MICROCAPITAL BRIEF: More Details Emerge After Examination of Microfinance Institutions (MFIs) by Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC)

Following growing complaints of fraudulent practices leveled against several microfinance institutions (MFIs) and the failure some, the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) conducted an examination of the sector, which has revealed some irregularities and unethical practices.

Although the full report has yet to be released, the initial findings reveal that most MFIs have fixed assets above the maximum limit set by CBN of 20 percent of shareholders’ funds. This reduces the funds available to be used for loans and decreases MFIs’ profitability.

It is also revealed that the ratio of non-performing loans to total loans of most MFIs is above 2.5 percent. According to an unnamed CBN source, “The ratio is above 2.5 percent either because the credit officers are not knowledgeable in areas of credit administration or there are cases of insider abuses by management. Also, proper appraisal may not have been carried out on the customer to ascertain the person’s cash flow to know if he can repay the loan.”

New and more detailed guidelines regulating the operations of the microfinance sector are expected to be released in the middle of this year. According to the unnamed source, in order to deal with failed MFIs, the regulatory authorities have the options of liquidating the institutions, injecting rescue funds or looking for new owners who can bring in fresh capital.

By Conner Brannen, Research Assistant

About Central Bank of Nigeria (CBN):

Central Bank of Nigeria (CBN) is Nigeria’s central banking authority, established in 1958. Some of the regulatory objectives of CBN are as follows: to issue legal tender, to maintain the external reserves of the country, to promote monetary stability and a sound financial environment and to act as a banker of last resort and financial adviser to the federal government.

About Nigeria Deposit Insurance Corporation (NDIC):

The Nigeria Deposit Insurance Corporation (NDIC) is an independent agency of the Federal Government of Nigeria. Its purpose is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay their deposits, thereby helping to maintain financial system stability.

Sources and Additional Resources:

Vanguard: “Appropriate penalties will tighten loose ends in MFBs’ operation, CBN,” by Amaka Agwuego, July 19, 2010: http://www.vanguardngr.com/2010/07/19/appropriate-penalties-will-tighten-loose-ends-in-mfbs?-operation-cbn/

MicroCapital Universe Profile: Central Bank of Nigeria (CBN): https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Nigeria+%28CBN%29

MicroCapital Universe Profile: Nigeria Deposit Insurance Corporation (NDIC): https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Nigeria+Deposit+Insurance+Corporation+%28NDIC%29

MICROCAPITAL BRIEF: African Capital and Business Support (ACBS) Partners with Suisse Bank Plc and Smart Link to Provide $6.7m Line of Credit to Nigerian Microfinance Banks, July 12, 2010: https://www.microcapital.org/microcapital-brief-african-capital-and-business-support-acbs-partners-with-suisse-bank-plc-and-smart-link-to-provide-6-7m-line-of-credit-to-nigerian-microfinance-banks/

MICROCAPITAL BRIEF: Three Directors of Impact Microfinance Bank Limited Arrested for Fraud in Nigeria, June 29, 2010: https://www.microcapital.org/microcapital-brief-three-directors-of-impact-microfinance-bank-limited-arrested-for-fraud-in-nigeria/

MICROCAPITAL BRIEF: Head of Nigerian Deposit Insurance Corporation (NDIC) Announces Completion of Review of Distressed Microfinance Banks, Outlines Path to “Sanitization”, June 25, 2010: https://www.microcapital.org/microcapital-brief-head-of-nigerian-deposit-insurance-corporation-ndic-announces-completion-of-review-of-distressed-microfinance-banks-outlines-path-to-?sanitization?/

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