Dr Muhammad Yunus, the founder and former chairman of Bangladeshi microfinance institution (MFI) Grameen Bank, recently offered guidance to the leaders of Nigeria’s microfinance banks (MFBs) relating to social mission, capital structure and interest rates. In comments made at the “International Conference on Micro-financing and Development”, held in Lagos, Nigeria, and organized by the First Bank of Nigeria, a public financial services institution, Dr Yunus touched on key differences between Grameen Bank and MFBs in Nigeria.
According to Dr Yunus, microcredit was designed to be a social service that is delivered through a business structure with the primary goal not being to profit but to offer appropriate and useful financial services that effectively address the needs of poor people, including housing and education. Unlike MFBs, which are “owned by the rich” and operate primarily in urban settings, Grameen Bank is “owned by the poor” and focuses on rural areas. Whereas Dr Yunus argues that MFBs act like conventional banks with collateral requirements and private funding, Grameen Bank and its peer institutions recognize that the poor are often unable to provide collateral and rely heavily on funding from its depositors. According to Dr Yunus, “what we did is look at conventional banking and do it the opposite way.”
In his keynote address, Dr Yunus also advised that simple interest rates, inclusive of all fees and charges, should be used in place of compound interest, to ensure affordability and transparency. Loans should be priced to generate some return for the MFB, but more importantly to remain attractive and feasible for poor clients.
Stephen Olabisi Onasanya, managing director of First Bank of Nigeria, said: “It is clear from the deliberations here today that what we practise in Nigeria is not [microfinance]; that it is not about the rush to make profit, it has got to provide solutions to problems. We are not truly lending to the poor.”
By Rohan Trivedi, Research Associate
About the Central Bank of Nigeria (CBN):
The Central Bank of Nigeria (CBN), established in 1958, is Nigeria’s central banking authority. As defined by the 1958 Act of Parliament that created CBN, its statutory mandates are as follows: “to issue legal tender currency; to maintain external reserves; to safeguard the international value of the legal tender currency; to promote monetary stability and a sound financial system in Nigeria; and to act as banker and financial adviser to the Federal Government.” As of July 2011, CBN reports total assets of NGN 8.37 trillion (the equivalent of USD 54 billion).
About Grameen Bank:
Grameen Bank is a Bangladeshi microfinance institution that provides loans to poor entrepreneurs in rural areas. It was founded in 1976 by Muhammad Yunus, who, along with Grameen Bank, won the 2006 Nobel Peace Prize for his work in developing the concept of microfinance. As of December 31, 2010, Grameen Bank reported to the US-based nonprofit Microfinance Information Exchange total assets of USD 1.7 billion, a gross loan portfolio of USD 939 million, return on assets (ROA) of 0.7 percent, return on equity (ROE) of 10.7 percent and 8.34 million active borrowers.
Sources and Additional Resources:
 Business Daily Online: “Yunus, Nobel Laureate, faults Nigeria’s microfinance banking”, http://www.businessdayonline.com/NG/index.php/news/76-hot-topic/26923-yunusnobel-laureate-faults-nigerias-microfinance-banking
MicroCapital.org story, August 16, 2011: “MICROCAPITAL BRIEF: Nigeria Falls Behind South Africa, Kenya, Botswana in Financial Access”, https://www.microcapital.org/microcapital-brief-survey-nigeria-falls-behind-south-africa-kenya-botswana-in-financial-access/
MicroCapital.org story, June 28, 2011: “MICROCAPITAL BRIEF: Central Bank of Nigeria (CBN) Looking to Set New Capital Base Requirements for Microfinance Banks (MFBs)”, https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-cbn-looking-to-set-new-capital-base-requirements-for-microfinance-banks-mfbs/
MicroCapital.org story, May 5, 2011: “MICROCAPITAL BRIEF: Central Bank of Nigeria (CBN) Inspecting Microfinance Institutions with Provisional Licenses, Plans to Cut Number of Microbanks ‘Drastically’”, https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-inspecting-microfinance-institutions-with-provisional-licenses-plans-to-cut-number-of-microbanks-“drastically”/
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: Grameen Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Bank
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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