COVID-19: Exclusion of MFBs from CBN’s N50bn disbursement undesirable for SMEs– NAMB President

Mr. Rogers Nwoke is the immediate past managing director of HASAL MFB Ltd and current president of the National Association of Microfinance Banks (NAMB). In this interview, he shared his views on the CBN’s interventions during the COVID-19 pandemic, how the involvement of microfinance banks (MFBs) would have deepened the impact and other issues critical […]

Mr. Rogers Nwoke is the immediate past managing director of HASAL MFB Ltd and current president of the National Association of Microfinance Banks (NAMB).

In this interview, he shared his views on the CBN’s interventions during the COVID-19 pandemic, how the involvement of microfinance banks (MFBs) would have deepened the impact and other issues critical to the attainment of the National Financial Inclusion Strategy’s objectives.

 

Appraising the COVID-19 pandemic impact on the economy from monetary policy perspective, would you say Nigeria was strongly positioned to cope with the challenges before it broke out. If no, where do you think the lapses were?

Monetary policy is about ensuring that there is adequate liquidity in the economy to power the economy for its operations. I think the banks have not done badly. The banks have come in handy depending on the nature of the transactions that people were locked down and were not able to come to the banks, yet transactions were going on, ATMs were working, electronic transfers are being made. It shows the level of sophistication that the Nigerian payment system has achieved. However when you look at the monetary policy on the impacts on individuals and households, you ask what more could we have done. People were not prepared for this development and many people were cash trapped, as the ATMs were working you take money from the ATM if you have money in your account. I think that because of the sudden nature of this pandemic, people were not expecting it, the CBN could have done a lot more by motivating the banks to provide short term liquidity, loans and advances to individuals and to households.

Some CBN incentives could have helped to make this possible. People had resorted to taking some handouts, thereby putting a lot of pressure on their elected representatives and government, everybody asking for help to feed. I feel like we would have done a lot better if we have incentivised the financial institutions to give people short term liquidity, people who would have taken the equivalent of their one month salary in advance and other forms of short term liquidity that would have helped people cope with the cash strapping that has happened on account of COVID-19. You also look at the potential guidelines; one area that we would get very huge impact is in the quality of loans. CBN would need to look at different levels of forbearance and support to the banks. This wouldn’t be the time to insist on prudential provisions for bad loans, otherwise capital would be eroded within a very short term. We need to look at that, we need to also look at how MSMEs can cope with paying salaries this period that their employees are not at work given that their revenues have tilled out, it becomes a big burden to meet up with wage bills. So, I think there are places we would have done more and a lot better injecting more liquidity into the system, getting cash to move around a lot more freely at this period. People would have been better for it.

The implementation of the National Financial Inclusion Strategy (NFIS) has been one of the cardinal objectives of the monetary policy authorities over the past few years to capture the unbanked, particularly in the grassroots, into the banking system net. Sir, based on your practical assessment of the results of the strategy’s implementation so far, are you satisfied with the achievements recorded?

The National Financial Inclusion strategy has been on course. The NFI Secretariat at the CBN has been working very hard with the steering committee. We have moved a long way but our target is still far from been achieved. I think the critical issue is aligning the NFI strategy with all other strategies we have put in place and making them come out as a direct output of the several policies in this direction. Take for example the National Microfinance policy is targeted at driving financial inclusion. The National Financial Inclusion Strategy has microfinance at its component part but in the day to day implementation, body language and activity of government, microfinance banks have been excluded from the everyday government activities that drive financial inclusion. Several intervention programmes such as the Anchor Borrowers programme, the Trader Money, and others are being done or implemented without involving the microfinance banks. Yet, it is these banks that are at the grassroots, it is these banks that are where people who have been excluded exist. So, I think that we can do a lot more to improve on our target. So far, the year 2020 is supposed to help us come down to an exclusion rate of about 20 percent, but the COVID-19 pandemic has put a lot of pressure on all targets. It’s probably a bit difficult to say now whether we will meet the target or not, I guess once this is over, the implementation and strategy committee, steering committee of NFIS should be able to meet and review targets and action plans for it and we can then come up with new plans and targets.

Again, coming back to the COVID-I9 scourge, the CBN has in the past two months been championing the intervention funds options to support the fiscal authorities in the efforts to frontally combat the pandemic and mitigate the impact on the economy. Sir, could you comment on the COVID-19 intervention funds’ disbursements so far, particularly where you feel the DMBs should have been involved?

Yes, the CBN reacted almost immediately to announce several palliatives totalling about N3.5 trillion to different sectors of the economy. That was good, that was prompt. But implementation is what we look out for. If I go straight to the one that concerns my sector, we were excited at the announcement of N50 billion palliatives initially, but we are saddened that N50 billion meant for MSMEs was going to be disbursed through only NIRSAL Microfinance Bank. That’s not practicable, if we want to reach out to MSMEs and we can see clearly the impact. It is only a few days ago that the newspapers reported that NIRSAL MFB is now ready to begin disbursement, and I think that the delay is that they are overwhelmed considering that it is a new bank and its spread is restricted. Even if the NIRSAL MFB has opened branches in every local government or every state, it wouldn’t have had spread in those states, it will be at best a branch in the state capital. You can’t reach MSMEs in Nigeria through such a structure. I think that it’s fundamentally flawed that only one national microfinance bank is used. It is also important to say that N50 billion is too small considering the size of the MSME market in Nigeria. I think that the CBN should release additional N50 billion through other MFBs to facilitate speedy disbursement to more MSME owners because this will be to existing customers of the banks. We can reach out, we can reach these people faster and a lot more efficiently.

One of the major arguments of NAMB is that the monetary authorities are not creating a level playing ground for MFBs in the various funds created so far to grow the MSMEs. Could you update the public on the present situation as it relates to involving more MFBs to access the funds?

There is no level playing ground for microfinance banks in Nigeria. We are not able to meet the needs of MSMEs, in terms of their banking needs. The N220 billion MSMEs’ Fund is no longer being disbursed and the micro housing scheme is closed. As it is right now, there is no intervention fund that is available for microfinance banks to draw on. Yet, there are several other funds available for the deposit money banks. Yes, I can confirm to you that as things are now, there is no level playing ground in the MFB financial sector.

The CBN a few weeks ago extended the MFBs’ recapitalisation by one year apparently aware that the COVID-19 pandemic will impact negatively on the banks’ operations. Could you share your views on the deadline extension for MFBs and implications for operators and the economy?

We thank the CBN for extending the capital requirements deadline for Microfinance banks to April next year and we had asked and requested the CBN to do that extension to year 2023. Well, I guess that the pressures of this lockdown period may not have given them the time to thoroughly and critically look at this. We appreciate that the next 12 months will be a good time for the CBN to truly take another look on the recapitalisation matter. In the situation that we are getting into, increase in minimum capital is not a priority, what should concern the CBN right now is how to save the banks and indeed other small and medium sized companies from the pending crises that the COVID-19 pandemic will impose on us. I think that the CBN should put a hold on the minimum capital base increase for microfinance banks until we can adequately deal with the issue that this pandemic will raise in the economy. But if we must look at it, the earliest that microfinance banks and other small companies will begin to return to normalcy in their business operations or activities will not be less than two years and I think that after two years we may begin to consider again if increase in minimum capital is required. We thank the CBN for the 12-month extension, but we strongly believe that they should take another look at it again. I strongly feel that more time is needed for the MFBs’ recapitalisation issue in the event that they cannot put it on hold for now.