The consensus in the industry was that the fore runners of Microfinance Banks in Nigeria, most especially community banks, failed to deliver because of problems such as weak internal control, poor corporate governance practices and incompetent management with the effect that the banking needs of the lower segment of the market (their primary focus) remained largely unaddressed. It is therefore important that just as regulatory and supervisory requirements have been put in place by the authorities for the control and regulation of microfinance practice in Nigeria; no less adequate attention should be paid to capacity building in order to equip the operators’ regulators and other stakeholders with the required skills.

The arrival of Microfinance Bulletin on the scene at this time is, therefore, apt given the phenomenal growth in the number of Microfinance Banks and NGO Microfinance institutions since the launching of the Microfinance Policy. As at the time of going to the press the number of Microfinance banks have been licensed by the CBN to operate in Nigeria had risen to 746.

Microfinance Bulletin which is published bi-monthly shall provide opportunities for operators and regulators to hone their skills by getting them updated about the current trends in Microfinance worldwide while drawing attention to how current practices in the country can be improved upon. The Microfinance Bulletin shall also report local and international Microfinance news as well as give Microfinance operators in Nigeria the opportunity to hear their customers out on the quality of services they provide. In this maiden issue, we discuss the objectives of setting up Microfinance Banks. We also examine those critical formative stages of de novo Microfinance Banks. There are also feature articles on the basics of small and new business finance, safeguards against loan losses, and deposits as source of worry for MFBs, health issues, learning from Grameen Bank experience and counselling and Microfinance issues. Dear readers, you are welcome.

Joel I. Ahimie

Notwithstanding the fact that Microfinance banks operate mainly at the lower end of the market unlike the Deposit Money Banks (Universal Banks (UBs), they are still as heavily regulated as the latter. Perhaps, the main reason for this is that Microfinance banks even with their poverty eradication bent, are also into financial intermediation since they mobilize deposits from both the rich and the poor and create credits from the deposits. It therefore, behoves the authority to regulate the operations of Microfinance Banks so that the surplus units that avail them of their funds do not lose their savings. Again, regulation is necessary to make Microfinance Banks create good credits and invest the remaining funds profitably so that they can always meet their maturing obligations, both short term and long term. The peculiar characteristics of customers at the lower segment of the market where the Microfinance Banks ply their trades also make the regulation of Microfinance banking inevitable. Micro customers are mostly poor even if economically active. They are mostly uneducated and uninformed. They hardly keep proper records of their business transactions. They are therefore, highly vulnerable. Consequently, the authority is duty bound to make failure, if it must happen at all, an isolated phenomenon in the sub sector. The foregoing explains why we decided to examine the prudential guidelines for licensed Microfinance Banks in Nigeria in this second edition of your magazine. It is our hope that by doing so, operators and other stakeholders in the sub sector will not only be sensitized to the existence of guidelines but take necessary steps to ensure their full implementation. It is noteworthy that failure to do so is ground for revocation of operating licence. This edition however has more to offer our dear readers. For example, we also x-ray the challenges of Micro-entrepreneurs and proffer some solutions. The issue of downscaling Deposit Money Banks, which was discussed in the maiden issue is again in the front burner in this edition so as to underscore its topicality. We are of the view that it is not enough for Universal Banks to want to have a piece of the action in the sub sector by downscaling, they just have to get it right to be able to make a success of it. For instance, the downscaling Universal Banks must appreciate the peculiar characteristics of microfinance. They must also appreciate the need to continually strike the balance between poverty alleviation (the thrust of microfinance) and financial sustainability. Furthermore, it is important for downscaling UBs to know that attitudinal change is key. Certainly, it takes an attitudinal change for a staff of a downscaling UB in an elegant suit and with the mentality of marketing the moneyed class, to be able to successfully do business with the poor in any rural environment. Starting from this edition, we intend to zero in on a micro enterprise by giving useful tips on how to start and grow such undertakings. We set the ball rolling in this edition with piggery. There is no doubt about it; this edition is just as we promised you in our debut, yet another collector’s item. Please read on.

Joel I. Ahimie

Raising capital to sustain Microfinance

This edition is the third edition of your favourite magazine. With your continued support and patronage, we are confident that the sky is not the limit but the beginning for your magazine, the voice of the underserved. Microfinance banks are going through some hard times raising funds to sustain their operations. Institutions without adequate resources particularly risk capital to lend to the poor cannot go far enough or be able to sustain their operations.

Our cover story for this edition entitled: Raising capital to sustain microfinance, we discuss the problems that microfinance banks are experiencing concerning inadequate risk capital to fund their loan assets and increase their outreach. We also report how lack of funds has imparted negatively on their operations and their desperate move to establish their own inter-bank market as a way of bailing out those caught in the illiquidity trap. Our position on the issue is that the institutions are still very new in the market having spent less than a year in operation. They should not be too much in a hurry to build up loan assets. As they stay longer and gain experience in the business, they will be able to build strong depositors’ base that will eventually become their major source of cheap funds.

In this edition also, we report that Stakeholders have registered one complaint or the other against SMEEIS, a major initiative of the Federal Government to address the pervading poverty in the land. They pointed to the skewness in the distribution of SME projects that have benefited from the scheme so far. According to them, the lopsidedness was so acute that some 12 states could not boast of a single SME project while a particular state has so many. The CBN in an attempt to liberalize access to micro credits by the active poor, which from all indications, SMEEIS had largely failed to do, announced the establishment of a Micro-credit Fund with an initial take off fund of N20 billion. Microfinance Bulletin considered the move a welcome development in the fight against mass poverty in the land. This explains why we decided to weave our cover story for this edition around micro credit fund with emphasis on the modalities for its administration. The CBN and NDIC continued in the past two months to organise capacity building programmes for operators in microfinance banking sub sector as well as their own staff in order to bridge the identified skill gaps. Bridging the skill gaps of operators is to ensure that they operate strictly within the dictates of the microfinance policy, while capacity building initiatives with staff of the two institutions as the primary target is to enable them effectively mount both onsite and offsite surveillance on the microfinance banks. Our correspondents were at the venues of the Capacity Building Programmes to chat the participants up. The excerpts of some of the interviews as well as the pictures of the participants are published in this edition for your reading pleasure. Also in this edition, is a well researched article by Till Bruett, Partner, Alternative Credit Technologies, LLC entitled ‘Four Risks That Must Be Managed By Microfinance Institutions.’’ The article is a must read for all Microfinance practitioners. And as is our wont, we also update you with the latest news in the industry, besides other offerings. Happy reading and here is wishing our readers Merry Christmas and a Happy New year in advance. See you in 2009.

Joel I. Ahimie

The January/Feburary edition is about Pension scheme. We decided to feature the Pension Act 2004 because majority of the licensed microfinance institutions currently in operation have not yet started implementing the scheme. Before we packaged the subject for publication, we made contacts with some of the operators of microfinance institutions to find out the reason behind their lukewarm attitude towards the scheme. We did not find anything serious apart from the fact that majority of them have simply not considered the issue while others claimed not to understand how the scheme works.

For some of the employees of microfinance banks, the delay in the implementation of the Pension Act 2004 is hurting them and they are eagerly waiting for its implementation since a good pension scheme is a good financial security for the future. For those who do not understand the scheme, we present a write-up on the subject and feature other important information for institutions that are yet to implement the scheme. The articles are also important for microfinance employees who may wish to open a Retirement Savings Account [RSA] with a Pension Fund Administrator [PFA] of their choice.

In addition to the main cover story, we discuss for your reading pleasure, the problems of transaction based lending as against group lending methodologies. We examined the cost implications of each of the methods and offered our opinion.

The issue of customers’ default was brought to our attention which prompted us to discuss credit default and debt recovery strategies in this edition. We also offered useful tips on debt collection. Also in this edition, is an article on “Common Errors in Micro-Lending”, “Borrower’s Anxieties” and “Micro-business and Equipment Procurement”.

The January/February 2009 edition of the magazine is a complete package for our esteemed readers. We promise we will not disappoint.

Joel I. Ahimie

Should microfinance banks’ operators panic about regulation and supervision of their banks? No, they should not. Regulators mean well for the institutions they supervise and operators should be happy that they [regulators] are in it, in order to help the institutions grow and reduce the level of risk depositors are exposed to. Regulation and supervision help deposit-taking institutions to reduce the risk of disruption that might occur as a result of adverse trading conditions that cause the failure of one bank or multiple bank failures. Another reason why the apex bank regulates and supervises microfinance banks is to reduce the risk of the institutions from being used for criminal purposes such as money laundering and so on.

I decided to have this important topic as the cover page article for the March/April, 2009 edition because of the importance of off-site surveillance and on-site examinations that staff of regulatory bodies are statutorily required to carry out on licensed financial institutions at least once a year. While the exercise is statutory, microfinance banks’ operators’ confuse the essence of supervision and often times feel uneasy about the presence of supervisors in their banking halls and offices and their various demands and requirements which most of them see as unnecessary and disruptive of their operations. The off-site surveillance and on-site examinations are very important and they are meant to check how well licensed financial institutions are managed. This of course, does not require the aggressive and sometimes brazen approach of bank examiners to supervision. That kind of approach confuses and could be scary to microfinance operators who may probably be meeting them for the first time during the recently concluded maiden on-site examination.

The cover article is clear and the message is that regulation and supervision is important to the institutions and the economy. While examiners are physically present in the banking halls doing their job, operators should look beyond the strong mien of the examiners and cooperate and provide them with the information they require. In addition to the cover page article, we feature as usual, People in Microfinance and what they are up to. We also feature customers’ view points about Microfinance Bulletin and how it has affected their businesses. Another major article in this edition is, “How not to run a microfinance bank”. In that article, the unbridled urge to make money is discussed along with errors operators make in creating and developing products. The article also discusses the problem microfinance operators have by venturing into microfinance banking without really understanding it. The subjects of pricing and promotion and placement are also extensively discussed in this issue. We also have in this edition, an article written by Ed Dodson who permitted us to share his experience with our readers. The title of the article is: “Saving the banks from themselves”. It is a must read. It talked about the mistakes banks make and the widespread defaults by borrowers that were given loans to acquire assets. You will certainly gain from his lending experience. In this edition, we had the privilege of meeting with the President of the Microfinance Banks Association, Otunba Olatunde Olowu, and the renowned Fellow of the Chartered Institute of Accountants of Nigeria. His interview and his incisive response to the various issues raised by our correspondent Mr. Michael Aderemi Ashiru is contained in this edition and it is a must read for our readers.

What else do we bring you, the problem of street begging and how they can be rehabilitated and organised by the government and microfinance institutions is discussed by Dr. [Mrs] Buky Ahimie in this edition and of course, our regular correspondent, Dr. Cosmas Alugbuo, the Head of Management Department, Imo State University Owerri, serves his regular topic in management. Finally, we bring you the views of many of our readers about the magazine and what they think about your magazine. Of course, we also bring you the sorry tale of our textile dealers and the Tie & Dye customers from Abeokuta, reports of traders at Owerri and Aba and of course, the experiences of those denied credit facilites by microfinance banks and what they have to say about it.

In conclusion, we hope to continue to serve you with the latest information on microfinance and keep you abreast of developments in the country, abroad and even the mass where I believe microfinance activities are probably going on.

Please take the pleasure in reading this current edition of your Microfinance Bulletin.

Joel I. Ahimie