The federal government recently announced plan to launch Microfinance Development Fund (MDF). But how soon this initiative would come on stream, is yet unknown. However, experts say the proposed project may become another unfulfilled dream. ZAKA KHALIQ writes.
IN what could be described as another promise, the federal government in its usual manner recently announced that it will soon float a Microfinance Development Fund (MDF). Microfinance banks, according to the government, would be eligible to access it. This announcement follows a series of promises by government in the past, to extend funds to microfinance houses in the country. Before now, the federal government promised in 2005 that one per cent of annual capital budget going to state and local governments will be voted to microfinance schemes in respective states, but up till now, the scheme still remains a dream. 
In 2008, however, government, through the Central Bank of Nigeria (CBN), launched a N50 billion Micro Credit Fund (MCF) which till now has refused to fly. The state governments, according to the criteria for accessing it, are expected to access the fund and later disburse it through their partnering MFBs. The only new development in respect of this scheme was that it changed its name from MCF to Microfinance Development Fund (MDF) last year.
Though the recent federal government announcement sounded like a new lease of life for operators of microfinance institutions, experts still believe this could be another empty promise.

FG’s Promise on Microfinance Fund
President Goodluck Jonathan said federal government will partner the Central Bank of Nigeria (CBN) to ensure that a Microfinance Development Fund is established in the country.  The president who stated this recently in Abuja at the 5th annual microfinance conference and entrepreneurial award said the provision of a solid platform for financial inclusion of all economically active poor was paramount to the present administration.  And with about 46.3 per cent of the population financially excluded from the mainstream of the Nigerian economy, he said rise in poverty index poses a serious threat, if this issue is not quickly addressed. The president who was represented by Jubril Martins-Kuye, minister of commerce and industry, stressed that the creation of MDF would, among other things, allow for an accelerated growth in the country’s real-GDP, register increased investment and create additional employment opportunities in order to reduce poverty. 

Lack of Fund as a Major Threat to MFBs
Mr. Akinfalai Seyi, managing director, Elim Microfinance Bank predicted that if some of the 103 liquidated banks had gotten rescue fund, some of them might still be in business, a development, he said, would spread the services of MFBs across board. 
While financial helping hands are being extended to nine rescued banks in the financial sector, exactly at a time microfinance banks are having liquidity challenges, operators of microfinance banks watched helplessly, hoping that ‘mother luck’ will come their way one day, he said.
Mr. Lanre Abiola, chairman, Gold Microfinance Bank disclosed that challenges in the industry are bound to occur because microfinance is a new concept in Nigeria. He added that a regulatory body like CBN should have initiated moves to unveil rescue funds for micro banks, instead of coming out with a revocation plan that nearly collapsed what it intended to build. “Earlier enough, the apex bank should have unveiled a rescue fund for operators. If that is done, the case of mass revocation that led to confidence crisis and huge withdrawal may not have arisen. Then, by now, the industry could be on its way to profitability,” he reasoned. He said though the action of CBN is understandable, but if proactive measure like unveiling a rescue fund is initiated in the past, the casualties would be minimal and as such, the confidence level will be tolerable.
 
Operators Reaction
Managers of microfinance institutions fear more MFBs might collapse before the year end, if the federal government fails to stick to its promise.
With failure of CBN to guarantee offshore funding, operators said lack of financial assistance from government may spell doom for the industry, as micro banks continue to face dwindling credibility. This, they said, did not allow MFIs to mobilise deposits from the grassroots, thus, the need for bailout funds for survival. Most of them regretted floating MFBs, saying that the liquidated institutions might still be in business if they have access to bailout fund, just as was done to nine commercial banks last year.
Mr. Akinfalai Seyi, managing director Elim MFB, said, “The government needs to establish a fund for MFBs and highlight the criteria for accessing it. This will allow those who met the requirement get fund, while those who are unable to do so will hasten up to meet the requirement.”  Mr Lanre Shotunde, managing director, Parkway MFB believes proper pursuit of this dream project would change the fortune of the microfinance industry for better, advising that if the fund kicks-off as planned, the criteria should be flexible enough for all the banks to fulfil. This, he said, may impact positively on the books of microfinance firms, thus bringing them out of the mud.

Advantages of MDF
Mr. Olufemi Babajide, acting chairman, National Association of Microfinance Banks (Namb), Lagos State chapter gave kudos to the federal government on its promise to unveil MDF, stating that the actualization would automatically crash interest rates of microfinance banks.
“Most of the people are criticizing us for charging high interest rate. This is due to lack of cheap funds in the sub sector, but the establishment of microfinance development fund would lower our interest rate. The federal, states and local governments, he said are supposed to set aside one per cent of their budgets for on-lending as enshrined in the microfinance policy. But it is sad that as we speak, that has yet to happen,” he stated.
To him the federal government’s promise to establish MDF would crash interest rates.
 Apart from this fund, he said the association has sealed a deal with Oiko credit, a Dutch firm, to extend cheap funds to its members. He stated that the 187 MFBs in Lagos can benefit from this scheme. This initiative coupled with the proposed federal government plan, he said, will make MFIs survive the test of time, while protecting them from operating and liquidity shocks.

Conclusion
Expert say if there is flow of cheap funds into the microfinance industry, banks will have financial muscle to extend services beyond their immediate environment to the hinterland, so there could be even distribution of microfinance services. Operators however said the requirement for accessing the fund should not be too rigid such that only few banks can access. They believe every institution should qualify for it saying, “there should not be sacred cows in accessing and distribution of the fund.”
“By this announcement, the federal government has laid an egg. This egg must be hatched and taken care of to make sure it grows into a fully grown cock. At this stage, we can now say this is a dream come true,” Mr Moses Ajao, managing director, Glory MFB said. However, one of the operators said this may be one of those government’s announcements that may in the long run end up in the dust-bin. While the pronouncement was highly welcomed by managers of MFBs, there were anxieties as to whether the policy would come to fruition.