news - Nigeria accounts for record 93.79% micro credit demand

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Nigeria accounts for record 93.79% micro credit demand
February 22, 2010

Abuja, February 22, 2010 (Business Day) - While Nigeria may be experiencing hiccups in several sectors, it is nonetheless believed that the country has so much potential in the microfinance market, as it accounts for 93.79 percent micro credit demand to the tune of $19.2 billion (N2.82 trillion), according to a research report by Intellectual Capital Advisory Services (Intellecap).

The nation’s micro credit demand is quite high, compared to what obtains in other countries like Ghana, which accounts for $0.9 billion; Sierra Leone, $0.2 billion and Liberia, about $167.3 million. The report also shows that Nigeria accounts for 0.61 percent Micro, Small and Medium Enterprises (MSME) credit demand to the tune of $17.3 billion, higher than other countries in Anglophone West Africa. For instance, Ghana accounts for about $10.3 billion MSME credit demand, Sierra Leone $0.5 billion and Liberia $0.2 billion.

However, the research report, commissioned by DARC Foundation and Goodwell West Africa, in partnership with Alitheia Capital, JCS Investment and First Bank, explains that the current supply by formal and informal providers of finance has reached only 12 percent of likely microfinance clients (based on IPL), supplying merely 9.4 percent of estimated credit requirements. Estimates suggest that 2.7 million clients were reached out to and $1.3 billion in credit was disbursed in the region in 2007.

Researchers observe that this presents a huge potential for future microfinance activity, fuelled by the right financing and capacity development. It is also believed that the ongoing Central Bank of Nigeria (CBN) target examination of microfinance banks in the country and the certification programme will go a long way towards filling the huge gap.

Last year, the regulatory authority commenced a target examination of MFBs starting with the over 200 microfinance banks in Lagos, and subsequently instructed the institutions that recorded low performing loan to shore up their balance sheets within a specified period.

Also, the CBN, at its Fourth Annual International Microfinance Conference organised in Abuja recently, announced that the chief executive officers of microfinance banks must pass certain examinations or lose their jobs. “The ‘train the trainers’ programme has been concluded to select trainers of MFC operators. Training of MFC management staff and their certification would commence in the second quarter of 2010. All managing directors of microfinance banks that fail to sail through the certification exams after two attempts would cease to manage the banks,” Lamido Sanusi, CBN governor, had told participants at the opening ceremony.

The certification forms part of a capacity-building programme targeted at making the domestic microfinance industry more robust and transparent.

Although the initiative is coming at a time the sub-sector is seriously bedevilled by liquidity crisis which has resulted in so many of them closing shop, the hope is that it would enhance the acquisition of appropriate operational skills on microfinance business models and practices.

However, some operators and industry watchers have commended the regulatory body for taking appropriate action; although they believe it is coming after the sub-sector has already been jeopardised. They believe the capacity-building intervention and consolidation can strengthen the microfinance banks and restore the lost confidence of low-income earners.

A major growth constraint, according to the report, is the amount of funding available to Anglophone West Africa’s microfinance banks. It is forecast that microfinance organisations in the sub region will hold cumulative gross loan portfolios of some $3.1 by 2013. To fuel this growth, microfinance institutions require some $1.6 billion of fresh capital over the next five years, of which $460 million is in equity and $1.2 billion in debt.

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