I do not know how many of our compatriots have been following the revolution quietly going on in banking in this country as a result of the activities of the Micro finance banks which were recently licensed by the Central Bank to extend credit to the dominant but active poor in our country. The airwaves are now dominated by news of Micro finance banks which are extending credit to women mechanic or you read of products which would require patrons to develop a relationship by opening accounts with initial deposits which is as low as N200-500 and daily repayment which is as low as N20 per day. I should guess that it has never been contentious that a predominant proportion of our population is poor and very poor indeed. Various estimates of the poor in our society have varied from 50 to 65 per cent of the population. Often this incidence of poverty from the perspective of global relative positioning is benchmarked by the estimation of the percentage of the population that lives with less than one dollar a day. But from the perspective of access to institutional credit it is estimated that the totality of the poor averaging 65 per cent can not avail themselves of credit from the banks and other related formal institutions. Therefore the only recourse for credit by the poor has been the informal market where money lenders and other organized informal channels, such as esusu, rule the waves.

But in the context of this realization we cannot realistically be talking of making any meaningful impact on poverty alleviation if such a dominant proportion of our population cannot be mainstreamed into accessing institutional credit. And this situation no doubt constrains the capacity of the monetary authority to deliver on its mandate of regulating money supply and the much sought after price stability. Enter microfinance banks!

A micro finance bank is distinguished by the quantum of deposits it accepts, the smallness of the loans it extends, the simplicity of its operations and the fact that it is not expected to do asset-based collateral lending which is a proven impediment that had marginalized the poor from accessing institutional credit. The authorities in an attempt to mitigate these constraints to access to institutional credit have evolved various schemes over the years some of which well thought through and some from conceptualization were ab initio not designed to be sustainable and long lasting. In this regard one would recall the introduction of the People's Bank during the Babaginda era which pulled the feat of having that irrepressible iconoclast, also of blessed memory Tai Solarin as the pioneer Chairman. The People's Bank from its modus operandi was like an attempt to give some handouts to the poor. There was no concerted effort made to put robust structures in place and from the perspective of the quality of management, the systems and procedures and the quality of internal control it was obvious that sufficient home work was not done before the establishment of the Bank and therefore it was little wonder that this effort before long came a cropper!

Then the concept of Community Banks was introduced which on inception in 1990 had an initial mandatory capitalization of N 250,000 but which had been raised to fN5million at the onset of the Micro finance banks. The Community banks were essentially supposed to be unit banks which were owned by the community hence the name of this category of banks, and which were meant to operate catering to the needs of the community. But these banks breached virtually every condition for their existence. Contrary to procedural guidelines, community banks offered products and services that were the exclusive preserve of the regular banks. Before long, the community banks were affected by problems which arose because of their weak capital base and poor quality management which resulted in pervasive distress. The community banks that survived until the commencement of the micro finance banks have been mandated to transmute to microfinance banks having satisfied the basic requirements for operation.

The microfinance banks which were meant to cater to the needs of the active but dominant poor segment of our population were licensed by the Central Bank in two distinct categories. There are the unit microfinance banks that would operate from just one location which were licensed to commence operations with a minimum capitalization of N20million but which could expand based on their ability to muster additional N20million for each subsequent location. And there is the other category which is allowed to commence operations state-wide but which would need an initial minimum capital of N1billion. Like most things in this country the race is on to license microfinance banks and they are beginning to proliferate. In fact someone has argued that this a clever way for the Central Bank to respond to the criticism of the Consolidation exercise, that of one size fits all, from the perspective of the uniform capitalization requirements for all banks in the country.

Some of the criticism of the operations of microfinance banks so far stem from some of the operators who decry the fact that the regular banks are also reaching back to open microfinance banks making the playing field unleveled for those who do not have such pedigree. Well, the Act allows such banks to do so and therefore except and unless the Act is reviewed there is not much any one can do about that. My particular concern is the question of mindset. Can the leopard change its spots? Will these banks establishing microfinance banks be able to cultivate a mindset that would enable them to play according to the rules? Or would it be another opportunity for contamination through the perpetration of sharp practices? There are also complaints regarding the level of interest charges by Micro finance banks.

My view is that we must put things in perspective. I am sure that what ever the charges are currently, they must represent a fraction of what prevailed in the market hitherto. The operators have justified the charges based on the rationalization of lack of economies of scale in their operations and the imperative need to make a profit to make the sector attractive and vibrant and most importantly to sustain a going concern. We commend the efforts of some of the operators who have been quite aggressive with attracting concessional resources and we hope that the operations of the microfinance banks would successfully mainstream the dominant poor but active segment of our population in their access to institutional credit, facilitate the deepening of the financial sector and contribute to the rapid growth and development of the national economy.