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Central Bank’s recent intervention in the regulation of microfinance banks

Well, there is no debate about that; it is no secret that the industry needs to be shaken up. An industry requires adequate supervision. It is important to enhance the reputation and sustainability of the sector; more importantly, for the sector to be able to reach the unbanked and to increase financial inclusion in the market.

I think this happening now is certainly welcomed, for the regulators to do a bit of shake up in the industry. The sector itself needs to have its image improved. Also, microfinance banks need to be run in a sustainable manner, good corporate governance, and have a broad impact when conducting microfinance within that segment of the population.

Central Bank’s policies on small and medium enterprises funding

It would be good to be clear on what those funds were actually meant for. Those particular funds were set aside for banks that had already lent to certain SMEs to be able to refinance or sell, if you like, those loans to the fund manager or the bank of industry, in this case.

Many SMEs are not yet in a position where they can actually service loans. Some are actually in their start off phase, some are still in a growing phase where they are trying to get to break even, and to begin to cash flows. If you are not generating cash flows, how do you really access a loan?

In addition to SME loans, which are good, we need to see more grants, more channel funds for SMEs. Our fund is focused on the micro side of things, in particular, the micro finance banks, that is our focus.

Challenges in achieving the objectives

We are looking at microfinance institutions that can operate sustainably. However, we are working against the backdrop of regulatory uncertainty. The uncertainty within the regulatory environment does pose a challenge to some of the institutions. We are looking at them to decide how they want to move forward with their operations.

Secondly, within this market, there is a scarcity of funds available for microfinance institutions to lend, so wholesale funding is limited within this environment; we are an equity fund and we are looking to place money into microfinance banks to primarily transform their operations.

Client attributes before investment

We would like to see good management, experience management track record, good governance, the potential to have impact both in terms of client base, in terms of impacting the lives of clients, empowering them to participate in the broader economy, the opportunity to run an efficient microfinance institution.

It doesn’t mean that they necessarily have all these ingredients, but if they have some of these we can use them to develop sustainable businesses. We look at what the company is doing, we don’t want our money to go in and distort what is already there.

We are looking at a million euros investment; it should have existing infrastructure and asset base balance sheet. It has to be commensurate with that. We are not here to take over any institution; we are here to partner with the institution.

Nigeria’s microfinance industry in the next five years

Well, you have to look at other countries and see how they fare. If you look at some of the ancient models, you will see that some of the microfinance banks have indeed increased financial inclusion. You don’t need to have about a thousand microfinance banks; there will be a smaller number, but they would be more effective in what they do, in their outreach, and in terms of their sustainability.

I see the the industry with a cleaner image, a better corporate governance, and broader outreach.