Posted on July 3, 2009 - by boris

Nigeria: Micro Vs Mega Bank – Competition or Cooperation?…

Nigeria

The major thrust of the Microfinance Policy, Regulatory and Supervisory Framework launched in 2005 is to economically empower the active poor and also increase the share of micro credit as percentage of Gross Domestic Product (GDP) from 0.2 percent in 2005 to at least 5 percent in 2020.

However, analysts have said that the policy may turn out to be a mirage considering the involvement of universal banks into the micro finance sub-sector citing de-marketing and unhealthy competition as possible areas of threat due to the financial muscle of the “big banks”.

They argue that the linkage which the policy sought to achieve has been marred by unethical banking practices by mega banks who paint picture of un-sustainability, inadequate capital and risky tendencies to micro finance banks.

Ordinarily, some areas of cooperation streamlined in the policy include the utilization of 5% Small Medium Enterprises Equity Investment Scheme (SMEEIS) Funds for micro-enterprises through MFBs and increasing the number of linkages among universal banks, development banks, specialized finance institutions and microfinance banks by 10% annually.

Managing Director of Hasal Micro Finance Bank (MFB), Mr. Rogers Nwoke said that operators should not feel threatened by the involvement of universal banks because the synergy will foster economic growth especially for people in the rural areas.

Rogers said that the microfinance market which is estimated to be about 100 million people is large enough to occupy “as many players in the financial services sector that are willing to enter into the industry without any party feeling threatened”.

He however noted that there is need for specialization and proficiency in the conduct of businesses, otherwise the repercussions maybe devastating. A micro finance practitioner, Mr. Smith Adewole said that there is need for a policy cohesion that will see universal banks focussing on rendering only commercial banking services.

He said that commercial banks have more branch networks and grant credit facilities in larger amount than micro finance bank.

“Nowadays, many MFBs are operating like conventional banks in order to remain in business due to threat and competition from the bigger banks”, he said.

But, the big question has remained, “who is delving into another person’s territory”. Micro finance Banks pursue deposits, give target to marketers and adopt the conventional banking strategies of commercial banks to gain customers too. It is only a thin line that separates both banks in terms of operational qualities.

A colossal look at the ownership pattern of both banks show that it is the same crop of people that own commercial banks that also own micro finance banks.

The involvement of universal banks in microfinance banking has been clearly stated in the policy framework which states that: “Universal banks that intend to set up any of the two categories of MFB as subsidiaries shall be required to deposit the appropriate minimum paid-up capital and meet the prescribed prudential requirements and if, in the view of the regulatory authorities, have also satisfied all the requirements stipulated in the guidelines, shall be licensed.”

The average bank density in Nigeria is one outlet for 32,700 people in urban areas and one outlet for 57,000 people in rural areas with a research finding by enhancing Financial Innovation and Access (EFiNa) indicating that 74% of the adult population have never been banked, which is equivalent to approximately 64 million people. 86% of the rural population in Nigeria are currently unbanked.

Statistics on the number of banks in Nigeria show that there are presently about 815 micro finance banks and 24 commercial banks in Nigeria.

However, if the research findings by EfiNa on the disparity that exist between the banked and unbanked population in Nigeria is anything to go by, then it is pointless for micro finance practitioners to raise fear about possible domination by universal banks.

Wherever the pendulum swings, the question that begs for answer is whether the relationship between the duo is that of cooperation or competition.

Source:http://allafrica.com/stories/200907030149.html