Microfinance Banks Shun CBN Directive on Collateral
- By Saka Khaliq
- Published February 7th, 2011
- News
- Unrated
THERE are indications that majority of microfinance banks nationwide are now accepting collaterals on micro loans. The collateral ranges from cars, receipt of office equipments and fittings (air conditioner, refrigerators and generators, among others). For shop owners, investigation shows that they can stand with valuable tools or equipments in their shops.
BusinessWorld Intelligence revealed that microfinance banks in Lagos for instance, are compelling customers to bring soft collaterals as a prerequisite to secure loans, thus, running foul of microfinance policy which clearly states that microfinance houses are expected to grant uncollateralised credits to the active poor to start a business or sustain existing ones. Investigations also show that the microfinance banks are now more cautious in dealing with customers especially after many of them have closed shop due to the recent failure in the sub-sector. About 103 MFBs licences were withdrawn by CBN for financial weaknesses. Many of them failed because of high bad debts, as debtors relocated and could not be traced, while others refused to pay for different reasons.
Reliable sources within the industry disclosed that MFIs in urban areas like Lagos, Abuja and Port Harcourt are employing this strategy to remain in business. The affected banks who pleaded not to be named said granting of uncollateralised loans in Nigerian environment, especially Lagos, pose a great risk.
Some of the managers of the affected banks said they were pushed to the wall because people flee after collecting loans and several credits were not recovered last year.
Reacting on the development, Mr Lanre Abiola, managing director, Gold Microfinance Bank, said it is high time CBN reviews the issue of credit requirements in microfinance industry, with the hope of either introducing ‘soft’ collateral as security on loans or institute some incentives that will forbid defaults.
Abiola added that many of the operators had to employ task force such as police to recover loans, stating that some people refused to repay because it was not collateralised.
Mr Olufemi Babajide, chairman, National Association of Microfinance Banks (Namb), Lagos State chapter, said he was not aware of any bank accepting collaterals on loans, although he did not rule out the possibility. According to him, “we were not allowed to accept collaterals because if we do so, the active poor may not get financial help.” He said the major problem of the industry is high bad debts, calling on federal government as well as CBN to make it a crime for somebody to default in MFBs.
He also called for the creation of special court that will take care of issues regarding microfinance banks and their customers. “Even in Asian continent, where microfinance is thriving, they have special court for microfinance matters, while there are disciplinary measures against debtors,” he said. “For instance, a debtor in India and China will not be buried after death until his debt is paid.”
BusinessWorld Intelligence revealed that microfinance banks in Lagos for instance, are compelling customers to bring soft collaterals as a prerequisite to secure loans, thus, running foul of microfinance policy which clearly states that microfinance houses are expected to grant uncollateralised credits to the active poor to start a business or sustain existing ones. Investigations also show that the microfinance banks are now more cautious in dealing with customers especially after many of them have closed shop due to the recent failure in the sub-sector. About 103 MFBs licences were withdrawn by CBN for financial weaknesses. Many of them failed because of high bad debts, as debtors relocated and could not be traced, while others refused to pay for different reasons.
Reliable sources within the industry disclosed that MFIs in urban areas like Lagos, Abuja and Port Harcourt are employing this strategy to remain in business. The affected banks who pleaded not to be named said granting of uncollateralised loans in Nigerian environment, especially Lagos, pose a great risk.
Some of the managers of the affected banks said they were pushed to the wall because people flee after collecting loans and several credits were not recovered last year.
Reacting on the development, Mr Lanre Abiola, managing director, Gold Microfinance Bank, said it is high time CBN reviews the issue of credit requirements in microfinance industry, with the hope of either introducing ‘soft’ collateral as security on loans or institute some incentives that will forbid defaults.
Abiola added that many of the operators had to employ task force such as police to recover loans, stating that some people refused to repay because it was not collateralised.
Mr Olufemi Babajide, chairman, National Association of Microfinance Banks (Namb), Lagos State chapter, said he was not aware of any bank accepting collaterals on loans, although he did not rule out the possibility. According to him, “we were not allowed to accept collaterals because if we do so, the active poor may not get financial help.” He said the major problem of the industry is high bad debts, calling on federal government as well as CBN to make it a crime for somebody to default in MFBs.
He also called for the creation of special court that will take care of issues regarding microfinance banks and their customers. “Even in Asian continent, where microfinance is thriving, they have special court for microfinance matters, while there are disciplinary measures against debtors,” he said. “For instance, a debtor in India and China will not be buried after death until his debt is paid.”
