Need for self-regulation in microfinance banks

The need for self-regulation in Microfinance Banks (MFBS) cannot be overemphasised as it enhances performance and sustainability of the sub-sector. The 2011 revised microfinance policy framework prescribes self-regulation by apex associations of Microfinance Banks and Institution.

In view of this, 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 transparency and good corporate governance practices among their members.

Meanwhile, the National Association of Microfinance Banks, NAMB, has called for standardized performance measures and requirements for operators in subsector.

These were highlights of the 5th annual symposium of the Nigeria Microfinance Platform held in Ibadan, Oyo State, with the theme, “SelfRegulation for Sustainability and Development of the Microfinance sector”.

In her Keynote address, deputy governor, Financial Sector Surveillance, Central Bank of Nigeria, CBN, Aisha Ahmad stressed the need for self-regulation in the MFB subsector, saying:

“A comprehensive oversight mechanism is required for effective supervision of microfinance activities of over 900 licensed MFBS; this is where the relevance of a self-regulatory organization comes into play.”

Stressing the expectation of the CBN from Mfbs operators in terms of self-regulation, Ahmad, who was represented by 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, standardized 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, Eme Essien, country director of IFC, noted while selfregulation is important it will not happen immediately but gradually as operators and regulators work together.

She however stressed that in addition to selfregulation, there is need for consolidation in the MFB sector, noting that most of the MFBS in the country are 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, Rogers Nwoke averred that self-regulation has been one of the cardinal objectives of the association since inception, adding that there is huge prospect for self-regulation in the sector.

He noted that self-regulation among other things will eliminate the regulator-anxiety of the operator and enhances compliance, adding that it will 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 will grossly reduce cost of statutory regulation and promote consumer protection.

He however averred that for these to happen there is need to develop effective mechanism for addressing noncompliance, standardized performance measures and requirements driven by best performing operators in sector. He said in addition to these, there must be focus on developing, disseminating and promoting best practice through developing guidelines, ratings and codes of conduct.

He said the CBN will also have to make MFB ratings a condition to receiving intervention funds and other incentives, and allow for peergroup differentiation, use of external validation, production of scores and penalties for noncompliance.”