Implementation Support, Regulation & Supervision for MFBs
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Transcript of Implementation Support, Regulation & Supervision for MFBs
Other Financial Institutions Department (OFID)
Implementation Support, Regulation & Supervision for MFBs
A Paper Presented at the National Start –Up/Sensitization Workshop of IFAD –Assisted Rural Finance Institutions Building Programme
(RUFIN) @NICON LUXURY, Abuja on Feb 2nd, 2010.
By
Adedeji .J . AdesemoyeAssist. Director, Other Financial Institutions
Supervision Dept.Central Bank of Nigeria
Other Financial Institutions Department (OFID)
OUTLINE Introduction-Concepts & Complementary policies
Microfinance Policy Framework Policy objectives Implementation Structure –CBN, Operators, Market &
others Capacity building/Certification process Corporate Governance &Risk Mgt Compliance with prudential requirements Supervisory Framework (Central & Delegated,
Outsourcing Models) Sanitizing the distressed MFBs Expected Implementation supports going forward.
Conclusion & Way forwards
Other Financial Institutions Department (OFID)
Introduction Understanding the MF policy, target& strategies Understanding of complementary policies such as
Consumer Credit Policy &Regulatory framework for Nigeria, Cooperatives policy
Enabling acts of the S.28 of CBN 24 of 1991 as amended, 2007 & S. 56 -60 of BOFIA 25 of 1991 and 2004 provide the legal backing
MF Regulations – Are set of rules of business of business of microfinance to promote orderly development of industry in sustainable way. This codified as guidelines
MF Supervision framework – To ensure compliance with the rules through regular monitoring and where necessary enforce sanctions & penalties
Other Financial Institutions Department (OFID)
Introduction(contd.) Infractions and Deviation must Not be tolerated and Full disclosure must be encouraged to enable market
discipline have effect
Other Financial Institutions Department (OFID)
Microfinance Policy Framework The important role of Microfinance (MF) in
promoting rapid economic growth and rural transformation in emerging economies cannot be over - emphasized. Global empirical evidence clearly shows that access to MF has been an important factor in the growth and development in many countries (developed or developing).
The National Economic Empowerment and Development Strategy (NEEDS) recognizes the importance of access to financial services by micro and small enterprises as a critical element in promoting private enterprise and empowering the most vulnerable groups.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework (contd.) MF has been acknowledged as one of the prime
strategies for achieving the Milliennium Development Goals (MDGs), particularly targets that relate to poverty eradication, gender equality and the empowerment of the disadvantaged groups.
Access to sustainable financial services enables microentrepreneurs to increase income, build assets, gradually create wealth and reduce their vulnerability. Enables households to improve their nutrition, children’s education, health and general living standards; and to foster the social empowerment of women.
Other Financial Institutions Department (OFID)
Introduction (contd.) Recognizing the latent capacity of MF in
economic transformation and encouraged by the emergence of highly successful and fast growing Microfinance institutions (MFIs) around the world, the Microfinance Policy, Regulatory and Supervisory Framework for Nigeria (MF Policy) was enunciated by the CBN and launched by Mr. President on 15th December, 2005.
The rest of this paper is devoted to discussing the policy objectives, the key policy issues as well as the challenges in implementing the MF Policy.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - ObjectivesThe principal objective of the MF Policy is to create MFBs
that are financially reliable, self sustaining and integral to the communities in which they operate, with the potential to attract more resources and expand services to their customers, thereby:
Providing access to financial services for the unserved and vulnerable groups;
Promoting synergy and mainstreaming of the informal subsector into the national financial system;
Enhancing service delivery by MFBs to MSMEs; Contributing to rural transformation; Promoting linkage programmes between DFIs and
MFBs.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Implementation Structure Categories of MFBs
Unit MFBs (N20 million capital base) State MFBs (N1 billion capital base)
Organic growth path for MFBs Ownership
Individuals/groups of individuals; Associations; Co-operatives
Private companies No government ownership - MFBs should be private-sector
driven Ownership diversification is encouraged
Participation of existing institutions Universal Banks – as an activity or product by establishing
subsidiaries or Departments/units for the purpose Community Banks - required to convert on or before 31
Dec. 2007 NGO-MFIs – can transform
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Access to Finance
Provide access to financial services through: Licensing adequate number of (de novo) MFBs. Ensuring that as many CBs as possible are
converted before the stipulated deadline (Dec. 2007), without compromising set standards. This will reduce number of rural–based poor customers that will become deprived of financial services.
Ensuring a good geographical spread of MFBs without compromising set standards (political considerations).
Ensuring licensed MFBs are integral to the communities in which they operate.
Ensuring that the licensed MFBs are truly oriented and practice microfinance.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Access to Finance (contd)
Promote soundness of the financial system by licensing MFBs that are:
Financially reliable and stable and have strong capital base
Self–sustaining institutions Have strong MF orientation Practise good corporate governance Exhibit professionalism
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Capacity Building
Facilitate continous capacity building and development of the fledging MF sub-sector – regulators, operators, service providers and the investing public.
Up-scale skills, technology and infrastructure to be able to compete with in-coming global players.
New skills are required by regulators in MF principles and practice; Risk-based Supervision.
New skills are required by operators in MF global best practice; credit administration; corporate governance; internal controls; risk management; etc.
Higher level of professionalism in line with global standards will be key.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Capacity Building (contd)
Certification Programme Establish an efficient and credible
certification programme for regulators and operators commenced 2009 and service providers subsequently.
Establish high standards for the certificate, benchmarked on international best practices and curricula.
Enforce compliance with the directive to undergo certification within three years.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Corporate Governance Ensure Board members are suitable in line with
the prescribed qualification and experience in the MF Policy and are “fit and proper” persons.
Ensure Board can add value, provide strategic direction and effective oversight.
Management must be suitably qualified, experienced, competent, committed and certified microfinance practitioners. Must also demonstrate high level of integrity and professionalism.
MFB is operating in line with commercial principles, best MF practices and high accounting, auditing and MIS standards.
Enforce the Code of Good Corporate Governance.
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Prudential Requirements Compulsory investment in NTBs (5% of
deposits) Liquidity ratio (20%); Capital adequacy ratio
(10%); Adjsuted capital/net credits (1:10) Maintenance of capital funds (transfers to
reserves) Restrictions on declaration of dividends,
where necessary conditions have not been met.
Single obligor limits: Individuals (1%); Group (5% of SHF); Aggregate insider-related lending (max 5% of Paid-up capital)
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Prudential Requirements (contd)
Equity investment holding ratio (7.5% of SHF)
Provision for classified assets Contingent items: BAs and CPs Limit of investment in fixed assets
(20% of SHF) Revaluation of fixed assets Unsecured lending limits (N50,000)
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Operators Soft Requirements-
Person, knowledge & Skill requirement of the business- it is not all commoners business. It is NOT commercial banking
Appropriate low cost field based model would enhance sustainability
Institutions building support in the form –Manuals, operational policies, procedures etc
Collaboration with Development Partners to leverage on existing knowledge and supports
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Operators Soft
Requirements (contd)
• Governance &strategy development• Credit process• Banking and Treasury operations• Investment &Finance• Savings& deposit mobilization• Risk Management• Human Resources Management• ICT& MIS simple technological platform • Accounting System and Records• Internal Audit and Control
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Supervisory Framework
National Microfinance Policy Consultative Committee
Credit Bureau Promote private sector-driven Credit Bureau to
mitigate the credit risk of MFBs Rating
Promotion of credible Rating Agencies of international standard to carry out institutional assessment
Risk-based Supervision Adopt RBS for MFBs
Self–regulation Establish and nurture a self-regulating MFB umbrella
association
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Supervisory Framework (contd)
Deposit Insurance Establishment of the Microfinance Development
Fund Provision of wholesale funding Promote the development of the industry
Policy implementation Fairness and firmness in implementing the MF Policy Minimizing regulatory arbitrage through periodic
reviews of the policy and guidelines Compliance with Anti-Money Laundering Act 2004
and Know Your Customer (KYC) circulars Insider abuse
Director-related loans Frauds
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Supervisory Framework (Models)
Nigerian model –Central Supervision Central Bank handling the licensing & regulation Central Bank providing supervision and integrating the
structure into National Financial System Advantages are : Resources requirement are centrally provided The image necessary to enforce sound regulation Capacity building and institutional development get
attention It is the most effective and global practice Utilization of branch outlet for outstation gathering Disadvantage –Expensive resource and attention of
central regulator
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Supervisory Framework (contd)
Delegated model –Subsidiary Supervision Central Bank handling the licensing & regulation Other Institution providing supervision and reporting to the
Central Bank Advantages are : Resources requirement are budgeted by National Budget
centrally provided The supervision would be sole and flexible Specialization may be built overtimeDisadvantage –The lost of image necessary to enforce sound
regulation Capacity building and institutional development get attention It is fragmented and may be expensive
Other Financial Institutions Department (OFID)
Microfinance Policy Framework - Supervisory Framework (contd)
Outsourcing Supervision Central Bank handling the licensing & regulation Other Institutions and Agencies providing supervision and reporting to
the Central Bank Advantages are : Resources requirement are budgeted by Budgeted by Central Bank The supervision would be sole and flexible The agent can used for other assignments
Disadvantage –The lost of image necessary to enforce sound regulation Capacity building and institutional development get attention It is fragmented and may be expensive Compromise of standards Expensive in the long run
Other Financial Institutions Department (OFID)
Conclusion & Way forward Uniform ICT platform for the operations, accounting &
report submission to the CBN Capacity building targeted at Governance, Risk
Management & information and Data Management Sustainable low cost model adapted to rural financing
structure & for rapid extension of access to finance in rural communities
Promotion of Rural financial literacy programme as integral part of National Financial literacy programme
Collaboration with Credit bureau & National Identity Management
Integrating Rural Finance into National payment system
Other Financial Institutions Department (OFID)
Conclusion The potential of collaborative effort should be
carefully harnessed and supported in order to achieve the intended objectives.
The synergy between several on going interventions focused at the rural sector should integrated as part of National Rural Finance Development strategy
The role of advocacy and financial literacy programme would in financial education and consumer protection
All these would lead to support effort at establishing sound MFBs at rural sector & in fulfillment of the objective of Microfinance policy