 Protocol

It is my pleasure to be with you today at this Conference on Microfinance and Enterprise Development organised by the LAPO Institute to present the Keynote Address on “Confronting the Scourge of Poverty through Microfinance: Issues and Challenges”. I commend the LAPO Institute for organising this Conference given the centrality of poverty alleviation to economic growth.
Poverty Issues & Role of MFBs
As you are aware, the Nigeria Deposit Insurance Corporation began operations in 1989 by Decree 22 of 1988 (now repealed and replaced by NDIC Act No 16 of 2006 As Amended).
The Emerging Globalisation in the economic landscape had left in its trails the exclusion of many people from formal financial services. Currently it is estimated that about 2.5 billion people are financially excluded from the formal financial system. If the 2.5 billion individuals are brought into the financial system, additional savings of $140 billion can be harvested (World Bank, 2015).
The scourge of financial exclusion is not limited to poor countries. For example, available statistics indicate that 6% of the adult population in the USA is financially excluded. In Nigeria, it is estimated that about 39.5% are financially excluded and the country targets to reduce the number to 20% by 2020. This is in accordance with our National Policy on Financial Inclusion which was launched by the Central Bank of Nigeria in October, 2012. One of the vehicles to achieve the financial inclusion is through micro financing. Nigeria ranks 152 on the UN’s development index with a 62%, 30% and 18.4% of the population living below the income poverty line, in severe poverty and near poverty respectively (2015 Human Development Report UNDP).
As at 30th June, 2016, the Central Bank of Nigeria had licensed 958 MFBs. The licensed MFBs deposits are insured by the Corporation.
Let me reiterate that one of the key success factors of a viable Microfinance sub sector as a poverty alleviation vehicle is that it should enjoy public confidence and trust. Consequently, for the MFBs to be able to earn the trust of the stakeholders, they must be safe, sound and stable.

 NDIC’s Mandate
As you are aware, a key public policy objective of the Corporation is to provide for an orderly means of compensation for Depositors of Microfinance Banks in the event of failure of any of the institutions through Deposit Guarantee. The Corporation Guarantees payment up to a maximum of N200, 000 to an insured depositor of a failed Microfinance Bank. As a Risk Minimiser with an extended mandate, the Corporation is actively involved in the Supervision of the sub sector to ensure its stability and safety. Pursuant to this, the Corporation in active collaboration with the CBN, mounts Off-site and On-site Surveillance on the Insured MFBs. Other mandates of the Corporation include Bank Failure Resolution and Bank Liquidation.
The Special Insured Institutions Department (SIID) of the Corporation is charged with the responsibility for On-site and Off-site Supervision of MFBs. The NDIC, in collaboration with the CBN, conduct on-site examination of the MFBs to ensure their safety and soundness. For instance in 2014, the NDIC was assigned 250 MFBs by the CBN to examine out of the 882 in operation. The NDIC conducted Compliance/Risk Based examination of 305 MFBs in 2015. Also, the SIID receives regular reports/returns from the banks for analysis to ascertain their financial condition and compliance with rules and regulations.

 Challenges facing Micro Finance Banks
Some of the challenges facing Microfinance banks include the following:
1. Poor Asset Quality
2. Lack of Microfinance knowledge and experience
3. Poor corporate governance
4. Inadequate/lack of rendition of returns to supervisors
5. High operating cost
6. Scarcity of loanable funds
7. Limited outreach and low literacy level.

 Financial & Technical Assistance Framework to Deposit Taking Institutions Having Liquidity Challenges
The Corporation envisaged that some MFBs may have funding challenges requiring liquidity assistance. Accordingly, the Corporation has issued a policy Framework for Financial and Technical Assistance which specifies as follows: “The Corporation shall provide various types of technical and financial assistance in accordance with section 37 {2} (a-c) & section 38 {1} (a-e) of NDIC Act 2006.” The framework provides various prudential thresholds for Supervisory intervention in the event that the solvency and liquidity of any MFB is under threat. Any MFB that exhibits a combination of the thresholds is expected to solicit for short term liquidity assistance from the Corporation. Details of the requirements and thresholds for intervention is available on the Corporations website: www.ndic.gov.ng. To date, the Corporation has received a few applications for financial assistance from some MFB’s, but none has met the requirement.

 Failure Resolution
The Corporation also fulfils its public objective of enhancing public confidence in the sub sector by ensuring prompt resolution and orderly exit of failing and failed MFBs in Nigeria through Failure Resolution and Liquidation. As at 31st December, 2015 the Corporation had ensured orderly closure of 187 MFBs whose licenses had been withdrawn by the CBN. The Corporation had so far paid a cumulative sum of N2.9 billion to 81,328 insured depositors of the failed MFBs as at December, 2015.

 Capacity Building Assistance
To build capacity of the MFBs’ operators, the Corporation in collaboration with CBN, established the Microfinance Certification Programme (MCP) for staff of MFBs to enhance their skills in Micro Finance.
In addition, the Corporation in 2013, 2014 and 2015 organised Sensitization Workshops on Enterprise Risk Management (ERM) for 400 MFBs’ Operators. The effect of the capacity building support has been the observed improvement in Credit Underwriting and Loan Administration Standards of the MFBs.

 LAPO’s Performance
LAPO as at 30th June, 2016 reported Total Deposits of N20 billion, Loan & Advances of N40 billion and Profit After Tax of N2.8 billion. Despite the huge loan portfolio, LAPO’s effective Enterprise Risk Management has resulted in good Asset Quality as it posted non-performing loan ratio of only 2.75% compared to the CBN’s threshold of 5%.
LAPO’s excellent performance has attracted foreign funding of about N10.45 billion to the MFB.

 Intervention Funds, CBN MSME N220 billion
We wish to use this opportunity to call on LAPO and other qualified MFB’s to access the MSME funds of N220 billion for the benefit of their customers and endeavour to use the funds efficiently. Furthermore, we urge LAPO and all other MFB’s to lower their interest rates so as to attract more customers.
The Way forward
Distinguished participants, it is evident that the Microfinance sub sector in Nigeria holds the potentials for achieving its public policy objectives of poverty alleviation, financial inclusion, financial literacy, economic empowerment and economic development. NDIC and CBN will continue to set standards for Asset Quality, Capitalisation and efficient management of MFBs’ Assets & Liabilities for the sub-sector to remain sustainable.

Ladies and Gentlemen, the outlook for the Microfinance subsector in Nigeria is bright. MFBs’ Operators should manage their banks in a very responsible, innovative and prudent manner in the interest of depositors and all stakeholders in order to achieve poverty eradication and enhance the wellbeing of our people.