Press Statement: Central Bank of Nigeria Backed Micro Finance Bank

 March 11, 2019

Press Statement

CENTRAL BANK OF NIGERIA BACKED MICRO FINANCE BANK

Centre for Social Justice (CSJ) welcomes the establishment of the Central Bank of Nigeria (CBN) backed Micro Finance Bank. There are two sides to this CBN initiative. The first is evidently positive while there is some contention, a downside in the second part of it.

The Micro Finance Bank is reported to be the brainchild of the Bankers’ Committee, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Nigerian Postal Service (NIPOST). It is set up with a capital base of N5 billion. The Bankers’ Committee holds 50% stake of the bank; having provided the setup capital, while NIRSAL and NIPOST own 40% and 10% respectively. The bank will give out loans at a five percent interest rate and customers will have a two-year moratorium and five years for repayment.

This is a welcome development that will tackle the challenge of access to credit for SMEs. The implication is that the loans will be available at rates below the inflation rate and monetary policy rate. This to a great extent implies that the beneficiaries will be enjoying a subsidy. Access to credit has remained a huge challenge for Small and Medium Enterprises (SMEs) and monetary policy and money deposit banks over the years have shown no inclination at easing this challenge.

It is also expected that the conditions and terms of the credit will be easier to fulfil by the SMEs than the requirements of the conventional money deposit banks. The fact that SMEs will access credit without necessarily providing a collateral as the business itself can act as collateral and will be registered in the National Collateral Registry as security for the loan is a wonderful innovation. This development seeks to implement the Secured Transactions in Movable Assets Act (No.3 of 2017) with the objectives, inter alia, of enhancing financial inclusion, stimulate responsible lending to micro, small and medium sized enterprises and establish and functionalize a National Collateral Registry. The recognition of securities which the conventional money deposit banks have rejected as collaterals is a welcome development, a step in the right direction. This should be deepened to support entrepreneurship and the blossoming of creative ideas. 

The initiative will therefore increase value addition, create new jobs as the SMEs will have access to credit to expand and deepen production. It will also create the opportunity of increased profitability. This will provide more taxable income to individuals and SMEs from which government’s revenue can be enhanced. Essentially, this initiative will reduce the unemployment figures, increase government’s revenue and boost productivity.

However, for the foregoing benefits to materialize, this initiative needs to be taken to scale. The share capital of N5billion is paltry and will not scratch the surface of the needs in the sector. A minimum fund of not less than N100billion is required.

The downside of this intervention is that the conventional Micro Finance Banks will stand no chance of competing with this special microfinance initiative. If it is taken to scale, it will crowd out their operations and they will be forced to wind up. But the positive benefits crowd out this downside.

The most interesting and major point which this initiative brings to the fore is that our conventional access to credit policies including lending rates, demand for collaterals is faulty, non-sustainable and cannot guarantee economic growth. For this initiative to produce the desired change, CSJ requests that the CBN and its partners should:

• Provide sensitisation and enlightenment to SMEs on the provisions of the Secured Transactions in Movable Assets Act (No.3 of 2017) and the peculiar contours of this Initiative.
• Ensure that persons of competence and integrity are recruited to manage this Micro Finance Bank.
• Increase the share capital and working capital to guarantee a very wide reach across the Federation.

Eze Onyekpere

Lead Director