Reform: Tightening the loose end in MFBs’ operations




When the Microfinance Banks (MFBs) came into operation, it was meant to cater for the ordinary citizens. It had its operational spheres but soon, apart from springing up in every available space, some started operating like the conventional commercial banks.



Speaking recently on the issue of MFBs to The Guardian, President of the Chartered Institute of Bankers of Nigeria (CIBN), Laoye Jaiyeola, revealed that the institute has plans to train the operators in this segment as their role in the overall wellbeing of the economy is too vital to be ignored.According to him, the Central Bank of Nigeria (CBN) has also mapped out plans to set examinations for the Managing Directors of those MFBS.



Similarly, the apex bank had beamed its searchlight on the operations of microfinance banks in the country to ascertain if their conduct is in tandem with the ethics of the banking profession.
Currently, there are 898 licensed MFBs in the country. And the distinguishing features between MFBs and Money Deposit Banks are that microfinance is about providing financial institutions.Three traditional features distinguishing microfinance from other financial institutions are; the smallness of loan advanced and savings collected, the absence of asset-based collateral, and simplicity of operations.



Meanwhile, one of the examiners revealed to The Guardian anonymously that, “even though we have been carrying out routine examinations on the MFBs, this time, we were warned to be extremely thorough.”Said he:  “This is because the current management of the CBN do not want a repeat of the commercial banking crisis in the MFBs. So, we were asked to go through their books thoroughly and report accordingly to avoid any crisis.”Insider sources also hinted that the apex bank’s renewed vigour in looking into the books of the MFBs may not be unconnected with the relationship between some of the MFBs with five banks whose managing directors were removed by the apex bank.



They revealed that these MFBs have strong links with these banks, a link they used to offer funds to such business operators. Instructively, the apex bank recently in advertorials in some newspapers had placed a disclaimer notice on five MFBs, which it called “illegal”.According to the disclaimer notice signed on behalf of the apex bank by its Acting Director, Other Financial Institutions Department, O.A Fabanwo, the CBN noted that its attention has been drawn to newspaper reports on the activities of some illegal microfinance banks operating in some parts of the country, particularly in Lagos State.



The operatives, the CBN added, have been reported to extort money from unsuspecting members of the public under the guise of being MFBs.According to CBN, “following a careful review of its data base, the CBN hereby states categorically that the listed entities have not been licensed by the CBN.  They have neither submitted any application for license or have been granted any kind of approval. They have therefore been operating illegally as microfinance banks.”



The apex bank listed their names as follows:


• Almon MFB, which is operating on the ground floor of a two-storey building at kilometre 24, Lagos-    Badagry expressway, Oto-Ijaniki, Lagos. 

• PS Microfinance Bank, operating at No. 30, Ayo Ajayi Street, Oke-Ira, Ogba, Lagos. 

• ‘Green House’ located at No. 58, Enitan Street, Aguda, Surulere, Lagos. 

• Business Track MFB operating in Surulere.

• Koffy Multipurpose Co-operative Society located at No. 9, Anaye Street, Shago, Owena, and Osun   State.


Based on the foregoing, the CBN stated that it views their activities as “illegal operators, heinous, as this is capable of causing confidence crisis, which may adversely affect the operations of duly licensed MFBs”It added that: “Subsequently, the regulatory body said these unscrupulous persons/companies have been reported to the appropriate law enforcement agencies for further investigation, apprehension and prosecution.”



Meanwhile, according to the policy measures and instruments in the establishment of the framework for micro finance banks in Nigeria, the banks are required to be well capitalised, technically sound, and oriented towards lending, based on the cash flow and character of client.  
There are two categories of Micro Finance Banks (MFBs) namely:


• Micro Finance Bank licensed to operate as a unit bank.

• Micro Finance Bank licensed to operate in a state.


The recognition of these two categories of banks does not preclude them from aspiring to having a national coverage, subject to their meeting the prudential requirements.This is to ensure an orderly spread and coverage of the market and to avoid, in particular, concentration in areas already having large number of financial institutions.






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