MFBs has negatively affected the ability of Microfinance Banks in the country to meet the new minimum capital requirements. This is even as it appealed to the monetary authorities for a N50 billion intervention fund for MFBs which will be disbursed to small businesses and tailored specifically as working capital loans for three years tenure at affordable interest rates.

In a statement jointly signed by the Chairman of the Board of Trustees, Mallam Ibrahim Bamalli and Secretary, Dr. Dan Ogun, at the end of the Board’s meeting last weekend, indicated that the pandemic had caused so many programmes and activities in the global economic space to be shifted or cancelled and thereby disorganizing business plans and growth projections.

For example, it cited the postponement of the African Financial Services Investment Conference (AFSIC) 2020, a very popular meet of investors for African Financial Services providers till 2021 as one of such programmes, adding that several other scheduled meetings and events that support capital raising for the microfinance subsector have been rescheduled. The Board stated: “It is on this ground that NAMB appeals to the CBN to grant an extension of time till the year 2023 for Microfinance Banks in Nigeria to meet the new capital requirements.

This indeed will be a strong palliative measure towards the survival and sustainability of the microfinance subsector. We believe that this will be a more sustainable operational and risk management business model.” Even then, NAMB’s Board described as a desirable development the recent interventions of the Central Bank of Nigeria and the palliative measures announced by it to reflate the economy.

It noted that the palliative measures were intended to address the negative and adverse consequences of the COVID-19 pandemic and the situation it creates to key sectors of the economy, including the impact on the Micro Small and Medium Enterprises (MSMEs), the key drivers of the nation’s microeconomic development. The Board drew the attention of the CBN to the fact that microentrepreneurs and small businesses would be most affected in the possible economic lockdown that the raging COVID-19 pandemic may create given that the active poor and most vulnerable persons in our economy are found in the MSMEs subsector.

It therefore solicited a special intervention for MSMEs through some palliative actions to support the microfinance banks with a view to enabling them discharge their financial intermediation roles in the sub sector and by implication, improving the MFBs contributions to the nation’s GDP growth.

While noting the impact of past recession on the nation’s economy and steps taken to mitigate the impact generally, the NAMB Board pointed out that in order to ensure financial and economic stability, an intervention in form of working capital loans/funding should be provided to small businesses to prevent them eroding their equity capital and insulate them from the negative impact of the COVID-19 on the economy.

The Board stated: “We believe that the perfect conduit to channel such intervention funds would be the MFBs currently servicing this sector. We therefore ask that a N50 Billion Intervention fund be provided to MFBs to be disbursed to small businesses, tailored specifically as working capital loans. The tenure would be for 3 years at affordable interest rates. “To ensure adequate outreach across the country, we propose a breakdown of allocation as follows: Tier-2 Unit MFBs – N50 million each; Tier-1 Unit MFBs – N250 million each; State MFBs – N500 million each; and National MFBs – N1 billion each”, the Board advocated.

On the issue of forbearance in terms of Asset Classification for PAR, the association also charged the apex bank to consider an amendment in the provisions for classified risk assets and possibly align it with the commercial banks provision requirements for SME short- and long-term loans.

Read more: https://www.dailytrust.com.ng/namb-seeks-2023-recapitalization-deadline-for-mfbs-n50bn-support.html

The House of Representatives advised the Central Bank of Nigeria (CBN) to suspend the recapitalisation of microfinance banks in the country.

How we got here?¿
In October 2018, CBN reviewed the minimum share capital requirement of the three categories of microfinance banks in the country, with unit MFBs required to raise their capital base from N20 million to N200 million, state MFBs from N100 million to N1 billion and national MFBs from N2 billion to N5 billion.
On March 18, 2019, the banking sector watchdog further reviewed the minimum capital requirements for the MFBs, allowing for instalment payment and categorization of unit MFBs into tiers 1 and 2, thus following the new capital requirement guideline, tier 1 MFBs (urban) were to pay N200 million as a minimum capital requirement while tier 2 (rural) were to pay N50 million as against the initial N20 million requirement in 2018.
In 2020, due to the impact of the COVID–19 pandemic on the economy, the CBN, therefore, revised the timeline for compliance with the minimum capital requirement for the MFBs by one year, which will be due by April 30, 2021.
The green chamber of the parliament while deliberating on the matter on Wednesday, warned that if the policy is allowed to take effect as planned for April 2021, it could further sink the nation’s economy.

They asserted that out of the 874 licensed microfinance banks in Nigeria, only 262 of them have met the new minimum capital base requirement, indicating that 612 MFBs, which is equivalent to 70 per cent of the entire Nigerian MFBs, would go out of business and could throw about 44,800 employees of the companies into the already oversaturated labour market, which will then aggravate unemployment.

During the plenary the lawmakers said the COVID-19 pandemic had a negative impact on the country’s economy last year, which pushed Nigeria into a recession and it would be unwise to allow the recapitalisation programme to further compound the woes of the nation.

The house enjoined the CBN to “suspend the planned recapitalisation program until the economy stabilizes and considered safe for a new deadline to be fixed.”
It then mandated its “Committee on Banking and Currency to interface with the CBN to find a workable solution to the challenges associated with the recapitalisation of the MFBs in Nigeria and report back within four weeks for further legislative action.”