THE MICROFINANCE POLICY, REGULATORY AND SUPERVISORY FRAMEWORK FOR NIGERIA BY CENTRAL BANK OF NIGERIA

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THE MICROFINANCE POLICY, REGULATORY AND
SUPERVISORY FRAMEWORK FOR NIGERIA BY
CENTRAL BANK OF NIGERIA
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OUTLINE OF THE PRESENTATION

• Introduction
• Institutional Constraints to Effective
  microfinance Services Delivery in Nigeria
• The Microfinance Policy Framework
• Prospects offered by the Policy
• Roles and Responsibilities of Stakeholders
• Conclusion.

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1. INTRODUCTION

• Nigeria is rated as one of the 20 poorest
  countries in the world with a worsening poverty
  incidence of over 70 among its population.
• The situation contradicts the nations abundant
  resources in terms of enormous agricultural, oil,
  gas and several untapped solid mineral resource
  endowments.
• Key to any poverty reduction strategy in Nigeria
  is the provision of specially tailored financial
  services to enable the poor engage in economic
  activities such as trading, tailoring, farming,
  processing, vulcanizing, restaurant business etc.
  
• By enabling the poor to engage in such economic
  activities, employment would be generated,
  earnings will be increased and standard of living
  improved.
• This will lead to economic growth and development

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1. INTRODUCTION ctnd

• In order to achieve the above and to create
  appropriate financial institutions to serve the
  economically active poor and low income
  households, the Microfinance Policy, Regulatory
  and Supervisory Framework for Nigeria was
  launched on December 15, 2005 by the President of
  the Federal Republic of Nigeria and
  Commander-In-Chief of the Armed Forces, Chief
  Olusegun Obasanjo (GCFR).
• The policy provides for the setting up of
  microfinance banks to provide financial services
  for poor and low income groups and thus bring
  them to the economic mainstream of the nation.
• Such banks would be private sector driven, with
  the capacity and technology for reaching poor and
  low income people with needed financial services
  on a long-term sustainable basis.
• This paper presents the basis of the Microfinance
  Policy, Regulatory and Supervisory Framework and
  in particular, and explains the role of
  government and other stakeholders in its
  implementation.

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2. INSTITUTIONAL CONSTRAINTS TO EFFECTIVE
MICROFINANCE SERVICES DELIVERY IN NIGERIA

• Lack Of Expertise To Deliver Needed Services,
• Paucity Of Resources For Intermediation,
• Inability Of Institutions To Mobilize Public
  Deposits,
• Unsound Financial Intermediation Practices,
• Narrow Range Of Services And Products,
• Lack Of Collaterals For Loans,
• Non-Availability Of Appropriate Policy To Drive
  The Process and
• Lack Of Basic Infrastructure.

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3. THE MICROFINANCE POLICY, REGULATORY AND
SUPERVISORY FRAMEWORK

• 3.1 Policy Objectives
• Make financial services accessible to a large
  segment of the potentially productive Nigerian
  population which otherwise would have little or
  no access to financial services
• Promote synergy and mainstreaming of the informal
  sub-sector into the national financial system
• Enhance service delivery by microfinance
  institutions to MSMEs
• Contribute to rural transformation and
• Promote linkage programs between
  universal/development banks, specialized
  institutions and microfinance banks.

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• 3.2 Policy Targets
• Cover the majority of the poor but economically
  active population by 2020.
• Increase the share of micro credit as a
  percentage of total credit to the economy from
  0.9 percent in 2005 to at least 20 percent in
  2020
• Increase the share of micro credit as percentage
  of GDP from 0.2 percent in 2005 to at least 5
  percent in 2020.
• Promote the participation of at least two-thirds
  of state and local governments in micro credit
  financing by 2015.
• Improve womens access to financial services by
  5 annually and
• Increase the number of linkages among universal
  banks, development banks, specialized finance
  institutions and microfinance banks by 10
  annually.

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• 3.3 Policy Strategies
• Licensing and regulating microfinance Banks
  (MFBs)
• Promoting the establishment of NGO-based
  microfinance institutions
• Promoting the participation of Government in the
  microfinance industry
• Promoting the establishment of institutions that
  support the development of microfinance in
  Nigeria
• Strengthening the regulatory and supervisory
  framework for MFBs
• Strengthening the capital base of the existing
  microfinance institutions
• Broadening the scope of activities of
  microfinance institutions
• Clearly defining stakeholders roles in the
  development of the microfinance sub-sector and
• Collaborating with donors, coordinating and
  monitoring donor assistance in microfinance in
  line with the provisions of the policy.

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• 3.4 Goals of the Microfinance Banks
• Provide diversified financial services
• Mobilize savings for intermediation.
• Create employment opportunities
• Enhance participation of the poor in economic
  development.
• Provide avenue for the administration of
  government and high net worth individuals in
  micro credit programs on non- recourse basis.
• Render payment services

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• 4. HIGHLIGHTS OF POLICY FRAMEWORK FOR MFBS.
• 4.1 Categories and Licensing of MFBs
• In line with the microfinance policy two,
  categories of MFBs shall be licensed
• (a) Unit MFB with a minimum capital base of
  N20.0million licensed to operate and open
  branches in a Local Government Area (LGA) and
• (b) State MFB with a minimum capital base of
  N1.0billion licensed to operate branches within a
  state.
• The existing 759 Community Banks (CBs) operating
  across the country, shall be required to convert
  to MFB in any of the two categories (i.e. Unit
  MFB or State MFB) by the end of December 2007.
• Also Non Governmental Organization/Microfinance
  Institutions (NGO-MFIs) that meet the stipulated
  requirements shall be required to transform to a
  MFB.
• The circulars on the requirements and procedures
  for the conversion of CBs and transformation of
  NGO-MFI to MFB have been issued by the CBN.

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• 4.3 Ownership of MFBs
• Microfinance banks can be established
• individuals,
• group of individuals,
• community development associations,
• private corporate entities and foreign investors.

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• 5. INSTITUTIONAL SUPPORT PROVISIONS
• Several institutional Arrangements have been
  provided for in the policy to ensure it succeeds
• certification process,
• credit bureau,
• rating agencies,
• reformation of government owned institutions
• microfinance development fund

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• 6. ROLES AND RESPONSIBILITIES OF STAKEHOLDERS
• 6.1 Government
• Ensuring stable macro-economic environment,
  providing basic infrastructures (electricity,
  water, roads, telecommunication etc), political
  and social stability.
• Fostering adequate land titling and other
  property rights sufficient to serve the
  collateral needs of borrowers and financial
  institutions.
• Instituting and enforcing donor and foreign aid
  guidelines on micro-finance to streamline their
  activities in line with this policy.
• Setting aside an amount of not less than 1 of
  their annual budgets (state and local
  governments) for on-lending activities of
  microfinance banks in favor of their residents.

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• ROLES AND RESPONSIBILITIES OF STAKEHOLDERS Ctnd
• 6.2 Central Bank of Nigeria (CBN)
• Establishing a National Microfinance Consultative
  Committee.
• Evolving a clear micro-finance policy that spells
  out eligibility and licensing criteria, provides
  operational/prudential standards and guidance to
  all stakeholders.
• Evolving a micro-finance sub-sector and
  institutional policies aimed at providing
  regulatory harmony, promoting healthy competition
  and mainstreaming micro-financing with formal
  intermediation.
• Adopting appropriate regulatory and supervisory
  framework .
• Minimizing regulatory arbitrage through periodic
  reviews of the policy and guidelines.
• Promoting linkage programmes between
  universal/development banks, specialized
  institutions and the microfinance banks.
• Continuously advocate market determined interest
  rates for government owned institutions and
  promote the channeling of government microfinance
  funds through MFBs.
• Implement appropriate training programmes for
  regulators, promoters and practitioners in the
  sub-sector.

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• ROLES AND RESPONSIBILITIES OF STAKEHOLDERS Ctnd
• 6.3 Micro-Finance Institutions (MFIs)
• Provide efficient and effective financial
  services such as credit, deposits,
  commodity/inventory collateralization, leasing
  and innovative transfer/payment services.
• Undertake appropriate recruitment and retention
  of qualified professionals through transparent
  and competitive processes.
• Adopt continuous training and capacity building
  programmes to improve the skills of staff.
• Strictly observe their fiduciary responsibility
  and remain transparent and accountable in
  protecting savers deposits.

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• ROLES AND RESPONSIBILITIES OF STAKEHOLDERS Ctnd
• 6.4 Public Sector Poverty Alleviation Agencies
• The policy recognizes the roles of public sector
  MFIs and poverty alleviation agencies in the
  development of the sub-sector. They shall be
  encouraged to perform the following
• Provision of resources targeted at
  difficult-to-reach clients and the poorest of the
  poor.
• Capacity building.
• Development of MFIs activities nationwide.
• Nurturing of new MFIs to sustainable level.
• Collaborating/partnering with other relevant
  stakeholders.

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• ROLES AND RESPONSIBILITIES OF STAKEHOLDERS Ctnd
• 6.5The Donor Agencies
• Comply with the relevant provisions of this
  policy in provision of their services to MFIs,
  NGOs, regulators and other relevant agencies.
• Direct most of their assistance to licensed MFBs
  to ensure orderly resource injection,
  transparency and synergy

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7. BENEFITS /PROSPECTS OFFERED BY THE POLICY

• Benefits
• Provides a level playing ground for operators
• Assist in integration the informal sector with
  the mainstream financial system
• Creates order in microfinance services delivery
  and allows customers to get more fare prices for
  the services received
• Provides a basis for increased foren direct
  investment in the sector

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7. BENEFITS /PROSPECTS OFFERED BY THE POLICY

• Prospects
• Increased access to financial services to MSMEs
  arising from
• Opportunities for various institutions to provide
  varied financial services including credit to the
  MSMEs
• Universal Banks
• Community Banks
• Non-Governmental Organization - Micro Finance
  Institutions (NGO-MFIs)
• Participation of Government in the Provision of
  Microfinance Services
• Utilization of 10 of SMEEIS Funds for
  micro-enterprises through the MFBs
• Linkage of Rural/Microfinance Banks to
  Development Finance Institutions/Banks
• Increased activities of MSMEs, employment
  creation, increased DGP and economic growth.
• Reduced rural urban migration.

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8. CHALLENGES OF THE POLICY

• Challenges of full implementation
• Acceptability of the policy by stakeholders
• Conversion of CBs to MFBs and Transformation of
  NGO-MFIs to MFBs
• Establishment of Institutional provisions in the
  policy-funding
• Capacity building for regulators, operators and
  other stakeholders

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THE GUIDELINES (cont.)

• New institutions intending to participate in
  micro finance activities
• 1- Ownership requirements .
• 2- Licensing requirements.
• - Minimum capital requirement
• - Application fees
• Deposit of the minimum capital requirement
• Certificate of capital importation
• Copy of feasibility report
• Copy of draft memorandum and articles of
  association
• List of promoters /shareholders
• CV of proposed members of the Board.

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THE GUIDELINES (cont.)

• Existing financial institutions allowed to
  participate in Micro finance activities
• Universal banks currently engaged in microfinance
  services, either as an activity or product and do
  not intend to set up a subsidiary MFB, shall be
  required to set up a department/unit for such
  activities.
• Existing community banks are expected to convert
  to the appropriate category of MFB on meeting the
  prescribed capital and other conversion
  requirements on/before December 31, 2007 or cease
  to operate

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THE GUIDELINES (cont.)

• NGOs-MFIs can incorporate subsidiary MFBs while
  still carrying on NGO operations or fully
  transform into MFBs with operating license.

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CONVERSION OF CBs TO MFBs

• Capital Requirements
• Minimum shareholders funds of N20 million
  unimpaired by losses to operate as a unit MFB,
• Minimum shareholders funds of N1 billion
  unimpaired by losses to operate as a state MFB.
• Asset revaluation shall NOT be accepted for
  the purpose of meeting the minimum capital
  requirement.

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CONVERSION OF CBs TO MFBs (cont.)

• The minimum capital may be attained through
• Injection of additional capital by existing
  and/or new shareholders
• Mergers- Where two or more CBs can merge, one of
  the CBS resulting from the merger shall become
  the Head Office of the emerging MFB, while the
  other CBs may become branches
• Acquisitions by an individual or a legal entity.

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CONVERSION OF CBs TO MFBs (cont.)

• Other requirements include
• Upgrade management team, internal controls,
  management information system (MIS) and procedure
  and manual of operations.
• Board and Management to undergo a certification
  programme..

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TRANSFORMATION OF NGO-MFIs TO MFBs

• MINIMUM REQUIREMENTS
• An asset base of N20million or equivalent in US
  Dollars,
• Institutional assessment carried out by a rating
  agency acceptable to the CBN,
• Statement of Assets and Liabilities, duly
  certified by an independent auditor,
• Separation of the socio-welfare functions of the
  transforming NGO-MFI from the credit/financial
  services by creating a separate entity to operate
  as a MFB.
• An existing institution shall be exempted from
  depositing the paid up capital with the CBN.

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EXISTING BRANCHES AND ORGANIC GROWTH CONCEPT

• A CB or NGO-MFI with existing inter-state/multipl
  e branches shall
• locate its Head Office in a state with dominant
  operations provided it meets other requirements
  for a state MFB.
• existing branches in other states shall operate
  as approved branches.
• no additional branch shall be approved until it
  has branches in at least two-thirds of the local
  government areas of its dominant operations.

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TRANSITIONAL ARRANGEMENTS

• All CBs must comply with CBN circular of 3rd
  February, 2006. Conversion program terminates on
  or before 31st December, 2007.
• CONVERSION PLAN -
• Submission of acceptable plan/scheme of
  merger/deed of acquisition to the Director, OFID,
  not later than 30th September, 2006 accompanied
  by
• - Shareholders and Board approval of conversion
  plan.
• - Latest Audited Accounts and Management
  Accounts.
• - Quarterly progress report on implementation to
  be submitted effective the quarter ending 31st
  March, 2007.

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TRANSITIONAL ARRANGEMENTS (Contd)

• CONDUCT OF DIRECTORS
• All Directors and Managers of CBs are to maintain
  a high level of integrity.
• All cases of misdemeanor or asset stripping shall
  attract sever sanctions.
• Culprits shall be handed over to the Economic and
  Financial Crimes Commission (EFCC).

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EXIT PROCEDURE

• Exiting CBs will take the following steps
• Make intention known to the Director, OFID not
  later than 30th September, 2006
• Pay back all director-related loans in full on or
  before 31st March, 2007
• Submit plan for self- liquidation on or before
  31st March, 2007
• Submit a list of depositors, amount deposited,
  creditors amount outstanding etc on or before
  30th June, 2007
• Submit a programme for the recovery of all loans
  and advances.
• Submit confirmation of settlement of depositors
  and creditors by 30th September, 2007
• Submit licence for cancellation on or before 31st
  December, 2007.

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9. CONCLUSION

• The recently launched National Microfinance
  Policy, Regulatory and Supervisory Framework for
  Nigeria provides for the financing needs of the
  MSMEs in Nigeria.
• Under the policy, existing universal banks,
  converting community banks and transforming NGOs
  shall participate under tested rules, regulations
  and supervisory process.
• Institutional support strategies under the policy
  include certification process for MFBs, rating
  agencies, credit bureaux, microfinance
  development fund all of which will ensure that
  the institutions receive necessary technical and
  institutional backing for effective services
  delivery.
• The policy also provide for a range of services
  that cover credit and or loans, payment services
  and transfers, and savings.

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• Thanks So Much For Your Attention