Forecasting the future of MFBs as DMBs deepen microfinancing (2)

Last week, we discussed the very important issue of fund gap and fund gap ratio in microfinance, especially in economies like ours, where insecurity and uncertainty have increased the challenge of survival for clients. We centralized the fact that microfinance institutions have a hard time matching their assets with their liabilities. We continue that discussion today.

For microfinance institutions, the challenge of fund gap ia an enduring one. It is a problem that won’t go away in a hurry largely because of the nature and structure of the balance sheet of most microfinance institutions. Of course, this has been compounded by the limited ability of the microfinance industry as a whole to access and mobilize adequate deposits to fund their liabilities.

To a reasonable extent one could say that the industry is doing its level best, within the limits of available resources and enablement, to discharge its function of financial intermediation. However, in the area of deposit mobilization, a lot more need be done.

Let us restate that Gap to total Assets ratio, or simply the Gap position, is calculated by dividing assets maturing (or those eligible for reprising within one year minus liabilities maturing (or eligible for reprising) within one year by total assets. Whatever the outcome of this computation, three important factor come into play. These are the average term of the loan assets and those of the liabilities of the institution as well as its expectation regarding interest rate movement. A positive fund gap at a time when interest rate is expected to rise is a good thing because the institution will gain from reprising its assets at a new higher interest rate. The reverse is the case if interest rate is expected to fall.

The important point is that the microfinance industry should step up its game in deposit mobilization. Negative fund gap, which is a characteristic of the industry is beginning to look like a second nature to the industry. Although interest rates have been relatively stable courtesy of the Monetary Policy Committee, there is no guarantee that this stability will be there for much longer.

Operators, and in particular the microfinance banks, in the country are risking their existence and future by failing to take the deposit side of the business more seriously. There is no doubt that the environment of microfinance in Nigeria has worsened compared to 2005, when the modern industry was born in Nigeria, a lot more can be achieved in the area of deposit mobilization if concerted effort is made to drive deposits, especially at community and grassroots levels.

The ongoing undeclared wars in several parts of the country have shut out large portions of the population from the services of the industry. How microfinance services is reaching the most deserving people in conflict areas should be a research activity of interest to scholars of the subject. Microfinance may be the provision of financial services to the poor but it is not open to every kind of poor person. It is only for the economically active poor people. The bulk of our economically active people are daily being shoved into Internally Displaced People (IDP) camps.

They are attacked and massacred by Fulani herdsmen from outside Nigeria, who overrun and often occupy villages across the country unchallenged. If that doesn’t happen, they are displaced by the Boko Haram fighters, who have come back more fully after the military achievements in trying to dislodge them. Both groups of terrorists seem to have gained an upper hand in recent times such that everybody is at a loss as to what to do. Effective solutions have not yet been found for the herdsmen menace. Taking land from Nigerians and handing over to foreign invaders masquerading as herdsmen to settle them in the name of ranches looks like a national sabotage. It would have been better to first confirm the true identity of these invaders before we settle them in every part of our country.

The killing of over 80 persons and burning down of over 50 houses in Plateau State last weekend, according to reports on television monitored on Sunday evening, has made a big mockery of the Plateau State Governor. It may be recalled that he was in his elements blaming his counterpart in Benue State for legislating against open grazing, which he and people like him, claimed was the reason for the killings in Benue State. Nigeria is undoubtedly in dire straits and so is microfinancing. What could be happening to microlenders in that part of Plateau now?

The entire North-east is a no-go area for microlenders. Nor are the adjoining states better in terms of security of microloans. The fear of the unknown will prevent, even the most ambitious of private lenders, from any “financial rascality” next door to the zone of attacks. Any microlender that granted loans to members of the villages sacked over the weekend knows that something has to be done urgently. What to do immediately the attack happened and at such a large scale is to make serious provision for the loss of the funds. They are not likely to be repaid! Once a person has ended up in such an IDP camp, he immediately ceases to be economically active and becomes ineligible to enjoy the services of a microfinance institution. Microfinancing, stricto senso, does not cater for people merely because they are poor. Only those who have something doing for a living are supported by microfinance. This situation not only jeopardizes the chances of any service provider dealing with such persons, it also signals the loss of any facility previously committed to such a person.

The failure of microfinance institutions to assume their natural role as financiers of microenterprises and the business of the economically active poor holds the seed of the decline of the industry. This niche of financing the economically active poor is like their God-given patrimony and area of comparative advantage. It arose from the failure of the banks to serve the poor. But the banks are coming to terms with the theory of the fortune at the bottom of the pyramid. They are stepping up microlending and learning the ropes fast. Microfinance institutions should do all that is necessary to dominate that space and establish themselves as the most dependable source of small credit and credit services for the poor. Failure to do so is to risk handing back their oil blocks to the banks.