CBN’s Sledge-Hammer: What About The Micro Finance Banks?

There seems to be more rot in the microfinance banking sector of the economy than there is in conventional counterparts. Many of the banks have closed shops while others have drastically scaled down operations. Kenneth O Eze highlights the critical need for quick intervention of regulatory authorities to save the economy from total collapse.

The dust is yet to settle on the banking arena, following the change of guards at the Central Bank of Nigeria (CBN), with the attendant whirlwind of activities. Sanusi Lamido Sanusi, the governor of the CBN, is believed to be in the opening chapters of his script aimed at strengthening the financial system in Nigeria.
It may no longer be news that five major Nigerian banks lost their managing directors and entire executive management teams to the Sanusi tsunami. Many may not be surprised seeing the CBN helmsman sensitise the nation on the pending Islamic banking system, given his credentials. What with his assertion that Islamic banking would enable Nigeria benefit from the multi-billion dollar succour that only this peculiar form of financing can unleash? Those who know him say he will make good his word.
It looks like the cankerworm ate deep into the inner fabric of the financial system in the microfinance segment before daring  universal banks. The minute nature of their operations, the downtrodden position of their customer base and the lethargic supervisory posture among other things combined to keep this sordid truth from the public.
The managers of the microfinance banks, it appears, made concerted efforts to keep the true state of their operations to themselves away from the regulators and other stakeholders. This effort, our findings reveal, is now looking unsustainable, as the rot in the microfinance banking sector of the economy is quickly assuming the posture of a resistant pest.
There are several appalling cases in the microfinance banking sector that ought to have attracted the apex bank’s urgent intervention long before the universal banks.
A while ago, a purported female customer moved to Ipodo-Ikeja Microfinance Bank on the bank’s alleged failure to honour depositor obligation to her amounting to N10000. Eye witness accounts have it that the poor fellow was in such dire strait that she went berserk, and bared her all on the busy Awolowo Road, Ikeja, all in her bid to get the bank to honour its obligation of allowing her withdraw the money she deposited with it.
M2 called at Ipodo-Ikeja Microfinance bank, last week, to ascertain how this matter was resolved, but was informed that the managing director had gone out on marketing and that there was nobody to speak on the issue.
Efforts to get the bank clarify the issue was met with “I am not permitted to speak to the press on behalf the bank. Professional ethics bar my talking to the press, only the managing director can speak on it,” from an officer of the bank called Abdullai. He called Isa, according to him, his boss, but he too would not say a word on the matter.
However, Emmanuel, who introduced himself as the chief security officer of the bank volunteered that the woman was a mad fellow that claimed community bank owed her N500. He would have no say on how the matter was resolved. The MFB, it seems are still exploring ways to refute that there was an incident of a woman baring her all in a claim that the bank could not meet depositor obligations.
M2 can authoritatively reveal that this is just one out of many similar cases of loss of hope by the downtrodden in the country over inability of microfinance banks to meet their obligations to depositors. Several of them are said to be in arrears of salaries with some scaling down operations drastically.
Integrated Microfinance Bank (IMFB), the acclaimed leader in the microfinance banking segment, would not be outdone in the saga. Amidst rumours that one of the major investors sued the management and got an injunction for refund of his investment, the bank, being apparently unable to meet its liabilities was besieged by depositors as at September 2, 2009 when M2 called at their head office at Adeniyi Jones Avenue.
Findings at Milestone Microfinance Bank (MMFB) reveal that the Funsho Akande led bank had long surrendered. MMFB wrote to the CBN on August 4, 2009, explaining its predicament which it blamed on light shareholders fund and failure of borrowers to pay-up.
An officer of IMFB that addressed a large crowd of depositors disclosed that CBN officials were there last week Wednesday and Thursday – August 26 and 27 respectively – to review the situation. According to him, the CBN had given them till October to strategise and resume operations. Has IMFB also surrendered?
Hazonwa Microfinance Bank (HMFB) is also reported to be facing critical challenges. A customer of the bank, who also banks with IMFB, called Chigbo, told us that he got wind of the travails of HMFB last week and made quickly to recover N28000 out of the N30500 he deposited. Now he is stuck with IMFB to the tune of about N225000!
One Mr Akega, of the Other Financial Institutions Department of the CBN, who spoke to M2 on telephone, confirmed that they are serious issues bedevilling many microfinance banks in Lagos. He disclosed that the CBN was undertaking a comprehensive evaluation of their activities and would be intervening very soon as was the case in the universal banks.
The CBN, he maintains would be giving the management of the affected banks the chance to retool. Probably, this is what Milestone Microfinance Bank is hoping to take advantage of by proposing in its letter to the CBN that they are shopping for new investors who would bring in N150 million to shore up the shareholders fund, while making concerted efforts to recover funds lent out. MMFB also has plans to increase its share capital to N1 billion, according to its letter to the apex bank.
Akega explained that the CBN would not hesitate to remove the management of any MFB found wanting and put in both new investors and new management to safeguard depositors funds. This would be a daunting task, as M2 investigations in the Ikeja area could scarcely reveal one healthy MFB. Akega told M2 that investigation is ongoing.
Our investigations show that many of the microfinance banks in the country took advantage of lax supervisory measures to join the purported financial rascality of the universal banks, while the boom lasted. They can be said to be in the sinking financial ship that the meltdown has brought upon Nigeria, much more than their universal bank counterparts.
A management staff of one of the microfinance banks based in Ikeja, now so distressed that even the CBN had to visit it (a seldom case), volunteered under condition of anonymity that the microfinance banks left the areas they were licensed to serve owing to greed.
It is his opinion that whereas the MFBs were licensed to serve 80/20, micro and macro respectively, they, instead, in mad pursuit of money, reversed the guideline to 20/80. Our source revealed that directives from the apex bank is that MFBs should service 80 percent micro, that is 80 percent peasant lending and only in exceptional cases, apply 20 percent of their resources to serve the merchant segment. A directive, he said MFBs reversed or ignored.
Another death trap that the MFBs set for themselves was ripping-off customers through exorbitant charges and interest rates. The highly placed officer who spoke to M2 said: “MFBs continued to defraud customers by charging flat percentages from inception of facilities to total wind-down, irrespective of what sum had been repaid by the customers.”
This, according to him, made some customers revolt and discontinue servicing the loans on discovery of the defrauding stance of their MFBs. In some cases, they felt that the collateral the bank got from them should serve for the balance, as the economy combined with the high interest rates to stifle the peasants.
More light is shed on this by Siku Adewuyi, an entrepreneur. In her opinion, the government “has to actually reassess the microfinance banks and issue policies that will actually help the small scale businesses that these banks are supposed to help.”
The trained accountant did not mince words in opining that “the people that patronise the MFBs today are not really the small scale businesses, because they are people who are doing big business and just resort to the MFBs to solve short-term cash flow problems.”
The well informed source disclosed that the MFBs were guilty of insider abuses. In one very pathetic case at MMFB, at Aromire Street, Ikeja, Funsho Akande, the managing director, used the wife’s name (Rachael) to obtain a macro facility said to be in the region of N2.5m.
It was also gathered that MMFB set for itself the mile stone of playing big in the macro instead of the micro finance sector. Its relationship with Trama Global Motors saw it lending a whooping N7m to the auto dealership company, an amount the company is finding difficult to repay.
Now the adventurism has seen Akande leave his MMFB under lock and key in the care of only two security guards as at the time M2 called there last week. All depositors and other creditors are now in the cold!
Integrated Microfinance Bank Disperse Depositors with Mopol
The Sanusi tsunami reared its head in the microfinance banking sector last week with the acclaimed biggest microfinance bank in Nigeria, Integrated Microfinance Bank (IMFB) resorting to brutality in dispersing hundreds of depositors who besieged its 68 Adeniyi Jones Avenue, Ikeja head office for their deposit.
M2 witnessed the dehumanisation of scores of depositors whose patience almost wore out, as a detachment of mobile policemen had to resort to force and threat of shooting to scare the people away from the bank’s gate. The depositors were locked out, but they were reluctant to go.
The bank’s explanation that they had called in the CBN and that depositors should come back in October only infuriated the depositors, who chanted 419 at the unnamed officer who addressed them. The depositors rallied and made a register of their names and phone numbers with one Pastor Ghenta Perri, who promised to champion the cause until they get justice.
Perri was particularly happy to learn that IMFB’s board was chaired by Doyin Abiola. He expressed firm belief that the Economic and Financial Crimes Commission (EFCC) would unravel the mystery behind the collapse of a bank of this magnitude. Perri said that crime thrives in Nigeria because people do not get punished for offences, but this would not be the same. “I will contact my lawyer friends who would work on the case at no cost to depositors. This people cannot get away with this crime. This is sheer wickedness,” he said.
Some of the most touching cases include a young lady called Blessing Okamgbe, an importer, and Miriam, a youth corper.
Okamgbe bemoaned her fate, blaming one Kingsley Onyemah, whom she described as a brother. According to her, Onyemah appealed to her shortly after she lost her father and disposed of the family’s landed property (their inheritance), to help him secure promotion at IMFB by depositing the sum of N1.5m.
Her greatest heartache is that Onyemah escaped to United Bank of Africa (UBA) without letting her know that doom was pending at IMFB.
According to her, her business is now stalled and the education of her younger ones is at stake. The turn of events has virtually rendered her useless.
One Miriam recounts that being a youth corper, the sum of N40000 means the whole world to her. “I earn only N5000 monthly. To save up to this amount has taken a great deal of effort. In fact the N40, 000 is my own millions,” were her words in response to claims of some people that their deposits ran into millions of Naira.
Ikaede John, a businessman, has in excess of N2.5m stuck in IMFB. According to John, he started saving gradually with the bank in instalments of N5000 until a delegation from the bank convinced him to key into their fixed deposit product with high interest. He regrets having anything to do IMFB.
Hordes of the depositors think that the recalcitrant attitude of the board and management of IMFB led them to this point of despair. Rumours among them has it that one of the major investors could not get the position he desired, probably a board position, as Doyin Abiola and co, were bent on holding on to the bank. The man withdrew his money and the bank is showing signs of not being able to cope. The people wondered why IMFBs management allowed such development when they knew they lacked the ability to cope.