MICROCAPITAL STORY: Nigerian Deposit Insurance Corporation (NDIC) Insures Microfinance Institutions

The Nigeria Deposit Insurance Corporation (NDIC) recently announced that, beginning January 1, 2008, it will extend deposit insurance services to microfinance institutions (MFIs) operating in the country. Managing Director and Chief Executive of the NDIC, Mr. Alhaji Ganiyu Ogunleye, said that the corporation will extend coverage of NGN 100,000 (USD 850) per depositor.

Deposit insurance provides a mechanism whereby, in the event that an insured MFI fails, depositors do not lose the entirety of their money. The move by NDIC to cover MFIs is expected to increase investor interest in the sector by strengthening the financial safety net and promoting stability. 

In the past, it was legally impossible to insure MFIs this way because of differing regulatory and supervisory standards for microfinance banks versus other financial institutions. However, due to legislation passed in 2006, the NDIC now has the authority to extend its full services and capabilities to MFIs. In addition to insuring deposit liabilities, the NDIC aims to supervise and provide financial assistance to MFIs, as well as to check the distress syndrome in the industry.

NDIC, in conjunction with the Central Bank of Nigeria (CBN), plans to carry out massive capacity building and certification of the operators and regulators of the microfinance industry, according to Mr. Ogunleye. He revealed that the Financial Institutions Training Centre (FITC) and West African Institute for Financial and Economic Management (WAIFEM) have already been contacted to perform the training. 

The Nigerian Government has previously attempted to alleviate poverty at the grassroots level with various initiatives, but none has achieved lasting or far-reaching success. Recently, policies and projects revolved around community banks (CBs), but these institutions have experienced widespread failure. Between 1992 and 1996, 351 CBs out of a total of 1,368 operating in the country had collapsed, leaving 1,017 in the system. A decade later, in 2006, there were only 534 CBs in operation that were successfully licensed by the CBN. As a result, the CBN has set a deadline of December 31, 2007, for CBs to either convert to MFIs or close shop. Over 407 have converted so far, and spokesman for CBN Mr. Samuel Oni said the organization is optimistic that the target of 500 CBs will be surpassed before the deadline expires.

Currently, only eight microfinance providers in Nigeria report to the Microfinance Information eXchange (MIX). They report a total gross loan portfolio of USD 12 million and 250,000 active borrowers. 

Additional Resources:

Nigerian Tribune: “NDIC: Extending frontiers to microfinance, mortgage institutions.” By Odidison Omankhanlen. December 10, 2007.

Nigerian Deposit Insurance Corporation

MicroCapital.org: “Nigeria: Central Bank “Expects” Contributions from Local Governors to Fund Deposit Insurance for Microfinance Institution Customers.” December 10, 2007.

MicroCapital.org: “Nigeria: Central Bank Predicts 450 of 700 Microfinance Institutions Will Survive Into the New Year.” December 5, 2007. 

Central Bank of Nigeria

Microfinance Information eXchange: “Advanced Search: Nigeria

Bloomberg.com: Currency Calculator

 

 

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