Mergers, acquisition drive activities in microfinance banks

Mergers and acquisition will drive activities in the microfinance sub-sector in the next one and half years, following the recent upward review of the capital requirements of the Nigerian micro lenders.

The Central Bank of Nigeria (CBN) on October 23, 2018, increased the capital requirements of various categories of microfinance banks in the country.

Consequently, the capital requirements of National MfBs has been raised to N5 billion from N2 billion, State MfBs from N100 million to N1 billion and Unit MfBs to N100 million from N20 million.

As disclosed in a circular signed by Kevin Amugo, director, financial policy and regulation, CBN, the new minimum requirement takes immediate effect for new applications while the existing microfinance are required to fully comply by April 1, 2020.

To meet these requirements microfinance banks are advised by the CBN to explore the possibility of mergers and acquisitions and/or direct injection of funds. Already, some consultants are making plans to engage the operators on a capacity building, with the aim of getting them acquainted with mergers and acquisition, create interest and encourage operators to merge.

“With sufficient capital, these Microfinance banks will be in a stronger position to engage competent staff and invest in the right technology. The development will also enhance their corporate governance. This CBN directive will no doubt sanitize the Microfinance sector and further stabilize the financial system”, Uche Uwaleke, professor/head, banking and finance department, Nasarawa State University Keffi, said.

According to him, the whole idea behind Microfinance banks is to have institutions that are in a position to grant micro credit to micro and small enterprises. That he said does not mean that such institutions should be small in size.

“As a matter of fact, they should be large and strong enough to perform their financial intermediation roles. In this regard, the directive to Microfinance banks to have their capital shored up by the year 2020 is welcome”. The reality is that many of the unit Microfinance banks in particular with a minimum capital base of N20 million are financially sick with very high non-performing loans. The weak capital base hinders their ability to engage professionals in their operations as well as put proper risk management framework in place. Little wonder many of them are closing shop and their licenses being withdrawn by the CBN, Uwaleke added.

The CBN said institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations will be allowed to open account at the CBN office within their state of operation.

Such institutions the CBN said would also be channels for micro funding activities of the CBN and the Development Bank of Nigeria (DBN).

Hope Moses-Ashike