The plan by the Central Bank of Nigeria to establish a special multipurpose microfinance bank through the Bankers Committee to address the needs of the micro, small and medium sized enterprises in all 774 local governments is quite exhilarating and challenging.
Given the current situation of the Nigerian economy, it will require serious commitments by the Central Bank of Nigeria to pull this through.
The proposed microfinance bank intended to be a partnership between the Bankers Committee, the Nigeria Incentive-Based Risk Sharing system Agricultural Lending (NIRSAL) and the Nigeria Postal Service (NIPOST) is scheduled to cover the entire 774 local government areas of the country when fully operational, in no distant time.
The features of the new microfinance bank, at face value, appear quite exciting. The fact that it will be reasonably capitalised to the tune of up to N5 billion with lending rate of about 5 per cent for five years in addition to a two-year moratorium is a desirable indicator that lending to agricultural micro, small and medium sized enterprises, among others can be made radical and revolutionary.
The low interest rate proposed to be charged for credit through this special microfinance bank implies that given the high cost of funds and lending rate in the conventional banks as well as the existing microfinance banks in the country, the Bankers Committee would have to bridge the gap by providing some subsidies.
By the shareholding arrangements, the Bankers Committee is scheduled to own 50 per cent of the banks while NIRSAL and NIPOST would have 40 per cent and 10 per cent respectively. This appears reasonable given the need to guarantee a firm control of the banks in managing this system.
The significant holding of NIRSAL is also expected to guarantee the direction to which the bulk of the credit of these microfinance banks will go – in the support of agricultural production by smallholder farmers, among others.
In addition, the nationwide spread of NIPOST offices across the 774 local government areas guarantees the bank’s spread to small scale farmers and businesses in the rural areas. This is a case of using extant structures to reach the most financially excluded Nigerians in rural communities.
The urgency of this spread has been facilitated by the plan to immediately commence the outfit with a branch in the FCT and one each in the six geopolitical zones of the country. This, if carried out judiciously, will go a long way to support the agricultural development policy of the present administration.
In addition, the enhancement of financial inclusion through this programme cannot be wished away. This was adequately highlighted by the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele the other day at a media interaction in Abuja.
The expansion plan of the bank somehow appears hasty. This is an area the Central Bank would have to look into. Given that financial technology or “fintech” would have to be used, which implies less of cash transactions, as stated by the Central Bank governor, then the technological architecture would have to put right on time.
Fintech, which is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services has become widely applicable to start-ups, micro, small and medium sized enterprises as well as large businesses.
Fintech lending, sometimes referred to as online marketplace lending, is lending through digital platforms that often collect and base lending decisions on non-traditional data sources.
By planning to open seven branches of the bank in the first instance, then 50 in the next phase with effort to be made to reach the entire 774 local government areas of the country within the space of one or two years would really be herculean in terms of establishing a functional financial network that would guarantee seamless credit transactions as well as link up the network of each of the branches as would be expected in a normal banking financial architecture.
By properly strengthening the operational capacities of the banks, they would more adequately compete with the existing microfinance banks in the country, which largely make unreasonable demands of collateral before credit is extended to their customers who are largely micro, small and medium-sized enterprises.
A good effort in addressing this anomaly, by this current arrangement is the resort to the National Collateral Registry in ensuring that assets whether movable or immovable registered with the body can take the place of collateral in the extension of credit to the applying enterprises.
Another challenge that needs to be addressed is the operation of microfinance banks in the country generally.
As clearly alluded to by Emefiele, more work needs to be done to moderate the pricing of these banks in their granting of credit to the small and medium sized enterprises. This is really a work-in-progress for banking supervision and the attention of the Bankers Committee.
Overall, this initiative when fully operational will greatly enhance financial inclusion in the country. Many unbanked rural dwellers, by this arrangement will interface with financial institutions in the carrying out of their various economic activities.
Second, the economic diversification efforts of the current regime will be given a major boost, when the banks come into full operations, at least to the extent that food imports will be further reduced and less pressure put on the country’s external reserves.
This can rally be revolutionary if implemented but this country is a graveyard of laudable policies and dreams. Dreamers of this idea can always remember this bane. If they do, they may break the jinx of so much rhetoric here without action.