The document discusses the future of microfinance in Nigeria and the role of the Central Bank of Nigeria. It summarizes the key points of the 2005 Microfinance Policy and highlights the factors that have contributed to persisting gaps in access to financial services. It then outlines the major revisions made to the policy in 2011, including changes to capital requirements for microfinance banks. Finally, it lists several next steps that will be taken to further promote microfinance and financial inclusion in Nigeria, such as capacity building programs, strengthening linkages between institutions, and collaborating with development partners.

1. THE FUTURE OF MICROFINANCE IN NIGERIA: THE ROLE
OF THE CENTRAL BANK OF NIGERIA, REMARKS BY THE
DIRECTOR OF DEVELOPMENT FINANCE DEPARTMENT,
CENTRAL BANK OF NIGERIA AT THE WORKSHOP ON
MICROFINANCING AS A TOOL FOR POVERTY
ERADICATION AND ECONOMIC GROWTH IN NIGERIA.
HELD AT SHELL HALL, MUSON CENTRE, ONIKAN,
LAGOS ON MONDAY, 5TH SEPTEMBER 2011 1

2. § Protocol
§ Despite Nigeria s enormous human and material
resources, it has not met the desired objectives on a
number of development indices, among which are
the current low per capita income and 54% poverty
prevalence level (people living below $1 a day). The
2009 UNDP Human Development Report estimated
that the life expectancy in the country is about 48.4
and that the human development index is 0.423
which ranks Nigeria as number 142 out of 174
countries in the world.
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3. § Poverty and economic disadvantage emanate from
accidents of birth, natural disasters, environmental
and climatic factors, economic dislocation and other
sociopolitical dysfunctions. The malaise reflects in
malnourishment, inadequate educational attainment,
poor and frail physiological and psychological state,
mental incapacitation, poor housing/clothing and
bleak future. In most cases, those entrapped by
poverty are unable to come out of it through their own
personal efforts, and thus require some external
interventions.
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4. § Poor people however, represent important economic agents in
Nigeria. They are in agriculture, agro-allied processing, crafts,
artisanship, trading and provision of various goods and services.
Microfinance buoyed by necessary policies, framework and
guidelines has been adopted as a strategy to increase access of
the poor and low income population to financial services across
the globe. In Nigeria, a plethora of interventions have been
undertaken by government at federal, state and local
government levels, the Central Bank of Nigeria, conventional
banking community, development partners and a host of other
relevant stakeholders. The sub-optimal performance of theses
attempts and participation of stakeholders coupled with the low
impact necessitated the launching of the Microfinance Policy,
Regulatory and Supervisory Framework for Nigeria in December
2005. 4
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5. § The policy recognized microfinance as the provision
of services such as credit, savings, payment
services, micro leasing and micro insurance to micro
entrepreneurs under flexible and affordable terms
and conditions. The essential targets of the policy
were poor people especially women, located in the
urban, peri urban and the rural areas
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6. § Specifically, the policy targets to improve on the
share of micro credit as a percentage of total credit
and GDP, access of women to financial services and
linkages between conventional and microfinance
institutions. An assessment of the microfinance sub-
sector since the launching of the policy revealed
heightened awareness among stakeholders,
increased number of licensed microfinance banks
(866) and improved capacity building, promotional
and regulatory machineries. Accordingly,
entrepreneurs are increasingly demanding for
financial services such as credit, savings, payment
services, financial advice and non-financial services.
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7. § However, a study carried out by Enhancing Financial
Innovation and Access (EFInA) in August, 2010
revealed that 39.2 million representing 46.3 per cent
of the adults in Nigeria were excluded from financial
services. Also, the results of the survey revealed that
Nigeria was lagging behind South Africa, Botswana
and Kenya with 26 per cent, 33 per cent and 32.7 per
cent in financial exclusion rate, respectively.
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8. § Several factors have accounted for the persisting gap
in access to financial services namely;
§ Lack of needed organizational, structural and institutional
changes as stipulated in the regulatory guidelines for
microfinance banks, particularly those that converted from
community banks.
§ Unwillingness of existing NGO-MFIs to upgrade to
microfinance banks because of fears that the attendant
regulation might impede their accustomed operational
practices and expansion drive.
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9. § Corporate image challenges owing to sub-optimal financial
ratings, governance and risk management practices,
inefficient operations, and liquidity constraints found in
microfinance banks
§ Dearth of requisite practical microfinance skills among the
institutions, as most of the microfinance banks recruited
many of their staff from commercial banks staff that were
downsized in the wake of consolidation.
§ Ostentatious mode of operations accentuated by over-
.investment in fixed assets, and hence inadequate attention
to necessary research, product development and marketing.
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10. § Lack of sufficient own funds by MFIs to meet the
requirements of their clients owing to low savings
mobilization and unwillingness of commercial banks to
extend on-lending and refinancing facilities to them.
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11. § It is against this background that the 2005 Microfinance
Policy was reviewed in March, 2011. The major highlights
of the review are as follows:
Capital Requirements for Microfinance Banks
Former Policy Revised Policy
a) N20 million for Unit MFBs a) N20 million for Unit MFBs
b) N1 billion for State MFBs b) N100 million for State MFBs
c) N2 billion for National MFBs
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12. § Participation of Existing Institutions
§ Deposit Money Bank (DMB) wishing to engage in microfinance
services can continue to do so through a designated
Department/Unit and/or offer microfinance as a financial product.
Holding Companies having a DMB as a subsidiary can invest in or
own an MFB.
§ Unregulated credit-only, membership-based microfinance
institutions such as NGOs, Financial Cooperatives can engage in
the provision of microcredit to their targeted population but shall not
mobilize deposits from the general public. An existing NGO-MFI or
Financial Cooperative could incorporate a subsidiary MFB while still
carrying out its NGO operations or transform to a MFB, subject to
meeting stipulated provisions in the revised Regulatory and
Supervisory Guidelines for MFBs.
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13. § Removal of the Provision for Organic Growth
Path for Microfinance Banks.
§ MFBs can now move to another State if they have
established at least 5 branches in their original State of
operation as against branches in 1/3 of Local Governments
Areas in the previous policy.
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14. § Microfinance Development Fund ((MFDF)
§ The revised policy recognizes the need for the Fund to give
support to MFBs and MFIs that are doing well, to do more,
expand outreach and provide effective and efficient financial
services. Efforts are being made by the Bank to ensure its
establishment.
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15. § Special capacity building provisions have been
provided for the following stakeholders in the revised
policy:
§ Supervisors
§ Operators
§ Clients of the Institutions.
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16. § Next Steps for the Orderly Growth of the
Microfinance Sub-Sector
Garnering from the experiences gained in the
implementation of the microfinance policy in Nigeria,
further strategies that would enhance the success
and impact of microfinance on poverty alleviation in
Nigeria will be undertaken.
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17. § 1. The Bank will engage in aggressive awareness
campaigns and capacity building for stakeholders
in the microfinance sub-sector to improve their
financial services delivery strategies and further
promote the establishment and or development of
the following:
§ Microfinance Certification programme.
§ Credit Bureaux.
§ Rating agencies
§ Micro, Small and Medium Enterprise Development Fund.
§ Apex Association of microfinance Banks and unlicensed
microfinance institutions.
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18. § 2. In order to continue to attract the participation of
commercial banks in microfinance activities,
we shall endeavor to forge strong linkages
between MFIs and such banks and encourage
them to engage in downscaling activities to micro
clients.
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19. § 3. In addition to the review of the policy, the Bank in
collaboration with the United Nations Development
Programme (UNDP) has engaged Consultants to
draft a Microfinance Development Strategy for
Nigeria. A Round table meeting held on 17th and
18th August at the Rock View Hotel, Abuja to garner
stakeholders inputs into the strategy document. The
aim of the strategy is to specifically apportion detailed
roles to stakeholders in pursuit of the achievement of
the policy targets.
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20. § 4. The CBN Management has approved the
establishment of three additional Entrepreneurship
Development Centres (EDCs), one each in North
East, North Central and South South following the
successes and gains being experienced in the
piloting of the programme in North West (Kano),
South East (Onitsha) and South West (Lagos). The
aim of the centres is to build the capacity of small
entrepreneurs and customers to make them
bankable.
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21. § 5. The Bank recently launched the Nigeria
Incentive-based Risk sharing System for
Agricultural Lending (NIRSAL) to increase access
of various clients in the agricultural value chain,
particularly the smallholder producers to financial
services. The system would create
attractiveness/profitability by de-risking the
agricultural value chain, and provide incentives that
would make banks see business cases and lend with
confidence to the sector. The Central Bank of Nigeria
will vigorously pursue the implementation of the
programme along the Bread Basket model with all
identified and willing stakeholders
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22. § 6. In order to further improve the level of access to
financial services, the Bank has engaged the
services of Messrs Roland Berger, a Strategy
Consultant based in Germany and EFInA (Enhancing
Financial Innovation and Access), along with relevant
Departments of the CBN and other key stakeholders
to draft a comprehensive Financial Inclusion
Strategy for Nigeria.
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23. The strategy will be expected to articulate appropriate
and enhanced models for implementing the following
in Nigeria:
§ Mobile banking
§ Agent banking
§ Financial literacy
§ Consumer protection
§ Non-interest banking
§ Point of sale services
The Bank recently joined the Alliance for Financial
Inclusion (with about 78 global members) and the
International Network for Financial Education. Its
membership would enable it share and benefit from
knowledge exchange offered by the organizations to
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further its financial inclusion programme. 23

24. § 7. Collaborations with development partners in
conceptualizing their intervention programmes will be
pursued. The Bank shall also continue to participate
in the implementation of their ongoing programmes
such as the Rural Finance Institution Building
Programme (RUFIN) of the International Fund for
Agricultural Development, the World Bank MSMEs
Nigeria Project and the Sustainable Economic
Development in Nigeria (SEDIN) initiative of the
German Development Cooperation (GIZ).
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25. § In Nigeria, microfinance continues to be a major
plank for addressing poverty, promoting accelerated
economic engagement by the poor and by
implication, exponentially creating a growth and
development. The ensuing challenges and gaps in
the microfinance policy implementation process are
necessary experiences for innovating and adopting
workable strategies. It is expected that with
concerted efforts of the government, Central Bank of
Nigeria, and indeed all stakeholders, micro financing
will succeed as an intervention in Nigeria.
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26. CENTRAL BANK OF NIGERIA,
ABUJA.
SEPTEMBER, 2011
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