MICROCAPITAL.ORG STORY: Nigerian Central Bank Warns Of Increase In Non-Performing Microfinance Loans, Poor Corporate Governance And Commits To Impose Sanctions On Errant Officials At Microfinance Banks

In a recent report on the Nigerian news portal, Business Day Online [1], entitled ‘CBN to sanction erring directors of microfinance, mortgage banks’ [2], it was reported by Hope Moses-Ashike that the Central Bank of Nigeria (CBN) [3] has threatened to dismiss and prosecute senior officers and operators at microfinance institutions and primary mortgage banks who have been found to have engaged in malpractice. CBN officials expressed displeasure over improper conduct by chairmen, directors, senior management staff and auditors at microfinance institutions and other financial institutions in the country. They warned the operators from Lagos, Ondo, Ogun, Osun, Edo, Ekiti, Oyo and Kwara who attended a weekend meeting for financial institutions in Lagos that the Nigerian police and the Economic and Financial Crimes Commission (EFCC) [4] will be invited to intervene anytime any indication of malpractice is discovered.

The CBN observed that improper practices have led to an increase in the generation of poor quality loan assets, with some MFIs and financial institutions having 20 percent of non-performing assets on their loan portfolio. In relation to MFIs, an un-named official at the CBN was quoted as having issued the following warning: “About 46 microfinance banks have not rendered their returns for the past six months. You all know that the action is criminal and could be sanctioned with revocation of license, and that may reduce the number of operators in the country. We are also aware that the sub-sector is bedeviled with poor quality of staff and all must be done to effect changes urgently. The issue of corporate governance is topical now and most of you are flouting it. The law will soon catch up with those of you that are involved.”

Among the irregular conduct noted by the CBN was the falsification of statements of accounts on behalf of customers (and non-customers) with a view to conveying a misleading impression of the financial standing of affected persons. These false statements have been presented by Nigerian microfinance banks and primary mortgage banks to embassies and high commissions in support of applications for entry visas into other countries.

The CBN also found that certain microfinance banks had issued loans and credit facilities to customers who are related to senior management or directors at these microfinance banks. As a result of some of these transgressions, the CBN recently issued a circular to all chairmen, non-executive directors, managing directors, top management staff, all operators and external auditors at all the microfinance banks in Nigeria. Part of the circular was reproduced in the report on Business Day Online and reads as follows: “It has come to the attention of Central Bank of Nigeria (CBN) that many microfinance banks are exposed to very high levels of insider-related credits, far beyond the limits stipulated in the Banks and Other Financial Institutions Act (BOFIA), 1991 as (amended). Consequently, all loans, advances and other credit facilities exceeding the stipulated limits should be repaid or brought within the stipulated limits within three (3) months from the date of this circular, failing which appropriate sanctions shall be imposed on the affected directors and microfinance banks.”

The CBN also threatened to clamp down on any non-performing credit facilities extended to directors or customers that are related to directors. According to the CBN, where any director-related facility remains outstanding for more than 90 days, a letter of warning shall be issued by the board of directors to the affected director. It added that where the facility remains outstanding for more than 180 days, the director shall vacate his seat on the board, or be removed by the CBN, in accordance with Section 33(a) (D) (I) and section 44 (2) (b) of BOFIA, 1991 (as amended). Such director shall be subsequently blacklisted.

The circular further observed that these measures are necessary to curb the excesses of some directors, to protect the interests of depositors and to preserve the soundness of the financial system. The CBN has also issued a directive to all directors to complete and execute a form obliging them to observe a code of conduct, a copy of which should remain in the director’s personal files in the banks.

By Chinq Yee Chong, Research Assistant

Bibliography

[1] Business Day Online (Nigeria): www.businessdayonline.com/

[2] Business Day Online article on ‘CBN to sanction erring directors of microfinance, mortgage banks’: http://www.businessdayonline.com/index.php?option=com_content&view=article&id=4049:cbn-to-sanction-erring-directors-of-microfinance-mortgage-banks&catid=1:latest-news&Itemid=18

[3] Central Bank of Nigeria (CBN): http://www.cenbank.org/

[4] Economic and Financial Crimes Commission (EFCC): http://www.efccnigeria.org/

[5] CBN Circulars and Publications: http://www.cenbank.org/documents/bsdcirculars.asp

[6] MICROCAPITAL STORY: PS Microfinance Bank in Nigeria Exposed as Unlicensed and Fake, Bank Closes Operations Abruptly, Several Depositors Lose Huge Amounts of Money

[7] MICROCAPITAL STORY: Lagos State Association of Microfinance Banks in Partnership with Greek Banking Group PROBANK to Create Common Software for Microfinance Banks in Nigeria

[8] MICROCAPITAL STORY: Peace Microfinance Bank of Nigeria Seeks License To Operate State Microfinance Bank

[9] MICROCAPITAL STORY: ACCION Microfinance Bank Limited of Nigeria Has Reached Total Assets of USD 9.1 Million

[10] MICROCAPITAL STORY: Islamic Microfinance – What Next? Nigeria Promotes “Non-Interest” Banking