Safety may return to MFBs as CBN introduces risk management framework




It is expected that safety and sanity will return to microfinance banks (MFBs) in the country with the introduction of risk management framework by the Central Bank of Nigeria (CBN).Earlier this year, Sanusi Lamido Sanusi, the CBN governor, observed that the MFBs were already facing challenges bordering on inadequate funding, poor corporate governance, poor risk management and investment mismatch.


This, funny enough, underscores the several complaints from operators over non payment of loan borrowed by customers. Uche Ubani, managing director, Peniel Microfinance Bank Limited Lagos, said in a telephone interview that business had not been faring well because customers were not paying back their loans.


In order to reduce the risk exposure of the MFBs in the country, the CBN is now set to introduce risk management supervisory framework to supervise the operators in the industry. The framework, tagged ‘A framework for risk supervision of MFBs in Nigeria’ is expected to upgrade the risk profile of subscribing institutions, Ubani revealed.


Stating the kind of risk that would be covered by the new invention, he listed them to be credit risk, market risk, liquidity risk, and strategic risks. The framework would mandate microfinance institutions to acquire risk management template for easy supervision by the apex bank.


Olufemi Fabamwo, deputy director, Other Financial Institutions Supervision Department (OFID), CBN, stated that the adoption was to supervise MFBs effectively, such that the safety and sanity of microfinance institutions could be accessed.


Fabamwo, who addressed microfinance operators at the Committee of Microfinance Banks in Nigeria (COMBIN) meeting in Ogba – Lagos last week, said the new invention was to bring to an end the compliance-based supervision currently in use. The compliance-based supervisory model is the one presently in use by the apex bank to supervise microfinance firms across the country, but the new framework is now expected to succeed the former.


The CBN deputy director stated that the former was outdated, hence the need to adopt a new one, advising the adopting institutions to, on their own part, institute risk management system that would help the CBN supervise MFBs effectively. Though, some of the banks already have the risk management templates they use in measuring their level of risk, he advised those who were yet not to do so to brace up for it. This, he noted, is a proactive and dynamic method of supervising MFBs to enable for effective risk management system.


While also advising the participating MFBs on the requirement they need to fulfill, he believed that “at minimum, there should be plan for contingency and continuity so that the operation of the bank continues even if you are exposed to such risks.” This is a system that has worked elsewhere and I am confident it would work here, especially with the large number of MFBs we have, he stated.


He, however, disclosed that there was going to be training on the new framework, promising that it was accessible to microfinance institutions and at a considerable price. Also, Salaami Olalekan, managing director, Oscotech Microfinance Bank, Osun State, noted that some of the operators already had risk management template in place, saying the new move was to make sure microfinance houses were financially strong to withstand the test of time.As this will help to mitigate the exposure of sector to risks that are traceable to issuance of credit facilities, which is the utmost responsibility of MFBs, he declared.


He therefore expressed satisfaction about the new move, adding that if this step had been taken in the past the illiquidity in the market might have been subdued. “It is a welcome development and operators are happy about it. So far, it is for the betterment of the industry, we are okay by it,” he stated.





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