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Weak institutional capacity as bane of micro-finance banks
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The high expectations of great contributions to a robust economy and the 2020 vision of the Central Bank of Nigeria (CBN), from microfinance banks, MFBs, may not be fully realised, unless owners and managers of MFBs address the issue of weak institutional capacity.
This view was expressed by Yinka Oluwasanmi, chief executive officer of Integrated Software Services Limited, a leading software development and consulting company, in an interview with Business Day.
Oluwasanmi explained that weak institutional capacity was one of the major reasons identified by the CBN, in its “Microfinance Policy, Regulatory and Supervisory Framework for Nigeria,” published in December 2005, for the sub-optimal performance of erstwhile community banks. He explained that this included incompetent management, weak internal controls and lack of deposit insurance schemes. He added that institutional capacity also included poor corporate governance and lack of well defined operations. The ISSL CEO stated that he was “particularly concerned about weak internal controls and poor corporate governance” in a significant number of the existing microfinance banks.
The CBN microfinance policy was expected to achieve the following objectives: Make financial services accessible to a large segment of the Nigerian populace; promotion of synergy and mainstreaming of the informal sub-sector into the national financial system; enhancement of service delivery by microfinance institutions to micro, small and medium entrepreneurs; and promotion of linkage programmes between universal and development banks, specialised institutions, and microfinance banks, among others.
Targets expected to be achieved by the CBN policy include: Coverage of the poor but economically active population by 2020 in order to create millions of jobs and reduce poverty; increasing the share of micro credit as percentage of total credit to the economy from 0.9 percent in 2005 to at least 20 percent in 2020; and the promotion of at least two-thirds of state and local governments in micro credit financing by 2015. Other targets envisaged in the policy include the elimination of gender disparity by improving women’s access to financial services by five per cent yearly; and increasing the number of linkages among universal banks, development banks, specialized finance institutions and microfinance banks by 10 percent yearly.
Oluwasanmi points out that a healthy and vibrant microfinance sub-sector, as envisaged by the CBN, “is possible and very achievable, if we make use of lessons learnt from the past and positively and vigorously address the challenges.” One of the key lessons, he emphasised, “is the need for the elimination or minimisation of fraud through the institution of very good internal controls”. This, he said, can be achieved through the installation and operation of the right softwares.
The ISSL CEO further pointed out that microfinance banking is a specialised area of business which requires its own special softwares for effective and optimal operations. He disclosed that “some of the erstwhile community banks, and indeed, some of the current microfinance banks operate on non-bank information technology platforms. Some of them use anything they can lay their hands on!”
Oluwasanmi added that, in addition to the need for microfinance bank specific softwares, Nigeria-based microfinance banks ought to use softwares that have built-in features that take into consideration the peculiarities of the Nigerian operating environment, cultures and traditions. He stated that “there are quite a few indigenous software developers who have made serious efforts and have developed robust softwares suitable for the Nigerian microfinance banks, and these softwares are also amenable to the linkage with universal banks as envisaged by the CBN policy. Take my company, ISSL, for example. We have developed what we call ‘IntegraBanking’, software that enables microfinance and mortgage banks run with ease.
Some of the features of ‘IntegraBanking’ software include user-friendly and flexible usability, unbreakable security, and flexible architecture scalable from one unit bank to multi-branch banks. Most importantly, we have also built in Nigerian peculiarities like ‘esusu’, ‘ajo’, and CBN requirements”.
Oluwasanmi disclosed that because of the position of ISSL in the Nigerian software industry and particularly the microfinance bank segment, ISSL has established an advisory unit for Nigerian microfinance bank operators.
Commenting on competitive portents in the microfinance banks segment, particularly, against the entry of universal banks-backed MFBs and those set up as a result of associations or affiliations with successful international banking institutions, Oluwasanmi pointed out that “there is room for all. The market is a very big one and the expectations both from the government and the people are very high. One unit MFBs and indeed, MFBs licensed to operate in a State, need not fear. They can operate successfully, particularly, with indigenous software advantage”.
Oluwasanmi explained that weak institutional capacity was one of the major reasons identified by the CBN, in its “Microfinance Policy, Regulatory and Supervisory Framework for Nigeria,” published in December 2005, for the sub-optimal performance of erstwhile community banks. He explained that this included incompetent management, weak internal controls and lack of deposit insurance schemes. He added that institutional capacity also included poor corporate governance and lack of well defined operations. The ISSL CEO stated that he was “particularly concerned about weak internal controls and poor corporate governance” in a significant number of the existing microfinance banks.
The CBN microfinance policy was expected to achieve the following objectives: Make financial services accessible to a large segment of the Nigerian populace; promotion of synergy and mainstreaming of the informal sub-sector into the national financial system; enhancement of service delivery by microfinance institutions to micro, small and medium entrepreneurs; and promotion of linkage programmes between universal and development banks, specialised institutions, and microfinance banks, among others.
Targets expected to be achieved by the CBN policy include: Coverage of the poor but economically active population by 2020 in order to create millions of jobs and reduce poverty; increasing the share of micro credit as percentage of total credit to the economy from 0.9 percent in 2005 to at least 20 percent in 2020; and the promotion of at least two-thirds of state and local governments in micro credit financing by 2015. Other targets envisaged in the policy include the elimination of gender disparity by improving women’s access to financial services by five per cent yearly; and increasing the number of linkages among universal banks, development banks, specialized finance institutions and microfinance banks by 10 percent yearly.
Oluwasanmi points out that a healthy and vibrant microfinance sub-sector, as envisaged by the CBN, “is possible and very achievable, if we make use of lessons learnt from the past and positively and vigorously address the challenges.” One of the key lessons, he emphasised, “is the need for the elimination or minimisation of fraud through the institution of very good internal controls”. This, he said, can be achieved through the installation and operation of the right softwares.
The ISSL CEO further pointed out that microfinance banking is a specialised area of business which requires its own special softwares for effective and optimal operations. He disclosed that “some of the erstwhile community banks, and indeed, some of the current microfinance banks operate on non-bank information technology platforms. Some of them use anything they can lay their hands on!”
Oluwasanmi added that, in addition to the need for microfinance bank specific softwares, Nigeria-based microfinance banks ought to use softwares that have built-in features that take into consideration the peculiarities of the Nigerian operating environment, cultures and traditions. He stated that “there are quite a few indigenous software developers who have made serious efforts and have developed robust softwares suitable for the Nigerian microfinance banks, and these softwares are also amenable to the linkage with universal banks as envisaged by the CBN policy. Take my company, ISSL, for example. We have developed what we call ‘IntegraBanking’, software that enables microfinance and mortgage banks run with ease.
Some of the features of ‘IntegraBanking’ software include user-friendly and flexible usability, unbreakable security, and flexible architecture scalable from one unit bank to multi-branch banks. Most importantly, we have also built in Nigerian peculiarities like ‘esusu’, ‘ajo’, and CBN requirements”.
Oluwasanmi disclosed that because of the position of ISSL in the Nigerian software industry and particularly the microfinance bank segment, ISSL has established an advisory unit for Nigerian microfinance bank operators.
Commenting on competitive portents in the microfinance banks segment, particularly, against the entry of universal banks-backed MFBs and those set up as a result of associations or affiliations with successful international banking institutions, Oluwasanmi pointed out that “there is room for all. The market is a very big one and the expectations both from the government and the people are very high. One unit MFBs and indeed, MFBs licensed to operate in a State, need not fear. They can operate successfully, particularly, with indigenous software advantage”.
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