Central Bank of Nigeria

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 ALEGIEUNOTHE 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 CBN’S VISION TO BE ONE OF THE MOST EFFICIENT AND EFF

ECTIVE AMONG THE WORLD’S CENTRAL BANKS IN PROMOTING AND SUSTAINING ECONOMIC DEVELOPMENT.

CBN’S 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 ObjectivesThe 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 women’s 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 PolicyTwo categories of MFBs are recognized:

1. MFBS licensed to operate as a unit bank with a minimum capital requirement of N20.0 million ($158, 000.00) and

2. 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 DEPARTMENTCENTRAL BANK OF NIGERIACENTRAL BUSINESS DISTRICTP.M.B. 0187, GARKIABUJA, NIGERIA

www.cenbank.org JULY, 2008