The Central Bank of Nigeria (CBN) and the International Finance Corporation (IFC) have charged microfinance banks (MFBs) to embrace self-regulation and consolidation in order to enhance performance and sustainability of the sector.
This is just as the National Association of Microfinance Banks (NAMB) has called for standardised performance measures and requirements for operators in subsector.
In her keynote address at the fifth annual symposium of the Nigeria Microfinance Platform held in Ibadan, Oyo State, with the theme, “Self Regulation for Sustainability and Development of the Microfinance sector,” Deputy Governor, Financial Sector Surveillance, Central Bank of Nigeria, CBN, Mrs Aisha Ahmad stressed the need for self-regulation in the MFB sub-sector.
According to her, a comprehensive oversight mechanism was required for effective supervision of microfinance banks’ activities.
Stressing the expectation of the CBN from MFBs in terms of self-regulation, Ahmad, who was represented by Mrs. Tokunbo Martins, Director, Other Financial Institutions Supervision Department (OFISDs) said: “We believe that the effectiveness of self-regulation in driving performance of the microfinance sector depends on an effective and efficient mechanism for addressing non-compliance, standardised performance measures driven by the best performing operators in the microfinance sector.
“It is therefore important that the umbrella associations set the tone right from the onset and clearly communicate their expectations which should be congruent with the regulators’ expectations for the microfinance industry.”
Also speaking, the Country Director of IFC, Mr. Eme Essien noted while self- regulation was important, it would not happen immediately but gradually as operators and regulators work together.
She, however, stressed the need for consolidation in the sub-sector, noting that most of the MFBs in the country were small and their viability is fragile.
She said: “There must be pursuit of consolidation in the sector. We hope that the smaller banks will look for partnership with other larger ones.
“You can join forces, you can grow your network in that way, you can expand your offerings in that way, you can grow the credibility of the sector in that way and you can build trust among customers.
“In fact, overtime we see a very significant benefit in combining businesses. This will also reduce the pressure on the CBN, but broadly it will lead to a high level of sustainability in the sector so that the microfinance sector really has its place in driving financial inclusion in Nigeria.”
NAMB President, Mr. Rogers Nwoke, noted that self-regulation has been one of the cardinal objectives of the association since inception, adding that there was huge prospect for self -regulation in the sector.
He noted that self-regulation would also streamline compliance indicators according to size, status and risk framework of the microfinance banks. He added that in addition to the above self-regulation would grossly reduce cost of statutory regulation and promote consumer protection.
He said the CBN would also have to make MFB ratings a condition to receiving intervention funds and other incentives, and allow for peer-group differentiation, use of external validation, production of scores and penalties for non-compliance.”