Microfinance Bank

Sell-offs in microfinance banks over recapitalisation

Ahead of April’s deadline for the first threshold of recapitalisation exercise in the Microfinance Bank (MFB) sub-sector, some operators that do not have the capacity to meet up have decided to sell off their ventures.

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Some of the micro lenders that have sold off their businesses include Cardinal Rock MFB, Cowries MFB, Aguda Titun MFB, First Ideal MFB, High Street MFB, Money Wise MFB, Owotutu MFB, Irolu MFB, and Royal Blue MFB, among others.

“Most buyers are ex-bankers. Some of them acquired the micro banks when they were about to leave the bank or after they had left,” top official of a microfinance bank told BusinessDay.

The Central Bank of Nigeria (CBN) had in October 22, 2018, reviewed upward the minimum capital requirement of the three categories of MFBs as follows – Unit microfinance banks from N20 million to N200 million, State MFBs from N100 million to N1 billion, and the National MFB from N2 billion to N5 billion.

In consideration of the impact of the COVID-19 pandemic on economic activities in the country, the regulator in 2020 revised and extended the deadline for compliance with the minimum capital requirement for microfinance banks by one year.

Consequently, MFBs operating in rural, unbanked and under banked areas (Tier 2) are expected meet the N35 million capital threshold by April 2021 and N50 million by April 2022.

MFBs operating in urban and high density banked areas (Tier 1) are expected to meet the N100 million capital threshold by April 2021 and N200 million by April 2022; State licensed MFBs are to increase their capital to N500 million by April 2021 and N1 billion by April 2022, and National MFBs are expected to meet minimum capital of N3.5 billion capital by April 2021 and N65 billion by April 2022.

However, more than two-thirds of licensed MFBs in Nigeria may close shop if they fail to meet the recapitalisation deadline, the first threshold of which should be due by the end of this April.

Of the 874 licensed MFBs, about 612 may be affected, although the final deadline will be in 2022. These banks were established to meet the financial needs of Nigeria’s low-income earners.

“I am having a feeling that most MFBs with National licence will survive,” a MBF CEO told BusinessDay on phone.

The National licensed MFBs include LAPO MFB, AB MFB, NPF MFB, and Paralex MFB, which have migrated into regional commercial bank.

Some of these big micro banks stand ready to acquire the ones that are not able to meet their capital requirements as a way of saving the sector from collapsing.

“We have not bought anyone but if they approach us we will buy, of course, we will do due diligence. We have done due diligence for one and it did not work. So, we are looking at one in Kano but they are not following up. I think many eventually would want to sell,” a source from LAPO Microfinance Bank Limited, said.

A bank from Kano State has approached LAPO but it is yet to conduct due diligent on the bank. The problem with some of these microfinance banks is that their books are too bad that when you buy them you buy “wahala.”

However, if their financials are bad, there might be some aspect of them that are good, that is, other values, such as good staff.

“The approach is simple, they approach us or we approach them, give them form to fill to complete their profile, we appoint a company to do financial analysis for us and once that is done we take our decision.

“We take them case by case. If for instance 20 approach us and we discover that all the 20 are good, then why not. On the other hand, if three approach us and we discovered that they are not good, we will not buy. The bottom line is that we are open to acquisition but the financial decision would be based on how good they are. The second thing is, one of the reasons is that it is a way of saving the sector,” the source said.

The Unit MFBs are likely going to be the ones that would be swept away at the end of the recapitalisation exercise.

The CBN on March 31, 2021, issued a letter to Suisse MFB to shore up its capital but the owners of the bank, Christ Embassy, is not making effort to comply with the directive, a source close to the bank told BusinessDay.

On November 12, 2020, the CBN revoked the operating licences of 42 failed MFBs.

According to Yusuf Gyallesu, national president, National Association of Microfinance Banks (NAMB), affirms that sell-off is one of the options presented to the MFBs in push for recapitalisation.

“It is the last option after you try all means and it does not work, instead of losing the licence, you sell it and someone will continue from there,” he says.

Some strong MFBs and their models

LAPO MFB provides a wide array of direct-lending solutions, both to group and individual, plus specialised lending products such as asset-based lending.

Renmoney, leveraging technology to make financial inclusion, states, “Everyday, we strive to understand our customers and leverage technology, data and innovation to deliver outstanding service experiences.”

Baobab MFB has gained recognition for its ability to combine financial sustainability with positive social and environmental impacts. As an industry leader, Baobab Group rigorously applies internationally recognised best practices of good governance and institutional ethics.

EdFin MBF birthed out of the need for quality education in Nigeria. The bank, dedicated solely to funding the education eco-space in Nigeria, aims to positively disrupt the standard and quality of education in Nigeria by providing the much-needed financial resources and services to the education sector.

EdFin is focused on facilitating a more enabling environment for private schools in order for them to be able to offer quality education that would ensure improved learning outcomes in such schools and ultimately in Nigeria.

The Nigerian Microfinance sector is strategically designed and positioned to provide formal financial services to the grassroots, with a focus on delivering micro-savings and microloans services towards improving financial inclusion in Nigeria.

A recent evaluation of this industry has shown gaps concerning Digital Financial Services and a significant opportunity to strengthen players in this regard, according to EFInA.

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CBN

CBN Mandates Banks To Enrol For Credit Risk Management In System

In pursuit of a, sound financial system in Nigeria, the Central Bank of Nigeria, CBN, has asked all Development Financial Institutions (DFMs), Micro Finance Banks MFBs, Primary Mortgage Banks (PMBs and other Financial companies to enrol for the Credit Risk Management (CRMS).

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The apex bank said the redesign CRMS would help improve the Credit Risk Management of the financial sector, thereby promoting safe and sound financial system in the country.

In a circular, FPRD/DIR/PUB/CIR/01/002, dated April 8th and released on Monday by Kelvin N. Amugo, Director Financial Policy and Regulation Department, the CBN Mandated all DFIs, MFBs, PMBs, FCs are required to report all credit facilities (principals and interest) to the CRMS and to update same on monthly basis.

“As part of its effort to promote a safe and sound financial system in Nigeria, the Central Bank of Nigeria (CBN) introduced the CRMS to improve Credit Risk Management in commercial, merchant, non- Interest banks as well as to prevent predatory borrowers from undermining the banking system.

With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of other financial institutions (OFIS) on the CRMS platform.”

The regulator also stated that Bank verification Number (BVN) and TAX identification Number (TIN) would be needed to undertake the CRMS process.

“Accordingly, all DFIs, MFBs, PMBs, FCs are required to report all credit facilities (principals and interest) to the CRMS and to update same on monthly basis. OFIs shall note that Bank verification Number (BVN) and TAX identification Number (TIN) are the only basis for regulatory renditions.

“To ensure full compliance,  OFIs are reminded to conclude the tagging of all live credit files for all individual and non individual borrowers with BVN and TIN respectively by May 14, 2021.

According to CBN, Other financial institutions should avail themselves with regulatory guidelines, adding that stiff penalties await those who fail to comply with the directives

“Furthermore, the concern  OFIs are advised to acquaint themselves with the regulatory guidelines for the operation of the redesigned CRMS for commercial, merchant and non- interest Banks in Nigeria(February 2017) and the additional regulatory guidelines of separation 2017.

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Microfinance Bank

612 Nigerian microfinance banks may close shop over recapitalisation

More than two-thirds of licensed Microfinance Banks (MFBs) in Nigeria may close shop if they fail to meet the recapitalisation deadline, the first threshold of which is due by the end of April.

READ ALSO: DMO Opens Two New 2021 FGN Savings Bonds For Subscription.

Of the 874 licensed MFBs, about 612 may be affected, although the final deadline will be in 2022. These banks were established to meet the financial needs of Nigeria’s low-income earners.

Considering the impact of the COVID-19 pandemic on economic activities, Central Bank of Nigeria (CBN), in 2020 revised the deadline for compliance with the minimum capital requirement for microfinance banks by one year.

Outcomes of an internal survey conducted by the National Association of Microfinance Banks (NAMB) show that 30 percent of MFBs will be able to meet this deadline. This means 70 percent of the banks will go out of business with severe consequences for the financial services industry.

“We are advocating through different sources to see how the CBN can shift ground by reducing the capital requirement amount or extending the tenure of the deadline,” Yusuf Gyallesu, national president, National Association of Microfinance Banks (NAMB) said in an exclusive interview with BusinessDay.

One of the NAMB’s lobby objective is a request that the CBN should extend this deadline to at least 2025 because the economy is in bad shape.

An argument the association has presented in support of this extension of the deadline is that Nigeria is just coming out of a depression and there is no money to inject into the banks. This was worsened by the COVID-19 pandemic as the whole of last year there was limited economic transaction.

“So within this COVID-19 period, where can one go to raise 1, 000 percent of the reviewed capital,” Gyallesu said.

Consequently, MFBs operating in rural unbanked and underbanked areas (Tier 2) are expected to meet the N35 million capital threshold by April 2021 and N50 million by April 2022.

MFBs operating in urban and high-density banked areas (Tier 1) are expected to meet the N100 million capital threshold by April 2021 and N200 million by April 2022;

State licenced MFBs are to increase their capital to N500 million by April 2021 and N1 billion by April 2022.

National MFBs are expected to meet minimum capital of N3.5 billion capital by April 2021 and N65 billion by April 2022.

If a microfinance bank collapses as a result of illiquidity it would rub off on the corresponding bank (commercial banks) and impact on customer deposits.

“This issue should not be seen as specific to microfinance banks, it would distort the whole financial system and by extension Nigeria as a nation will be affected by that problem,” Gyallesu said.

At the time of reporting, there are no data to ascertain the number of those MFBs that have met the first threshold of recapitalisation.

This may not be known until the expiration of the deadline, people familiar with the industry have said. Some are still struggling to meet up and some may inject funds before the deadline.

The CBN had in October 2018, reviewed upward the minimum capital requirement of the three categories of MFBs as follows – Unit microfinance banks from N20 million to N200 million, State MFBs from N100 million to N1 billion, and the National MFB from N2 billion to N5 billion.

On March 18, 2019, the CBN reviewed the minimum capital requirements for microfinance banks, allowing for instalment payment and categorisation of Unit Microfinance into two of Tier 1 and Tier 2.

In the new capital requirement guideline, tier 1 MFBs (urban) are to pay N200 million as minimum capital requirement, while tier 2 (rural) are expected to pay N50 million.

As part of efforts to meet up with the capital requirement, many of the operators are considering mergers and acquisition, downsizing, or going to the Stock Exchange to raise funds.

For instance, Baobab Microfinance Bank Nigeria currently has about N4.6 billion capital and would need an MFBsadditional N400 million to fully recapitalise to N5 billion for national licence and the bank plans to achieve that before September 2021.

On acquiring another bank, Kazeem Olanrewaju, managing director/CEO at Baobab Microfinance Bank said, “We have some prospects. We are still discussing but our plan is to fully recapitalise from our retained earnings and that is our first priority before we think of acquiring anybody.”

According to Gyallesu, in the first month that the CBN introduced the new capital requirement the first thing his association did was to put up a technical team that went round the country, in six geo-political zones. They also selected executive members, who went to the Nigerian Stock Exchange (NSE) to ask for a window for long-term funding so that MFBs can meet up with their capital.

They developed some papers, “we did stakeholders sensitisation where we told them the issues on ground and options. The first option was mergers and acquisition. Another option was to downsize or go to the stock exchange to raise money,” Gyallesu said.

NPF Microfinance Bank Plc on December 31, 2018 at its 25th annual general meeting announced plans to do a public offer with a view to raising more funds from the Nigerian Stock Exchange (NSE) to shore up its working capital.

Operators’ request

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Microfinance Bank Loans

CIT Microfinance Bank Disburses Over N16bn Loans

CIT Microfinance Bank Limited says it has disbursed about N16bn loans since it commenced operations as part of its contributions to the financial sector and empowerment of businesses.

The Managing Director of the microfinance bank, Mr Kingsley Eremionkhale, disclosed this during the company’s 10th anniversary in Lagos recently.

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He reiterated that the bank is committed to supporting the growth of small and medium-scale enterprises in the country.

“Since inception, we have disbursed loans worth about N16bn. Our operation is not just about profit-making, but we have impacted many lives, empowered many businesses, and done a lot in terms of our core mandate as a microfinance bank.”

While appreciating its customers who had been loyal to it for years, he said the MFB is  concerned about their business success.

The Managing Director said, “We are part of our customers’ businesses. We provide services beyond lending and savings products and we also give financial advisory services.”

He appreciated the customers who had stayed with the financial institution for many years.

Eremionkhale noted that the MfB is a state-licensed bank operating in Lagos, and a subsidiary of Capitalfield Investment Group.

He also attributed the success of the MfB to the board of directors which he said had been supportive of the management team and its workforce in the past 10 years.

While saying that the bank could lay claims to exponential growth, he said the public should expect more from it.

He also said that it was driving its operations through its digital offerings and e-channels, to improve its services to our customers.

SOURCE: MSME AFRICA