MICROCAPITAL BRIEF: Nigeria Deposit Insurance Corporation (NDIC) Blames Microfinance Institutions (MFIs) for Lending Failures, MFIs Fault “Bad” Nigerian Borrowers

Amidst the turmoil in Nigeria’s microfinance sector, industry players seem to be holding each other responsible for the industry’s failures. The Nigeria Deposit Insurance Corporation (NDIC) believes that poor microfinance institution (MFI) management is at fault for the inability to successfully provide financial services to underserved borrowers, while some MFIs blame their low performance rates on Nigerians, by calling them “bad borrowers.” [1] [2] [6]

According to Mr. Umar Ibrahim, Acting Managing Director of the NDIC, corporate management negligence at the 930 registered microfinance institutions (MFIs) in the country is to blame for the inadequacies in the sector. [1] Ibrahim believes that the Central Bank of Nigeria’s (CBN) proposal to establish a “code of corporate governance” next year will enable more highly qualified individuals to manage these MFIs. [1]

While the NDIC holds MFIs’ inefficient management responsible for the industry’s problems, Mr. Rufus Oloye, Managing Director of Havilah Microfinance Bank told Vanguard, a Nigerian periodical, that “lack of sound credit products by microfinance banks is not the bane of the sector, but the bad borrowing habits of Nigerians who are always perfecting their skills on not repaying loans.” [2] He believes that the high default rates in the sector can also be attributed to borrowers spending their loans on purposes other than those that had been agreed to by the MFIs. [2]

As both MFI managers and borrowers face difficulties in the microfinance sector, the NDIC has faced problems of its own in adequately regulating the microfinance industry. Refer to the MicroCapital.org story in the bibliography for more information on this issue. [6]

About Nigeria Deposit Insurance Corporation (NDIC):

The Nigeria Deposit Insurance Corporation (NDIC) was created in 1983 by the Board of the Central Bank of Nigeria in order to help regulate and supervise the country’s financial institutions.

About Havilah Microfinance Bank:

Havilah Microfinance Bank Limited, fomerly known as Odofin Community Bank Limited, has been registered under its current name since January 2008. There is currently very little information available on Havilah’s functions and performance thus far.

About Central Bank of Nigeria:

Central Bank of Nigeria (CBN) is Nigeria’s central banking authority, established in 1958. Some of the regulatory objectives of CBN 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.

Bibliography:

[1] TIDE. Corporate Governance: NDIC Faults MFBs. http://www.thetidenewsonline.com/?p=6746

[2] Vanguard. Nigerians are bad borrowers, Oloye. http://www.vanguardngr.com/2009/12/23/nigerians-are-bad-borrowers-oloye/

[3] NDIC. https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Nigeria+Deposit+Insurance+Corporation+(NDIC)

[4] Havilah Microfinance Bank. https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Havilah+Microfinance+Bank+Limited

[5] CBN. https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Nigeria+(CBN)

[6]MICROCAPITAL.ORG STORY: The Nigeria Deposit Insurance Corporation (NDIC) “Overwhelmed” by Microfinance Responsibilities

https://www.microcapital.org/microcapitalorg-story-the-nigeria-deposit-insurance-corporation-ndic-overwhelmed-by-microfinance-responsibilities/

Original Source Articles:

The TIDE: Corporate Governance: NDIC Faults MFBs – December 24, 2009

Mr Umar Ibrahim, Acting Managing Director of the National Deposit Insurance Corporation (NDIC) has said that most managers of the 930 licensed micro finance banks currently operating across the country pay scant attention to issues of corporate governance.

Ibrahim who spoke at a press briefing in Abuja last week said that micro finance institutions also lack strict adherence to stipulated guideline and regulations on risk management, adding that the research of the corporation on how complaint are managed by micro finance banks to the rule of corporate governance showed that only few of them exhibits corporate governance in their operation. This, he said, is not encouraging for a new industry planning to be among the best in the world.

Applauding the Central Bank of Nigeria (CBN) plan to harmonise the code of corporate governance next year, particularly the criteria for the appointment of bank chief executives, he noted that this would allow only qualified people to be appointed as Chief executive officers of banks and other financial institutions in the country.

According to him, “The inability of the microfinance banks in the country to meet their obligations to customers could be traced to the fact that the management of most of them have been infested by ex-employees of failed banks in the country.”

Apart from the squabbles between management and boards of MFBs, the NDIC boss also acknowledged challenges the managers are facing on corporate governance and risk management issues as well as the recruitment of the right staff to manage their affairs. He pointed out that there is the need to critically appraise these issues to enable them effectively perform the roles they are expected to play.

The corporation, he indicated, is partnering with CBN to find the best way of regulating the operations of these micro finance banks.

The CBN will launch the train the operators or outsource examination of the capacity of microfinance banks to enable them operate in line with acceptable regulations spelt out by the regulatory authorities, he said.

VANGUARD: Nigerians are bad borrowers, Oloye- December 23, 2009

The increasing rate of  default in the micro finance sector has been attributed to the bad borrowing nature of Nigerians.

Speaking to Vanguard, the Managing Director, Havilah Microfinance Bank, Mr. Rufus Oloye, said lack of sound credit products by microfinance banks, MFBs, is not the bane of the sector, but the bad borrowing habits of Nigerians who are always perfecting their skills on not repaying loans.

“Most MFBs have sound credit products, but the major problem is that most Nigerians are bad borrowers because most customers don’t live up to expectation.

Also, due to our peculiar culture and society, some of them take the money and don’t use it for the purpose it was intended, no matter how good you perfect your monitoring techniques.

“The increasing rate of default is still manageable, but there is the need for debt recovery.

One thing is that loan default would always be on the increase as long as lending is on the increase. Loan seekers need proper monitoring and supervision, because if you don’t pursue them, they won’t bother to pay back.

Commenting on the harsh operating environment that MFBs are made to operate in, Oloye pointed out that a number of factors are responsible for the crisis in the sector.

“The truth is that most people don’t know that managing an MFB is not too difficult, as long as the rules guiding the sector are followed.

“Manpower alone is not the issue, though it is important when we talk of training. But we need to realize that we work under a very hostile environment and the infrastructures are not easily available.

The cost of running the industry is very high, especially for those in the urban areas.”

He listed illiquidity, crisis of confidence, cost of marketing and running after customers as other problems bedeviling the sector.

Oloye further said all MFBs should have equal access to funds from government and donor agencies so as to impact on a larger number of people.

“I am an advocate of government-private partnership because some MFBs get some money in forms of grants from state governments or foreign and local donors agencies.

If these funds are allowed to go round all MFBs, it would impact more on the customers than when in possession of a few people. This is because those in possession of the funds always do better than others.”

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