Operators of small and micro businesses in Nigeria have called on the Central Bank of Nigeria to urgently look into what they describe as tough and unrealistic conditions being introduced by microfinance banks as prerequisites for accessing loans.
According to them, the MFBs now ask for blank cheques to be signed by the loan seeker’s guarantor.
The operators noted, in separate interviews with The Point, that the purpose for establishing the microfinance banks might have been defeated with the recent practice in the sector, adding that this was responsible for the dwindling fortunes of small businesses and the economy at large.
MFBs were established in 2005 by the CBN to give loans to economically active low-income earners, lowincome households, the un-banked and under-served people, in particular, vulnerable groups as women, physically challenged and micro-entrepreneurs, among others.
The idea was to grant credit to the people listed above at affordable interest rate and with less stringent conditions compared to the commercial banks.
A Lagos-based businessman, Mr. Lakunle Daniels, who narrated his experience to The Point, said he was shocked when he approached ACCION MFB, Ojodu, Lagos State, for a loan worth N1 million and the customer care agent of the bank told him he had to pay N250,000 to get it.
He said, “I was asked to pay an instalment fee of N250,000 in my account before I could get the loan. I was also asked to get a guarantor that would submit four signed blank leaflets of his cheque, in addition to the fact that the money must be refunded within eight months.
“I told the bank to deduct the N250,000 from the N1 million and pay me the balance but the staff refused, insisting that if I did not pay the money and drop the leaflets, I should forget the loan. It was frustrating because if I had the N250,000 or someone that could give me such leaflets, I won’t apply for the loan.”
The Managing Director, Dimson Stores, Mr. Okechukwu Dim, was also perturbed when he requested for a short-term loan worth N350,000 from ACCION MFB in 2015 and was confronted with conditions he could not meet.
According to him, he wanted to use the facility to buy wares and also to supply consumables to some companies but the move was truncated when the bank insisted that he had to deposit the sum of N60,000 before the money would be disbursed to him.
Okechukwu said, “I see it as fraud because how would I approach you for a loan and you tell me to pay one sixth of the loan before you disburse the loan to me.
“The CBN should come to our aid and ensure the banks do not increase our burden. Already, we are generating everything; giving loans with reasonable conditions will go a long way in growing our businesses.”
Another boutique owner in Abuja, Mr. Festus Asamoah, also frowned at the new conditions, which he described as deliberate efforts to frustrate small businesses in the country.
The graduate of business administration had approached his MFB for a loan worth N100,000 and was disappointed.
He said, initially, he obtained a loan worth N100,000 with an interest rate of between six and seven per cent from the bank and was asked to pay N21,000 on a specific date of every month over a six-month period.
After he complied for three months, he said other family commitments made him default in the fourth month but was lucky to finish refunding the money within six months as agreed.
“I couldn’t believe my ears when a staff of the bank told me that because I failed to pay on the specific day of the fourth month, I had lost my deposit with the bank. After I had reported the case to the manager of the bank, I was told to go home, that they would do something about it but I have not heard from them for six weeks now,” he lamented.Investigations revealed that Olive Microfinance Limited in Ikeja, Lagos, requires a prospective loan seeker to present two guarantors that would provide a statement of their net worth and also a collateral like a car or household machinery.
A situation where a customer is supposed to pay the monthly repayment on a particular date and fails to pay on that date, there would be a default charge to be paid by that customer, amounting to a daily deduction of one per cent of the outstanding balance till the person pays up.
Our correspondent’s findings revealed that, in the case of Asha MFB, to obtain a loan of N500,000, the loan seeker must deposit 10 per cent of the loan as cash security (N50,000). The loan seeker is also expected to pay a processing fee of N12,500, among others, before the facility can be disbursed.
Like others, the bank also requires that the guarantor must submit a signed cheque on behalf of the guarantee to the bank.
SUPPORT FUND NEEDED – EXPERTS
Many economic analysts, who spoke in separate interviews with The Point blamed the CBN for the development, arguing that most of the MFBs introduced new conditions to curb the increasing rate of non-performing loans in the financial system.
A renowned economist expert, Prof. Pat Utomi, asserted that the nature of failure of lending in the country was such that it leads to nervousness by banks, given the fact that the economy in general is challenged.
He said, “It is understandable that they have to follow certain key prudential guidelines that generally push them to be so hard in the choices they make. This almost makes access to loans unrealistic and problematic for those who are in need of them. One of the easy ways the constraints can be addressed is for the CBN to set up public/government-supported finance for the poorest borrowers.
“Unfortunately, we find out that, in this country, people see everything that comes from the government as national cake. Nonetheless, it takes clever people with clever thinking to deeply work out things that can ameliorate this phenomenon, which is Government Provided Funding.”
Aside from the government support fund, Utomi added that a group of individuals could also come to the aid of the small entrepreneurs.
According to him, such investors can create a social fund to help the poor through donations of funds to the microfinance houses to give loans to the poor at much lower interest rates in order to stimulate their business activities.
“One of the major challenges these microfinance banks are facing in Nigeria today is the fact that many of them see themselves as a smaller version of commercial banks where they go and build headquarters just a bit smaller than those of the commercial banks also with the same vision of the commercial banks, which is not what they are,” he explained.
Another economist, Dr. Titus Okurounmu, noted that the banks were still following the commercial banking system, which stipulates that all loan seekers must be prudent in their guidelines.
He urged the MFBs to emulate their counterparts in other developing countries like Bangladesh where MFBs were like non-governmental organisations that categorise the poor people into different levels of ultra poor, regular poor and so on and cater to this people as regards the loans according to their categories of poverty.
“It is the high level of poverty that makes the banks to lay down stiff conditions for borrowers. The banks just want to play safe,” he said.
SUCH CONDITIONS ARE SURVIVAL STRATEGIES – CBN
However, the apex regulator said that the stringent conditions, which loan seekers described as unrealistic, were survival strategies adopted by the grassroot banks.
The acting director, corporate communications, CBN, Mr. Isaac Okoroafor, told The Point that the funds the microfinance banks give as loans are either depositor’ or shareholders’ money that must be guarded jealously.
“If somebody says I want this as collateral, I think to an extent those institutions are free to make sure that their loans are paid back. If the bank is in a situation where it is not so sure of the integrity of the loan seeker, it might request for such conditions. They might not be out of place depending on the kind of risk involved for the banks,” CBN spokesperson said.
