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Business, Economy

How Microfinance Banks Are Shoring Up Capital To Meet CBN’s Deadline

Efforts are on-going among Microfinance Banks (MFBs) in the country to shore up their capital following the directive from the Central Bank of Nigeria (CBN).

The CBN on March 18, 2018, reviewed the minimum capital requirements for microfinance banks, allowing for instalment payment and categorisation of Unit Microfinance into two of Tier 1 and Tier 2 capitals.

Consequently, tier 1 MFBs are to pay N200 million as minimum capital requirement, while tier 2 are expected to pay N50 million.

In compliance with the directive, some of the microfinance banks are partnering with foreign investors in this regard as seen with Lagos based Fina Trust Microfinance Bank Limited, a State licenced MFB, which last week announced completion of equity investment worth of N2 billion in the Bank by the LOLC GROUP from Sri Lanka.

By this investment, Fina Trust Microfinance Bank is adequately capitalised to meet the new capital requirement regulation of the Central Bank ahead of the April 2020 deadline.

In a circular signed by Kevin Amugo, director, financial policy and regulation department, the CBN explained that Unit Microfinance Banks shall operate in the urban and high-density banked areas of the society; and tier 2 Unit Microfinance Banks shall operate only in the rural, unbanked or underbanked areas.

To aid the process of recapitalization, the CBN had directed that all Tier 1 unit microfinance banks shall meet a N100 million capital threshold by April 2020 and N 200 million by April 2021; Tier 2 unit microfinance banks shall meet a N 35 million capital threshold by April 2020 and N 50 million by April 2021;  A state microfinance bank shall increase its capital to N500 million by April 2020 and N1 billion by April 2021; and A national microfinance bank shall hold a capital of 3.5 billion by April 2020 and N5 billion by April 2021.

Ashan Nissanka, country director of LOLC Group; a foremost Asian micro finance and leasing trailblazer, said that the Group is excited to invest in Nigeria as the investment is an access into sub Saharan Africa through the largest market in the region. LOLC Group has presence in more than 15 countries across Asia, MENA region. As part of the investment, LOLC Group is supporting the bank with strong micro finance skills and expertise that have been tested in the Asian market.

According to Deji Popoola, managing director/CEO of Fina Trust Microfinance Bank, this investment comes with a competitive edge for the bank through a funding costs efficiency, competitive process, system and technology, as well as innovative microfinance product offering. Deji is particularly appreciative of the LOLC family and the advisers who birthed the transaction.

The advisers to the transaction include Nolton Bravos/Sthenic Finance, Suits & Advisors, Banwo & Ighodalo and G. Elias & Co.

Ituah Ighodalo, Chairman of Fina Trust Microfinance Bank said, “Fina Trust Microfinance bank has been in business for the past 10 years. The Nigerian market is very big, very wide and we have reached a little bit of the capital that we have invested in the company and we needed to look for partners to do three things for us”.

One of such things he said is to bring in a bit more money to grow the business and expand it into a national business, which was the bank’s vision from the beginning.

Other things are to bring in technology and a bit of expertise into the business and to share with us the experiences they have had with other countries. “In looking for a partner, those were critical points for us,”Ighodalo said.

The chairman told BusinessDay that “LOLC thick these boxes. They brought in a considerable amount of investment into the company, a little bit of which we will use to buy off shareholders but most of it will be used to grow the business into a national business and a business that will also have footprint across Africa especially West Africa and that is what we are doing”.

Speaking further, he said, “I see us traversing the length and breadth of Nigeria, working together to infiltrate other parts of Africa and I see a big conglomerate being born. I am very excited. I am very optimistic. I have always been a believer that what Nigeria needs is technology and money. The market is there but what we lack is enough investible money in Nigeria because the economy has been stifled by inadequate government policies in the past. But now if money, technology comes in then the economy is ready to explode especially in the areas of agric, and small businesses”.

In July 2019, NPF Microfinance Bank Plc announced plans to do a public offer with a view to raising more funds from the Nigerian Stock Exchange (NSE) to shore up its working capital.

The regulator carried out examination of 490 microfinance banks in the last six months of 2018, which included the routine examination of 258 MFBs, special examination of 224 MFBs and income audit of eight MFBs designated as Systemically Important Financial Institutions (SIFIs).

The examination according to the Financial Stability Report (FSR) for December 2018, revealed some shortcomings such as high incidence of non-performing credits (above PAR of 5%); inadequate capitalization; absence of Capital Management Plans and weak strategic objectives; high operating costs; weak risk management practices; and poor corporate governance.

Source: businessday

READ MORE:  These are the reforms needed to jump-start Nigeria’s ailing economy
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