THE NIGERIAN MICROFINANCE POLICY, REGULATORY AND SUPERVISORY FRAMEWORK: THE CHALLENGES AND LESSONS L

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THE NIGERIAN MICROFINANCE POLICY, REGULATORY AND
SUPERVISORY FRAMEWORK THE CHALLENGES AND LESSONS
LEARNT.

• PRESENTED AT THE 5TH AFRACA CONFERENCE ON
  MICROFINANCE HOLDING IN BENIN REPUBLIC
• FROM JULY 2ND - 4TH 2008.
• BY
• JOE ALEGIEUNO
• THE DEVELOPMENT FINANCE DEPARTMENT,
• CENTRAL BANK OF NIGERIA, ABUJA.

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OUTLINE

• GENERAL INTRODUCTION
• MICROFINANCE POLICY
• MICROFINANCE POLICY OBJECTIVES, TARGETS AND
  STRATEGIES
• FEATURES OF THE MICROFINANCE POLICY
• WHERE WE ARE
• CHALLENGES SO FAR
• PROSPECTS OF THE MICROFINANCE POLICY
• LESSONS LEARNT
• CONCLUSION

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INTRODUCTION CBNS VISION

• TO BE ONE OF THE MOST EFFICIENT AND EFF ECTIVE
  AMONG THE WORLDS CENTRAL BANKS IN PROMOTING AND
  SUSTAINING ECONOMIC DEVELOPMENT.
• CBNS MISSION
• TO BE PROACTIVE IN PROVIDING A STABLE FRAMEWORK
  FOR THE ECONOMIC DEVELOPMENT OF NIGERIA THROUGH
  THE EFFECTIVE, EFFICIENT AND TRANSPARENT
  IMPLEMENTATION OF MONETARY AND EXCHANGE RATE
  POLICY AND MANAGEMENT OF THE FINANCIAL SECTOR." 

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MANDATE OF CBN

• Ensure monetary price stability
• Issuance of legal tender currency
• Maintain external reserve to safeguard the
  international value of the legal tender currency
• Promote a sound financial system in Nigeria and
• Acts as Banker and provide economic and financial
  adviser to the Federal Government.

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Introduction (contd)

• Over 50 of Nigerians live below the poverty line
  owing to, lack of access to credit, poor
  infrastructures and productive technologies, and
  low capacity to manage resources. Due to these
  concerns,
• The CBN has been involved in development
  financing since the early sixties. The Bank
  collaborates with the government, development
  partners, companies and other organised private
  sectors to
• Improve banks lending to the real sector
• Empower small scale entrepreneurs
• Create employment opportunities
• Alleviate poverty and
• Ensure food security
• Responsibility for development financing
  activities of the CBN lies with the Development
  Finance Department.

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Introduction contd

• The purpose of this paper is to present the
  situation report since launch of the policy
  (2005) , challenges and opportunities offered by
  the microfinance sector with a view to fostering
  collaborative interventions that would support
  building of long-term sustainable microfinance
  services delivery in Nigeria
• In Nigeria, over 80 million people (65 of the
  active population) remain underserved or
  unserved by the formal financial institutions.
• Microfinance institutions in Nigeria have not
  been able to adequately address the gap in terms
  of credit, savings and other financial services
  required by the microentrepreneurs. Although
  there were past supply-led interventions that
  were not successful.

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MICROFINANCE POLICY

• To address the situation and provide sustainable
  finance services to micro entrepreneurs, the
  Microfinance Policy, Regulatory and Supervisory
  Framework 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 private sector
  driven microfinance banks (MFBs) to provide
  financial services for active poor and low income
  households.

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Policy Objectives

• The specific objectives of the Policy are to
• 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
• Enhance service delivery by microfinance
  institutions to micro small and medium
  enterprises (MSMEs)
• Contribute to rural transformation
• Promote synergy and mainstreaming of the informal
  sub-sector into the national financial system
• Promote linkage programs between
  universal/development banks, specialized
  institutions and microfinance banks
• Reduce unemployment and
• Enhance the implementation of the National
  Economic Empowerment and Development Strategy
  (NEEDS

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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 a
  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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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 and
• Collaborating with donors, coordinating and
  monitoring donor assistance in microfinance in
  line with the provisions of this policy.
• .

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Features of the Microfinance Policy

• Two categories of MFBs are recognized
• MFBS licensed to operate as a unit bank with a
  minimum capital requirement of N20.0 million
  (158, 000.00) and
• MFBs licensed to operate in a state with a
  minimum capital requirement of N1.0 billion
  (7,900,500.00) .
• Organic growth encouraged to ensure national
  coverage

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Features (Contd.)

• OWNERSHIP
• individuals, group of individuals, community
  development associations, private corporate
  entities, and foreign investors.
• Universal Banks currently engaged in microfinance
  services, either as an activity or product and do
  not wish to set up a subsidiary MFB, shall be
  required to set up departments/units for such
  activities.
• Non-Governmental Organization-Microfinance
  Institutions (NGOs-MFIs) can incorporate
  subsidiary MFBs while still carrying on their NGO
  operations or fully transform into licensed
  MFBs.

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Where we are

• 607 out of 761 Community Banks have successfully
  converted to MFBs
• In addition to the 607 community banks that
  converted to MFBs , a total of 72 new investors
  in the microfinance sub-sector have been granted
  final licences, while 89 have been granted
  approval-in-principles as at 30th May, 2008. Thus
  bringing the total number of approved MFBs to
  768, some of the MFBs have foreign interest of
  various degrees
• The Bank has been aggressively sensitizing the
  Deposit money banks to downscale to provide
  financial services to micro entrepreneurs
• 5 Deposit Money Banks are currently promoting
  State Microfinance banks

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Where we are (contd)

• 8 NGO-MFIs are being assisted to transform to
  MFBs.
• About 130 regulators and supervisors of MFBs were
  trained in 2007and 2008 respectively
• Through collaboration with Development Partners
  about 450 MFBs operators were trained on basic
  operation principles of microfinance banking in
  2007 and the Management of the CBN had approved
  an interim capacity building programme for about
  2,864 staff of MFBs in the year 2008
• Hosting of international microfinance /micro
  entrepreneurship award on annual basis.

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Where we are (Contd.)

• The Microfinance policy provides for setting up
  of support institutions towards the realization
  of the policy targets and objectives To this
  end,
• National Micro Finance Policy Consultative
  Committee has been set up to give direction for
  the implementation and monitoring of this policy.
• To further enhance the flow of funds,
  particularly to micro entrepreneurs, N50bn
  Micro-Credit Fund was successfully launched in
  Feb, 2008 by the President of the Federal
  Republic of Nigeria and Commander-In-Chief of the
  Armed Forces, Alhaji Umaru Musa Yar Adua (GCFR).
  

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Where we are (Contd.)

• Certification programme for the management of
  MFBs has been approved and its implementation
  strategy is at an advanced stage.
• Establishment of Entrepreneurship Development
  Centers (EDCs) in six geo-political zones of the
  country to compliment efforts of other relevant
  agencies in the development of entrepreneurship
  spirit amongst Nigerians, especially the youths
  The pilot phase had commenced in (3) centers
  Onitsha, Kano and Lagos
• Nigeria Deposit Insurance Corporation (NDIC) has
  taken the responsibility to insure deposits of
  microfinance banks (MFBs).

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Where we are Contd ORGANIC GROWTH PATH FOR MFBS

• To address the skewedness in the provision of
  financial services, the policy framework promotes
  an even spread of microfinance banks branches
  and activities, to serve the un-served but
  economically active clients in the rural and
  peri- urban areas.
• To this end, a unit or state bank is expected to
  grow its branches in a systematic fashion that
  enables it to evenly cover the local government
  or state in which it establishes before moving
  across geographic boundaries.
• Continuous advocacy and enlightenment campaigns
  to create awareness amongst the stake holders

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Challenges of the Microfinance Policy

• Dearth of skilled personnel with the right
  competencies in the sub-sector
• Lack of accurate and comprehensive data base on
  the activities of microfinance institutions in
  Nigeria (credit bureau)
• Lack of functional support institutions to
  enhance acquisition of sustainable funding
  (Rating Agencies )
• Non establishment of Apex Association for
  Information dissemination and standard setting
  for the MFIs in Nigeria, although an interim
  strategy to promote its establishment is in
  progress

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Challenges of the Microfinance Policy(contd)

• Compliance with the code of good corporate
  governance
• low outreach, due to low awareness of the policy
• Sluggish transformation of existing Non
  Governmental Organisation MFI to MFBs

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Prospects by the Microfinance Policy

• Greater access to funds as a result of
  institutional and Capacity building for
  stakeholders.
• Opportunities for financial institutions to
  provide varied financial services including
  credit to the MSMEs
• Access to the Micro-Credit Fund
• Availability of the Customer deposit protection
  scheme of the NDIC
• Participation of Government in the Provision of
  Microfinance Services
• Access to ACGSF
• Linkage of Rural/Microfinance Banks to
  Development Finance Institutions/Banks

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LESSONS LEARNT

• Continuous training to build capacity of
  operators and regulators in the sub-sector
• Need to up-scale skills, technology and
  infrastructure in the sector to compete with
  international global players in microfinance
• Initiate processes of establishing a
  Comprehensive data base on the activities of
  microfinance institutions
• Finalize the process on establishing functional
  support institutions to enhance acquisition of
  relevant skills as well as sources of sustainable
  funding -Certification Programme, Credit Bureau
  and Rating Agencies

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LESSONS LEARNT (Contd.)

• Promote the establishment of a functional Apex
  Association for the MFIs in Nigeria
• Aggressive enlightenment campaigns to stem the
  skewed distribution of the MFBs
• Ensuring regulatory compliance
• Need for better stakeholders collaboration and
  coordination for policy implementation
• Encourage the up scaling/transformation of Non
  Governmental Organization MFI to MFBs
• Ensuring compliance with the code of good
  corporate governance in the sector

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Conclusion

• There exists huge untapped potentials for
  financial intermediation at the micro and rural
  levels of the Nigerian economy.
• The prospects of having a robust microfinance
  industry is bright as the CBN is equally
  re-engineering its internal process and
  machineries to respond to supervisory challenges
  and provide appropriate regulations to drive the
  sub-sector.
• The microfinance policy offers a tremendous scope
  for economic growth, poverty reduction and
  employment generation on a sustainable basis.
• Thus it beholds on the Bank to pursue the policy
  obligation vigorously in order to achieve the set
  targets and objectives.

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THANK YOU FOR LISTENING

• DEVELOPMENT FINANCE DEPARTMENT
• CENTRAL BANK OF NIGERIA
• CENTRAL BUSINESS DISTRICT
• P.M.B. 0187, GARKI
• ABUJA, NIGERIA
• www.cenbank.org
  JULY, 2008