The corporation said amidst the myriads of challenges facing the nation, inadequate funding of the MSMEs had remained a major challenge, expressing dismay that as at June 30, 2015, deposits mobilised by the 936 microfinance banks were a meager N173.3billion.
Speaking at a one-day sensitisation workshop for operators of microfinance banks held in Enugu State, the MD/CEO of NDIC, Alhaji Umaru Ibrahim however said all hopes were not lost, as effective risk management implementation would not only assist microfinance banks to respond to risks but would also help them to promote profitability and objective decision making .
Ibrahim said that microfinance banks had to be seriously interested in enhanced risk management standards since their loan portfolios remained on a variable rate and therefore sensitive to Monetary Policy Rates fluctuations.
“For instance, an increase in the interest rate could make micro-loan repayment difficult. Furthermore, new loans could become less attractive for small borrowers due to affordability pressures.
“Therefore, micro-finance banks should be able to assess borrowers’ capacity and willingness to continue with loan repayments in the case of an interest rate rise. Lack of thorough and effective assessment of market risk could have devastating impact on banks”, he said.
Ibrahim who was represented by Mr. Joshua J. Etopidiok, Director, Special Insured Institutions Department of NDIC, also said that the Central Bank of Nigeria had in September, 2013 issued the “Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria” aimed at not just introducing a risk-based approach to the supervision of microfinance banks. but also in response to the changing financial landscape.
He said the enterprise risk management framework was “developed to provide a proactive process to assess the safety and soundness of all microfinance banks operating in Nigeria”, but warned that microfinance banks must reduce risks on their own terms through effective management oversight and performance evaluation.
Tagged “Deepening the Practice of Microfinance Banking through Effective Enterprise Risk Management” the workshop created the platform for the corporation to share experience on latest developments in the microfinance sub-sector which helps to ensure the survival of such institutions.
Ibrahim said the term enterprise risk management, in the context of a microfinance bank, was “the process of controlling the likelihood and potential severity of an adverse effect”, adding that NDIC would deploy Differential Premium Assessment System (DPAS) in determining Deposit Insurance Premium for microfinance banks.
He pointed out that for microfinance banks to access the N220 billion MSMEs fund launched by the federal government in 2014, they must demonstrate strong enterprise risk management capable of enhancing the eligibility criteria.
He continued: “NDIC, as an insurer, reimburses deposit of microfinance banks up to a maximum limit of N200, 000 per depositor in the event of failure of such microfinance bank. The new average coverage level represents an increase of 100 per cent over the earlier coverage level of N100,000.
“A Special Purpose Vehicle (SPV) Committee consisting of the Federal Government, CBN, NDIC and other agencies is to be created to manage the fund to be given to microfinance banks and other participating financial institutions at an interest rate of 2 per cent.”
He warned that NDIC would continue to train only microfinance banks which were up to date in their premium payment to the corporation, saying the corporation’s ability to sustain its efforts in ensuring that all insured institutions remained on the path of sustainable growth and development depended heavily on the premium contributions by insured institutions to fund the Special Insured Institution Fund (SIIF).